J.P.Morgan downgraded Indian equities to “neutral” from “overweight,” citing elevated valuations compared to emerging market peers and pressure on earnings from energy supply shocks linked to the Iran war, a day after HSBC lowered its rating.
Surging for the country, squeeze consumption and weigh on near-term corporate margins, with a weakening rupee adding to the pressure, the brokerage said in a note on Friday.
Earlier this month, J.P.Morgan cut FY2027 earnings estimates by 2%-10% across domestic sectors such as energy, consumer, auto and financials. It also reduced MSCI India earnings growth forecasts for 2026 and 2027 by 2 percentage points and 1 percentage point, respectively, to 11% and 13%.
Additionally, the brokerage lowered its year-end target for the benchmark by 10% to 27,000. The Nifty and Sensex have fallen 8.5% and 10% this year and are currently trading about 9.3% and 11% lower than record highs hit in early 2026 and late 2025, respectively.
“Despite the recent drop, India still trades at a significant premium to peers like Korea, Brazil, China, Mexico and South Africa, which all offer an inexpensive entry point for higher or similar forward earnings growth,” said J.P.Morgan.
India also lacks meaningful exposure to high-growth themes such as AI, data centers, robotics, and semiconductors, which could limit earnings growth compared to emerging market peers with a stronger presence in these segments, the brokerage added.
The Wall Street firm flagged market dilution as another growing challenge. Although strong local inflows have cushioned foreign selling, stake sales by top shareholders and record issuance through IPOs and QIPs are limiting equity market gains.
While J.P.Morgan said the country’s long-term growth story is still intact, the near-term outlook has weakened.
It remains “overweight” on sectors including financials, materials, consumer discretionary, hospitals, defense, and power, while staying “underweight” on IT and pharmaceuticals.