HSBC upgrades India to Overweight, cuts China to Neutral in Asia strategy shift

India's investment outlook is looking brighter as the economy experiences growth in credit, corporate revenue, and services exports, according to an HSBC report. The report, published on November 6, suggests that the economy's strength warrants a reassessment of concerns about high energy costs and the effects of artificial intelligence on services exports.

Credit growth has been notably accelerating, with commercial sector funds increasing to 6.6% of GDP between April and September 2026, up from 4.7% a year earlier. This surge in credit growth is particularly strong among larger companies, which typically engage in major capital expenditure projects. Smaller businesses have also been increasing their borrowing.

Corporate revenue growth has outpaced its long-term trend in both nominal and real terms, supporting the case for further investment, despite rising interest rates. Almost 70% of around 100 growth indicators tracked by HSBC's India economics team signaled expansion in the latest quarter, compared to just under 55% in the previous quarter.

The report also highlights the possibility of a recovery in foreign direct investment (FDI) to India, buoyed by sustained growth, reforms, and expanding data center investment. However, there are concerns that data center investment could temporarily boost imports of expensive equipment.

On the external front, services exports have helped cushion the economy against the oil price shock, keeping the current account deficit narrow and stable. A recent boost in goods exports, despite a stalled global trade in non-AI goods, indicates India is gradually increasing its market share. Government infrastructure spending has also been a significant support, with central capital expenditure exceeding 3% of GDP annually, up from less than 2% before the COVID-19 pandemic.

Despite these positive indicators, HSBC notes some challenges, such as weak rural demand due to rainfall shortages and repeated heatwaves, as well as inflation pressures affecting households and squeezing corporate margins. A potential decrease in global energy prices in the coming months could provide substantial relief. The report also anticipates that consumer price inflation will stabilize, although a swift reversal is not guaranteed.