In a striking back-to-back development that will weigh on foreign institutional sentiment toward Indian equities, JPMorgan has downgraded its allocation to Indian equities to Neutral in its Asia Equity Strategy note dated April 24, 2026 — just one day after HSBC downgraded India to Underweight from Neutral. Two of the world’s largest and most closely tracked global brokerages have now turned cautious on India within 24 hours of each other, citing overlapping concerns around stagflation, earnings risk, and relative valuation versus North and Southeast Asian peers.
What JPMorgan said
In its Asia Equity Strategy note, JPMorgan’s Rajiv Batra and team said the macro environment has shifted away from the “goldilocks” conditions — broad-based growth and policy support — that had made India attractive, and has moved toward a stagflationary setup. The brokerage lowered its India allocation to Neutral, citing three specific headwinds. First, India’s valuation premium to MSCI EM has compressed to 65% from a peak of 109%, but peers like Korea, Brazil and China still offer cheaper entry points. Second, earnings are at risk — energy supply disruptions from the ongoing Middle East conflict are likely to pressure earnings through multiple channels, and JPMorgan has cut FY27 estimates by 2–10% across key sectors. Third, dilution caps upside — large domestic inflows since early 2025 of over US$120 billion have cushioned a record FII exodus but also created a dilution overhang that limits near-term upside. JPMorgan simultaneously upgraded Taiwan and Korea to Overweight, signalling a clear rotation trade away from India toward North Asian tech.
What HSBC said a day earlier
HSBC went a step further, downgrading India to Underweight from Neutral — a more aggressive call. The brokerage flagged India’s heavy reliance on imported energy and the knock-on effects of elevated crude prices on inflation and domestic demand, expressing concern about the durability of India’s ongoing earnings recovery. HSBC expects consensus earnings growth forecasts of 16% YoY for 2026 to be revised down in coming months. While valuations have corrected materially from their peak, HSBC argued they will continue to appear elevated as earnings downgrades feed through — making India less attractive than its North East Asian peers in the current macro environment.
Why this matters
The timing and convergence of these two calls is significant. HSBC and JPMorgan downgrading India on consecutive days is not a coincidence — it reflects a shared macro thesis that the Iran war-driven energy shock, stagflationary impulse, and FII-unfriendly tax and operational environment have materially altered India’s risk-reward equation relative to peers. Both notes point to the same vulnerabilities: energy import dependence, earnings downgrade risk, and relative valuation. For FIIs already sitting on over ₹2.7 lakh crore of net selling in 15 months, these calls provide a fundamental framework for continued underweighting of India in global EM portfolios. Domestic investors and SIP holders have absorbed that selling — but two simultaneous global brokerage downgrades will test that absorption capacity heading into a results season where earnings surprises on the downside are becoming more likely.