Mumbai stocks stand out as hedge against AI

Markets are, once again, showing how fickle they can be. India's stock market is now a shelter for global investors against the brewing anti-AI storm compared to a month or so back when it was a tariff-hit pariah.

While a stronger-than-expected earnings season and early signs of improvement in consumer demand buttress its case, is this a turning point for a market whose performance so far this year has lagged its emerging market peers by the most in nearly three decades? That's our focus this week.

Indian Prime Minister Narendra Modi faces a key regional electoral test as the country's third-most populous state heads to the polls.

And a car blast in New Delhi kills at least eight people. Scroll down for more on that.

After months of trailing emerging market peers, Indian equity markets are attracting fresh attention and foreign flows.

The NSE Nifty 50 and BSE Sensex have climbed about 4% since end-September, taking year-to-date gains to about twice that.

Goldman Sachs upgraded Indian equities to "overweight" from "neutral" on Friday, following a similar move by HSBC in September.

Goldman sees the Nifty 50 hitting 29,000 by end-2026, implying a 14% upside, led by financials, consumer, defence and telecom stocks.

"We now see a case for India to perform better next year, with growth-supportive policies, earnings revival, supportive positioning and defensible valuation," Goldman analysts wrote.

HSBC, which turned bullish earlier, reiterated its positive stance, calling Indian assets across equities, debt and FX "attractive".

It sees the BSE Sensex reaching 94,000 by end-2026, a nearly 13% gain from current levels.

Both banks cite improving earnings and a more supportive macro backdrop as key drivers. In the ongoing second-quarter earnings season, financials have led the way - India's largest lender State Bank of India raised its loan growth forecast, while HDFC Bank beat profit estimates.

Reliance Industries missed profit expectations, but analysts welcomed gains in its retail and digital units.

Consumer firms posted a soft quarter, with purchases delayed ahead of tax cuts, but festive season sales suggest a rebound in discretionary demand.

So far, 40% of companies have beaten estimates, while 25% have met expectations, according to Goldman.

Kotak Institutional Equities said earnings growth for Nifty 50 firms is "stabilising" and forecast a rebound to 17% in FY27 from around 10% this year.

India's lack of exposure to AI-linked stocks - once seen as a disadvantage - may now be a strength.

HSBC and Kotak point to a potential reversal in global sentiment around artificial intelligence, which has driven equity rallies in markets such as the U.S., Japan, South Korea and Taiwan. India, dominated by traditional sectors, could emerge as a defensive play.

"Foreign investors have heavily gravitated towards AI names in Asia in recent months, and some of that was funded by cutting their exposure to India," HSBC said.

"We see India as a good AI hedge and a source of diversification for those wary of the AI rally."    

What factors could drive a rebound in Indian equity markets? Write to me at ira.dugal@thomsonreuters.com.

Polls are underway in the eastern Indian state of Bihar with the verdict due later in the week.

The political alliance between Modi's Bharatiya Janata Party (BJP) and regional stalwart Nitish Kumar is seen locked in a close contest with regional parties and the opposition Congress party.

Kumar also supports Modi's government at the federal level.

Bihar, one of India's poorest states, faces widespread unemployment, particularly among the youth. While Kumar, currently chief minister, may face pressure from that segment of voters, women voters could be swayed by recent cash giveaways.

Read here for more on the issues driving the regional election.

At least eight people were killed in an explosion in a car in a densely populated area of the Indian capital New Delhi. Twenty were injured.

The explosion took place in a slow-moving vehicle at a traffic light, damaging other vehicles around.

The exact cause of the blast was being investigated, with the country's Home Minister Amit Shah saying that all options are under investigation.

Indian police said that the blast is being probed under a stringent law used to fight terrorism.

The rare explosion prompted the declaration of a high alert across India's financial capital of Mumbai as well as large states, local media reported.

People near the scene of the Delhi explosion described hearing a loud blast.

Mangled bodies and the wreckage of several cars could be seen on a congested street near a metro station in the old quarter of Delhi, as police poured into the area to secure it and push back gathering crowds.

This newsletter was edited by Muralikumar Anantharaman, Editor, Global News Desk, in Singapore.

Sponsors are not involved in the creation of newsletters or other Reuters news content. Advertise in this newsletter or on Reuters' website

Reuters India File is sent once a week. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here.

Want to stop receiving this newsletter? Unsubscribe here. To manage which newsletters you're signed up for, click here.

This email includes limited tracking for Reuters to understand whether you've engaged with its contents. For more information on how we process your personal information and your rights, please see our Privacy Statement.

Terms & Conditions