Blasé Capital India down, Asia up
In a matter of days, two renowned brokerage houses have downgraded Indian equities, one to ‘neutral,’ and other from neutral to ‘underweight.’ In contrast, both contend that other Asian markets, specifically Taiwan, offer better odds and better bets. In the case of HSBC, the dragging down to underweight was the second cut in less than a month. In the case of JP Morgan, Taiwan offers the best opportunity, and other Asian and Latin American peers, such as China, Brazil, and South Korea, offer cheaper and exciting entry points. Of course, macroeconomics matters, as the risks of persistent inflation and slow growth in India “most closely resemble another bout of stagflation,” according to JP Morgan. In its note, HSBC stated that the Indian economy looks “less attractive” than North Asian peers in the “current macro setting,” with crude oil above USD 100 a barrel, and the global prices up more than 40 per cent since the Iran war. In effect, the Nifty 50 and Sensex were the worst-performing indices this year.
Obviously, this downturn in the Indian indices and equities must have made them more attractive, with cheaper valuations. But neither HSBC nor JP Morgan look at them in such a manner. Despite the deep corrections from their peaks, Indian stocks may appear more expensive than the global alternatives to HSBC as the downgrades of the corporate earnings continue to filter through over the next quarter. Indeed, they will be expensive, even at lower values, due to lower earnings. JP Morgan feels the same way. Indian premiums, despite the moderation, remain high. Although “India’s premium to MSCI EM (emerging markets) has compressed to 65 per cent… but peers… still offer cheaper entry points” and, hence, wider chances for profits. For the calendar years 2026 and 2027, JP Morgan lowered the collective India’s earnings per share growth to 11-13 per cent, as “energy supply disruptions are likely to pressure earnings through multiple channels.” HSBC believes that a 20 per cent hike in global crude prices knocks off 1.5 percentage points in India’s earnings growth.
In the JP Morgan calculations, technology has emerged as a crucial differentiator between India and Asian peers. The AI momentum has strengthened across Asia, and Asian AI stocks gained sharp acceleration in the recent past. Thus, the nations, or firms within a nation that adopt and adapt AI faster will see “improving developments around model capabilities” that will “raise future growth trajectory.” While this is true of many Asian nations, especially Taiwan, India lags. “India’s large-cap index has minimal AI, data centre, and semiconductor representation,” states JP Morgan. In addition, most of the recent IPOs (Initial Public Offerings) were mostly offer-for-sale issues that allowed profitable stake sales, and diluted holdings for large, existing investors.
It did not add to the internal resources for the start-ups, and new-age firms to scale up, and adopt AI and other technologies. What one witnesses among the large-caps in India are trends such as heavy issuance of equity for attractive exits, and limited exposure to the emerging sectors. Despite the talk of policy AI, the corporate AI ecosystem is weak, and yet to evolve and develop as in China and Taiwan.
Several brokerage houses are concerned about the ongoing, sometimes huge, net outflows of foreign money. According to HSBC, foreigners took out USD 18.5 billion out of Indian equities in 2026, within four months or so, and withdrew an equivalent USD 18.9 billion in the entire 2025. As JP Morgan states, “India’s structural growth story remains strong,” supported as it is by policy reforms, capex push, and manufacturing growth, but the short-term plot is more like an anti-climax. At present, other emerging markets are ripe for better returns, especially in technology-driven nations.
In the future, AI-led growth will shape up the economic destinies, and India will need to lead from the front. Ironically as it may sound, India mutual funds, which are focused on US tech stocks, have shown dramatic returns, even as the Indian indices slumped, largely due to their exposure to AI and tech stocks. However, most of the initiatives in Indian AI are seemingly-led by hardware, like data centres, which are capital-intensive, and require years. The software-led AI has faltered, as is evident from the falling stock prices of renowned Indian IT firms, and their chaotic earning guidance.
Despite the recent reports, it is not easy to write off Indian stock markets, or Indian equities. In the recent past, especially after the pandemic, Indian indices have shown resilience, and provided massive opportunities for attractive returns across large-caps, midcaps, and small-caps. Even the penny stocks have generated large profits.
The ability of the Indian stocks to bounce back, quite fast, and without any warnings, is remarkable. So do not be surprised if the Indian indices shoot up as soon as the Iran war is over, and especially after India and the US ink a mutually-beneficial bilateral trade pact. The combination will act like a volatile mix, which will take stock prices through the roof. The likes of JP Morgan and HSBC may need to update their reports and notes, maybe by May, or maximum by July, and upgrade India, maybe not once but twice within a few months.
