HSBC Upgrades India to Neutral, Remains Overweight on China as AI Rally Faces Headwinds

HSBC has upgraded its outlook on Indian equities to neutral from underweight, pointing to lower earnings risks and resilient domestic demand, according to the bank's latest Asia Equity Insights Quarterly report. The firm maintained its overweight ratings on mainland China and Hong Kong, anticipating stronger earnings growth despite ongoing weakness in consumer spending.

Shifting Stances in Asia

The upgrade for India is based on several improving factors. HSBC noted that easing energy prices are reducing pressure on corporate margins and lowering the chance of earnings downgrades. The bank also highlighted resilient domestic consumption, stronger credit growth, and a renewal of foreign investor inflows as key drivers for the improved outlook.

Within India, HSBC said it favors private banks, consumer discretionary stocks, real estate, commodities, and select industrial companies. In contrast, the bank grew more cautious on ASEAN markets, downgrading both Malaysia and the Philippines to underweight. These join existing underweight ratings for Indonesia and Thailand, with HSBC citing weak macroeconomic conditions and limited catalysts in the region.

China Conviction and AI Caution

HSBC is holding its conviction on China, expecting 2026 earnings growth to surpass last year's performance. The bank sees opportunities in Chinese banks, property developers, internet firms, and the energy storage sector, noting that potential reforms to the household registration system could support consumption over the long term.

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However, the report warned that Asia's AI-driven equity rally is entering a more challenging phase. Investors are reportedly questioning whether the significant investment in AI infrastructure could lead to overcapacity. While Korea remains a strong earnings story due to memory chip demand, HSBC cautioned that rising leverage and expanding memory supply could increase market volatility.

Updated Index Targets

As part of its updated outlook, HSBC issued several end-2026 index targets, implying an average upside of approximately 9% across key Asian markets. The bank's forecasts include:

• Sensex (India): 84,000
• Hang Seng (Hong Kong): 27,000
• KOSPI (South Korea): 8,000
• TAIEX (Taiwan): 49,000
• STI (Singapore): 6,100