The brokerage is positive on the domestic equity market. It also noted that corporate earnings are bottoming out and set to improve

HSBC Global Investment Research expects the Indian stock market to "return to form" after its recent underperformance. With lower valuations, a slow recovery in earnings, and low positioning by foreign funds, the brokerage is positive on the domestic equity market, it said in a report Friday. It expects foreign funds to return to India after an absence of 12 months amid crowded regional markets, a weak dollar, and resumption of interest rate cuts by the US Federal Reserve.

"While Indian equities have underperformed emerging markets by 32ppt (percentage points) since mid-September 2024, the worst performance since 2001, we now find the market attractive," the brokerage said in the report. "Valuations have fallen--the premium to the region is back at historical levels--while lower inflation and easing measures should support growth." It also noted that corporate earnings are bottoming out and set to improve.  Despite the weak dollar and the resumption of rate cuts by the Fed, rotation into emerging markets has not happened yet, HSBC said. Once this takes place, the brokerage expects the Indian stock market to be an "outsized beneficiary". While US tariffs are likely to have limited impact on earnings, any positive trade developments could trigger flows from investors sitting on the sidelines, it said.