Mint Explainer | Sensex@94,000: Why HSBC is bullish on Indian equities

For 2025, the global brokerage retained its target of 85,130 points for the Sensex. The 30-stock benchmark index had reached a lifetime high of 85,978.25 points on 27 September 2024.

HSBC's optimism comes even as foreign investors have pulled out $15.9 billion from Indian equities this year. But with policy support improving and valuations less stretched, its analysts argue India’s equity market could be entering a new phase of steady recovery.

The brokerage has also upgraded its rating on Indian equities to ‘Overweight’ from ‘Neutral’ in its Asia strategy, alongside Mainland China, Hong Kong, and Indonesia. Japan, Korea, Taiwan, Singapore, and Thailand—where crowded trades have pushed valuations higher—remain tagged ‘Underweight’.

Mint unpacks HSBC's projections.

What led HSBC to upgrade Indian equities?

For the better part of the past year, India has trailed other emerging markets. Since September 2024, Indian equities have underperformed by nearly 30 percentage points, weighed down by two factors: slowing domestic growth and the drag from steep US tariffs.

Yet, the macro backdrop is shifting in India’s favour. Inflation has dropped sharply to 1.6%—its lowest in eight years—from above 6% in October last year. That has given the Reserve Bank of India room to cut interest rates, creating a more supportive policy environment.

Also, fiscal measures such as income tax cuts and a revamped GST structure are expected to revive household consumption—one of the pillars of India’s growth. Combined with more realistic earnings expectations, India’s risk-reward profile looks more attractive today than it did a year ago, according to HSBC.

What about its earnings outlook?

The near-term outlook for corporate earnings, which are central to India’s market trajectory, remains cautious.

Per HSBC, consensus forecasts for 2025 have been trimmed already to reflect weak consumption trends and sluggish corporate investment. Net income is expected to grow 12%, and earnings before interest, taxes, depreciation and amortization by 13%.

Here too, HSBC’s optimism is reserved for 2026. Net income is projected to climb 15% and Ebitda by 14%, which would place India ahead of most Asian peers. Hong Kong and Malaysia are expected to manage around 7% growth in corporate earnings, Singapore about 5%, and Thailand barely 3%.

Much hinges on whether corporate capital expenditure cycles restart and wage gains feed into stronger consumption.

HSBC also emphasized that fears around the US’s 50% tariffs on Indian imports are overstated. Less than 4% of BSE-500 company revenues come from goods exports to the US, and India’s most US-exposed sector—pharmaceuticals—remains exempt from the tariff hikes.

That provides breathing room for corporate India to focus on domestic demand, where the bulk of revenue and profit growth is expected to come from.

How do India’s valuations compare across Asia?

India’s long-standing label of being expensive still holds true. On a 12-month forward basis, the market trades at 23 times earnings, far above China (13.7x), Korea (10.7x), and Taiwan (18.4x).

Dividend yields tell a similar story: India offers just 1.4%, lower than 5.7% in Indonesia, 5.1% in Singapore, and 4.2% in Thailand and Malaysia.

But context is key. During the peak of the 2022 rally, India’s premium over China had ballooned to more than 150%. That gap has narrowed closer to historical averages, making the market appear less stretched than in the past.

HSBC, however, noted that foreign positioning in India remains light. But that under-ownership could itself be a catalyst: even modest inflows could re-rate valuations higher. Meanwhile, domestic investors continue to provide a stable anchor, contrasting with the more volatile flows seen in Korea and Taiwan.

In short, while India is pricier, it is not prohibitively expensive—especially if earnings growth resumes in 2026.

What is the market outlook and index target?

HSBC’s new target for Indian equities is bold but measured. The path to its 94,000-point target for the Sensex, however, will not be linear. The rally is expected to be gradual, shaped by domestic policy support, easing inflation, and an eventual revival in consumption.

Risks remain—most notably further earnings downgrades or a delay in private capital expenditure. Yet, HSBC argued that these risks are already priced into current valuations.

An important nuance is the comparison with China. HSBC expects the FTSE China index to rise from 31,760 in 2025 to 36,770 in 2026, a nearly 16% climb. But rather than seeing China’s rally as a threat to Indian equities, the brokerage believes both markets can do well simultaneously.