Global investment firm, the UBS Group has revoked its long-standing bearish stance on Indian equities, upgrading it to ‘neutral’ call while realigning its equity strategy in the wake of global uncertainties around tariffs and trade wars. UBS held an ‘underweight’ stance on Indian equities since 2022.
However, the upward revision comes with a catch, as despite lifting its rating for Indian equities, analysts at UBS still showed a preference for Chinese stocks, stating better risk-rewards.
The realignment comes as a part of a change in UBS’ strategy, which showcases a optimistic view towards emerging markets that boast resilient earnings, domestic-focused toplines, and relatively defensive characteristics.
UBS notes that India scores well on several fronts, such as robust domestic demand, resilient earnings even in turbulent times, and a tailwind from lower oil prices.
“While valuations still look expensive relative to ordinary fundamental performance of companies, India screens as defensive amidst trade uncertainty given its domestic focused economy, while benefiting from lower crude oil prices,” analysts at UBS wrote in its note.
Indian banks’ willingness to cut deposit rates despite weak deposit growth and the potential of government support for consumption have been factors for the upgrade, the report added.
This upgrade comes at a time when investors are shifting focus back to Indian equities, seeing it as a relatively safer space, largely immune to Trump’s tariff wars. It is also on the back of this growing sentiment that Indian equities have seen a flush of foreign money to the tune of around $2.2bn, coming into the market in the last six straight sessions.
The return of FII inflows has boosted domestic benchmarks for seven consecutive sessions, not only helping them recover losses from the rout triggered by Trump’s Liberation Day tariff announcements, but also pushing them beyond pre-tariff levels.
Now while UBS’ view over Indian equities has far improved from its bearish stance, it still doesn't make the cut for an ‘overweight’ rating. Analysts at the investment firm stated that stock fundamentals for India are still ‘lacklustre’ and it also remains unclear if government focus is returning to growth or investments anytime soon. The analysts also found it hard to conclude that India will emerge as the winner in the supply chain shift within the new world trade order.
Meanwhile, UBS held on to its ‘overweight’ stance on Chinese stocks, that were upgraded in April last year on the back of a promising earnings outlook and potentially higher participation by domestic investors.
In contrast, however, the firm downgraded Hong Kong stocks to a ‘neutral,’ down from the earlier ‘overweight’ call citing tariff risks that could dampen market sentiment due to its relatively high trade dependence and index exposure to US revenues.
