The global bank upgrades Korea on cleared positions and AI-driven earnings, while cutting India to underweight on inflation and demand concerns
For much of the last two years, India was the consensus overweight in Asia — the growth story everyone wanted exposure to. HSBC’s latest Asia strategy note marks a meaningful shift in that narrative. The bank has downgraded India to underweight, citing the risk that an ongoing earnings recovery may prove less durable than the market currently expects. In the same note, it upgrades Korea to neutral, arguing that a dramatic unwinding of foreign positions has cleared the way for a more balanced risk-reward.
Why Korea Is Back on the Table
HSBC’s previous underweight on Korea was rooted in a simple concern — it had become a crowded trade, and crowded trades tend to hurt when sentiment turns. That crowding has now decisively unwound. “Foreign investors sold USD 21 billion of Samsung Electronics and SK Hynix in February alone — around three times the amount purchased in the second half of 2025,” the report notes, adding that outflows in March were even larger. The slate, in other words, has been wiped clean.
What replaces the overhang is a combination of domestic support and an earnings outlook that is hard to ignore. Local investors have continued to steadily buy Korean equities through multiple channels, underpinned by government policies — introduced since the new administration took office — that have actively channelled domestic savings into capital markets. HSBC expects this appetite to remain firm as further reforms come through.
The earnings picture is the other leg of the thesis. Forecasts for the FTSE Korea index point to earnings that “could triple this year,” with the bulk of that growth coming from Samsung and SK Hynix, riding strong demand from ongoing investment in AI infrastructure and the rapid adoption of AI agents. Beyond those two heavyweights, HSBC sees broader support from Korean strengths in energy storage, shipbuilding, defence and nuclear — sectors where, the bank argues, Korean players hold a genuine edge over regional peers.
Why India Has Been Cut
The India downgrade is more nuanced — and more consequential for Indian investors to sit with. HSBC is not dismissing the India story outright. It is questioning the durability of the current earnings recovery given the macro environment India finds itself in.
India is a significant importer of oil, and with energy prices remaining a live variable, the knock-on effects on domestic inflation — and from there, on consumer demand — are a real risk. “Given India’s reliance on imported energy and the potential knock-on effects on inflation and domestic demand, we are concerned about the durability of the ongoing earnings recovery,” the report says. The bank expects consensus earnings forecasts — currently pencilling in around 16% year-on-year growth for 2026 — to be revised downward in the coming months.
The valuation point follows directly. Indian equities have corrected meaningfully from their peak, and the bulls would argue that re-rates the opportunity. HSBC pushes back: valuations that look corrected today will look elevated again once earnings downgrades feed through. “India looks less attractive than its North East Asian peers in the current macro environment,” the report concludes.
What This Means
The concern is not about India’s structural story, which remains intact. It is about the near-term path: energy-driven inflation, potential demand softness, and a consensus earnings forecast that may need to come down before it can go back up.
For those thinking about near-term positioning, HSBC’s note is a reminder that not every dip is immediately buyable — sometimes the market needs to reprice earnings before it can sustainably re-rate.