FIIs may return after year-long absence; attractive valuations, government policies support outlook: HSBC report

A day after HSBC’s upgrade of Indian equities to ‘Overweight’ from ‘Neutral’, citing attractive valuations, supportive government policies and resilient domestic flows, the brokerage anticipates the return of foreign institutional investors (FIIs) after a 12-month period of absence.HSBC noted that external positioning heavily favours markets like Korea and Taiwan, funded by selling Indian equities. However, a weakening dollar and potential US Federal Reserve rate cuts could benefit emerging markets, particularly India. “While US tariffs will have a limited impact on earnings, any positive trade developments could trigger flows from investors sitting on the sidelines,” the note stated.Recent consumption-boosting measures have led HSBC analysts to increase growth projections. Automotive sales are expected to improve, whilst consumer staples may see margin improvements next year. In the financial sector, HSBC favours large banks, diversified financials and multi-line non-life insurers, projecting improved lending margins in 2026. Technology services outlook has improved after significant re-rating, with demand expected to increase next year. Despite US tariff concerns for pharmaceuticals, HSBC considers the risk minimal given America’s dependence on Indian generics.Meanwhile, in regards to equity performance, HSBC identified 11 preferred stocks: Marico, Trent, Mahindra & Mahindra, Phoenix Mills, HDFC Bank, ICICI Lombard, UltraTech Cement, Infosys, Adani Ports and SEZ, Divi’s Laboratories and NTPC, as quotes by Economic Times. The financial investment service firm further forecasts a positive outlook for Indian equities, based on attractive valuations, reduced inflation and relaxed monetary policy. “We think earnings are near the bottom and are set to improve,” stated the brokerage in a note dated September 26.Earlier this week, HSBC highlighted India’s stability amidst Asian market volatility, crediting policy support and robust macroeconomic fundamentals. India’s attractiveness stems from normalised valuations, limited foreign positioning, and government focus on reforms and capital expenditure-led growth.HSBC believes these elements provide a robust foundation for Indian equities’ medium to long-term performance. Despite potential moderation in earnings expectations, they consider this manageable given strong investor confidence and ongoing policy momentum.