Indian equities are beginning to look attractive again relative to their Asian peers, particularly China, according to HSBC, which recently upgraded India to ‘overweight’ from ‘neutral’. The global brokerage expects the Sensex to reach 94,000 by end-2026, citing improving earnings visibility, easing valuations, and the likelihood of renewed foreign inflows.

After underperforming the broader Asian market over the past year, HSBC believes India’s earnings cycle has bottomed out, setting the stage for a broad-based recovery in 2026. The bank forecasts 15% earnings per share (EPS) growth for Indian companies in calendar year 2026, with reduced downgrade risks compared to 2025.

“Indian equities have significantly lagged the Asian market in the past 12 months. However, we anticipate a potential recovery and hence upgraded India to overweight (from neutral) in our 24 September report,” HSBC said in its latest report released today.

Valuations, which were a major headwind a year ago, have moderated following recent underperformance, making India’s equity market more appealing both historically and relative to other Asian peers. HSBC notes that India now offers value versus Chinese equities, a reversal from the previous valuation premium.

“They have come off after recent underperformance, both against India’s own history but also relative to other major Asian peers. In fact, we think India now offers value versus Chinese equities,” the report noted.

HSBC cautions that domestic conditions remain challenging. It noted that growth expectations have softened following the 50% U.S. tariff on Indian exports, which could reduce GDP growth by up to 0.7 percentage points if it continues for a year. The recent Xi–Trump summit in Korea has also tilted trade sentiment in favour of China, putting India at a “tariff disadvantage.”

On India Inc. financial performance, the agency said that earnings have bottomed, expecting to see a broadbased recovery in calendar year 2026. “Consensus has pencilled in EPS growth of 15% for the calendar year 2026, with reduced risks of downgrades compared to 2025.” 

Banks, which had been a drag on earnings this year, are expected to see margin expansion as time deposits are rolled over. Meanwhile, upbeat management commentary signals a positive outlook for IT firms, while consumer-facing sectors — including autos — stand to gain from GST cuts, easing inflation, and lower interest rates, the report noted.

“Consumer names, including autos, should benefit from GST cuts, weaker inflation and lower interest rates, although the sustainability of the tax cut impact remains to be seen,” the report highlighted.

On the foreign flows front, the brokerage expects incremental inflows into Indian markets, as global investors rebalance portfolios away from AI-heavy positions in Asia. India, currently the biggest underweight in GEM portfolios, could benefit significantly as funds seek diversification and a hedge against the AI rally.

“India should see incremental foreign inflows in coming months. Foreign investors have heavily gravitated towards AI names in Asia in recent months, and some of that was funded by cutting their exposure to India, it said.

India will be an outsized beneficiary of any additional money coming into the emerging market region, it added.

As per the report, foreign investors are slowly returning to Indian markets after months of outflows, marking a shift to a “risk-on” mood, as the correlation between equity and debt flows has turned positive for the first time in several months.

The report suggests that Indian equities still have room to rise, as current prices remain below the levels indicated by its valuation model. Government and corporate bonds, meanwhile, appear fairly valued, while the rupee looks neutral to slightly undervalued, offering limited downside risk.