Below are the edited excerpts from the interview.
Q: There’s so much happening globally. We are talking about tariffs, we are talking about inflation in some economies, and we are talking about growth possibly slowing down somewhere. What’s your sense? How are we specifically looking at the US markets? Are the tariffs benefiting that economy?A: At the moment, the tariff risk and global uncertainty have generally been weighing on the US economy. We anticipate around 1.5% economic growth, which is actually much lower than what we’ve experienced in the US economy over the past five years. By contrast—and it’s a bit of an inverted image—inflation is persistent and sticky, and it poses a particular challenge for the Fed, which is nonetheless on track to deliver a few more rate cuts after starting the easing cycle in September.
So, we expect two more cuts by the end of the year and another two or three next year already. From an investment standpoint—and accepting that we need to navigate these choppy seas with a lot of care—we still think it’s a pro-risk environment, generally speaking, but we’re very targeted and selective in our allocations.
Typically, we are looking at stock markets where we see attractive valuations. In particular, there are lots of pockets that are starting to look a little lofty from a valuation standpoint. I mean, we are probably talking about artificial intelligence (AI) and tech, I am sure. Emerging markets are very interesting and competitive, we think, and it comes at a moment when investors are really starting to shift after more than a decade of US exceptionalism. So that’s really how we are positioned at the moment.
Q: India has been a high-conviction market for HSBC. Now that you have been in India, what has been the key takeaway, because the foreign institutional investors (FIIs) so far are still shunning India?
A: That’s true, and I think it’s been a mixed experience for a lot of investors over the past year. But for us, we have long been overweight India in our portfolios, and for us, the story is still very much valid from both a cyclical and structural perspective.
Also Read: Fed’s 25 bps cut positive for emerging markets, not yet a dovish cycle: Conrad Saldanha
It’s a combination of a stable economic environment and a stable government. We now have the Goods and Services Tax (GST) reforms and the Real Estate Regulatory Authority (RERA). Of course, the tariff uncertainty has cast some doubts and probably led investors to shy away—maybe pivoting, as some of them have, to China, as we were seeing signs of improvement there.
However, the structural factors are still very much present. From a valuation perspective, valuations have adjusted, which is very good, because India was often perceived as a pretty pricey market. But now, if we look at the traditional indices, we are back to the long-term average versus other emerging countries.You are absolutely right that the FIIs have been more cautious; however, we are technically at the lower end in terms of underweighting India. We expect that risks are well-priced at this juncture, and we have reintroduced an overweight on Indian stocks.
Also Read: Diwali Stock Picks 2025: Axis Capital recommends nine names for up to 23% gains
Fixed income is interesting as well—we should never forget the opportunities in bond markets. The 10-year yield at the moment, at around 6.5%, really makes sense. The currency has depreciated, but in fact, again, it’s a mechanical effect of tariff uncertainty, which is probably at the worst possible scenario at the moment in terms of pricing. So again, possibly an opportunity.
Q: You mentioned China and South Korea, the two outperforming markets this year. What would it take now for FIIs to come back to India, considering those markets have seen a significant run-up, but India has not?
A: They probably want to see some sort of triggers on the tariff discussions. But generally, investors need to take a long-term stance on India and take the opportunity of adjusted valuations to return, really, because stock markets will always trade at some sort of premium.
We think, generally speaking, the structural improvement means that stocks will definitely re-rate. We tend to contrast China and India in terms of allocation. From our perspective, especially with what’s happening in terms of uncertainty or fluctuating correlations in developed markets, investors must be looking for diversifiers—very much so.
The US dollar is no longer necessarily perceived as a safe-haven asset. And if I take the example of local rates, they have been less volatile this year than rates in developed markets. It’s quite a life-changing environment. So, allocating more to emerging countries—both China and India—for us is relevant. It’s been a story that has been working well with our clients and investors, but it’s only now that we are starting to see flows really coming in.
Q: In India, which themes that you think will work for you? What are the focus points for HSBC?
A: We are very much weighted toward long-term themes—digitalisation, consumption, infrastructure, and financialisation as well. We see the wealth market expanding extremely fast. We are probably a bit more cautious at the moment on exporters, because you are never too sure exactly who and how they are going to be impacted, and which industry.
Also Read: Protection and retirement segments to drive future growth: Canara HSBC Life’s Anuj Mathur
But organic growth is the common theme for the country, and we are very confident the country will simply apply the same strategies that have been so successful for India generally over the past decade, being the trigger for investors to return.
For the entire interview, watch the accompanying video
