HSBC, Citi turn bullish as Indian stocks draw record inflows

Global banks are turning more bullish on Indian stocks as the market’s sharpest rally in more than four years draws record foreign inflows.

HSBC Holdings Plc lifted local equities to overweight from neutral, citing resilient earnings and more reasonable valuations. Citigroup Inc. raised its 12-month target for the NSE Nifty 50 Index by nearly 8% to 28,000, pointing to improving profit growth and lower oil prices.

The calls suggest that Indian equities’ recent rebound may have further to run. The views signal a broader reset in sentiment toward India after a prolonged stretch of underperformance, as investors seek markets less vulnerable to concerns over stretched AI valuations.

“India offers diversification and low volatility in Asian markets dominated by AI stocks,” HSBC strategists including Herald van der Linde wrote in a note. They favor banks, industrials, consumer discretionary companies, insurers and hospitals.

The benchmark index is up nearly 8% this month, the most since July 2022, making India one of the best-performing major markets globally. Local stocks slipped Monday, bucking a rebound in Asian peers, as investors booked profit following the recent rally.

Overseas funds bought a net $3.6 billion of local shares in the four days through Thursday, putting them on course for their biggest-ever weekly inflow. Provisional data showed another $1.5 billion of purchases Friday.

The shift marks a sharp reversal after foreign investors spent much of the past two years cutting exposure to India as they chased AI-driven gains elsewhere in Asia and the US. That left positioning relatively light.

Citi sees significant scope for foreign positioning to rebuild. A percentage-point increase in active fund allocations to India could generate about $12 billion of inflows, according to analysts including Surendra Goyal and Vijit Jain, after AI “crowded out almost everything else”.

The brokerage expects Nifty earnings to grow about 15%-16% annually for fiscal years 2026-2028. It also sees cheaper crude supporting the economy and corporate profits, estimating a $10 decline in oil prices could boost Nifty earnings per share by about 2%.