Stock market outlook: Why HSBC, JPMorgan downgraded Indian equities; Nifty target

Stock market outlook: Foreign brokerages HSBC and JPMorgan have downgraded Indian equities, saying domestic stocks look less attractive than peers. JPMorgan has lowered India's rating to 'Neutral' from 'Overweight'. HSBC, on the other hand, said it would fund its Korea upgrade by downgrading India to 'Underweight' from 'Neutral', as potential inflation and demand pressures are likely to impact earnings growth. It added that foreign investor sentiment is likely to remain cautious on India amid weakening growth and forex pressure. India's valuations have fallen materially from their peak, but they will rise again as earnings cuts come through, it warned.

HSBC: Three buckets of stocks to beat the oil shock

Without the anticipated cyclical acceleration in growth, valuations are likely to remain a constraint, HSBC said. "While we continue to see opportunities among private banks, base metals, and select healthcare companies (Three buckets of stocks to beat the oil shock), the relative case for Indian equities has weakened as these headwinds erode India’s standing versus the rest of the region," HSBC said.

JPMorgan: Downgrade was driven by elevated valuations

JPMorgan, a report by Reuters suggested, said the downgrade was driven by elevated valuations relative to emerging market peers, along with earnings risks, dilution concerns, and limited exposure to next-generation technologies.

What could ‌stoke inflation and growth risks for India

Surging crude prices could ‌stoke inflation and growth risks for the country, squeeze consumption and weigh on near-term corporate margins, with a weakening rupee adding to the pressure, the brokerage said in a note on Friday, as per Reuters.

JPMorgan: Nifty target - bull case vs bear case

JPMorgan reportedly cut its bull case Nifty target to 30,000 from 33,000 earlier. Its base case target has been slashed to 27,000 from 30,000 earlier. The bear case price target now stands at 20,500 against 24,000 earlier.

India still trades at a significant premium ​to peers
"Despite the recent drop, India still trades at a significant premium ​to peers like Korea, Brazil, China, Mexico and South Africa, which all offer an inexpensive entry point ‌for ⁠higher or similar forward earnings growth," Reuters reported JPMorgan as saying.

SIP and IPO

HSBC said domestic demand, especially via the SIP (Systematic Investment Plan) channel remains resilient, but a pick-up in IPO activity after a seasonally weak Q1 warrants a return of foreign demand.

Recovery from hereon

HSBC said the ongoing West Asia conflict has refocused attention on downside growth risks, given India’s significant reliance on imported energy. Growth has showed signs of improvement in the last two quarters, but it believes the recovery from hereon will be delayed.

Petrol, diesel prices to be revised higher

The foreign brokerage said while the Indian government and SOEs have absorbed much of the impact so far, its economists expect retail petrol and diesel prices to be revised higher once state elections conclude – most likely in early May.