HSBC Cautious, Underweight on Indian Equities

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Despite the recent volatility in Asian markets, some factors support the action in the region, a major global brokerage said HSBC, adding that it was “cautious” and “low” in India.

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Global financial services major, who is “overweight” on China, said factors such as stronger Asian currencies and the best prospects for profitable growth supported by Asian stocks.

Global brokerage firm said that the recent budget has created some optimism in the markets, as the government adheres to its fiscal consolidation roadmap, but is sensitive to the quality of fiscal consolidation.

“Fiscal consolidation has been applauded although we highlight this is meant to be achieved through telecom spectrum auctions and selling government stakes in companies,” HSBC said adding that “missing these targets could limit the government’s ability to spend unless it steers away from its fiscal consolidation targets”.

The purpose of the fiscal deficit of 3.5 per cent in the 2016-17 financial year in accordance with the original plan of fiscal consolidation and comes despite the challenging economic conditions.

The report said the transfer of monetary policy does not seem to function successfully in India.

“Weak business sentiment overcapacity stressed assets in the banking system and the slow pace of implementation of infrastructure projects of the government are just some of the reasons for low credit demand,” he said.

In addition, violation of monetary transmission does not bode well for the growth of corporate profits.

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“We believe that the decline in revenues will continue to put pressure on the local capital market,” he said.

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