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Informist, Wednesday, Jun. 11, 2025

NEW DELHI – HSBC Global Research Wednesday said it has a 'neutral' stance on India from an Asia perspective and has set a target of 82240 for the BSE Sensex by the end of the ongoing calendar year. Despite better-than-expected corporate earnings in the March quarter and improvement in macroeconomic environment, the investment adviser is of the view that a sustained recovery in earnings growth is still a few quarters away. It has made 'sharp cuts' in consensus estimates and is now anticipating an earnings growth of 11% in 2025 with scope for surprises on the downside.

The investment adviser reasoned that urban consumption in the country remains weak and capital expenditure in the private sector is yet to pick up, adding that growth in information technology services could be weak amid policy uncertainties in the US. Further, interest rate cuts do not augur well for margins of banks, which dominate the market index, the investment adviser said in its report.

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Amid concerns over growth in earnings and expensive valuations, HSBC Global listed five stocks that offer growth potential due to structural and peculiar reasons –- Godrej Consumer Products Ltd., UPL Ltd., GAIL (India) Ltd., Ujjivan Small Finance Bank Ltd., and HDFC Life Insurance Co. Ltd.

HSBC Global is of the view that HDFC Life is the best-placed among its peers to deliver stronger growth. The insurance provider's lower dependence on linked products, focus on under-served tier-II and III cities, new customer acquisition, and deepening distribution are expected to help it clock a healthy growth rate, said the research firm.

It added that in an easing rate environment, attractiveness of non-participating savings products improves, which is expected to help HDFC Life given its strong franchise in the segment. "With expectations of 16-17% return on embedded value and 15-16% compound annual growth rate in embedded value, we believe HDFC Life offers a healthy compounding opportunity at current valuations," HSBC Global said.

Ujjivan Small Finance Bank is the investment adviser's next pick, as the lender is expected to continue growing its microfinance book, supporting its yield and fee income while lowering its operating and credit cost ratios. According to HSBC Global, the current regulatory and liquidity environment should be beneficial for small-sized banks.

Ujjivan Small Finance Bank is also a key beneficiary of asset quality recovery in the microfinance segment. A high share of fixed rate loans, and sharper cuts in deposit rates in the current repo rate cut cycle, should allow the lender to protect its net interest margin better, the research firm said.

HSBC Global expects Ujjivan Small Finance Bank to deliver a 15% return on equity by the March quarter of the ongoing fiscal year 2025-26 (Apr-Mar) or in the next financial year. Even though the adviser finds the stock's current valuation inexpensive, the recovery in business momentum and earnings should drive a re-rating of the stock, it said.

For Godrej Consumer Products, the investment adviser sees the company's home insecticides unit playing a key role in clocking targetted volume growth in FY26 and beyond. "Godrej Consumer is running several disruptive pricing strategies in deodorants, air sprays, and liquid detergents, for which growth in the total addressable market would be key," it said. The research firm also sees potential for Godrej Consumer Products' recently launched pet care segment over the medium term.

HSBC Global believes UPL is entering a virtuous cycle with earnings recovery expected to drive healthy cash flows. "The recovery should be sustained as UPL carefully treads in a weak macro backdrop," HSBC Global said. According to the investment adviser, there has been a significant improvement in the company's balance sheet and its net debt levels are markedly lower than last year, along with better control on working capital.

HSBC Global expects UPL's focus to change from recovery to growth due a turnaround in its core markets and strengthening market positioning and product portfolio, besides a scale up of other verticals and resulting value creation. In the medium-term, it sees the likelihood of UPL listing its seeds vertical and monetising the specialty chemicals vertical, the possibility of which the company has highlighted in the past.

In the case of GAIL, HSBC Global said it expects the gas major's transmission volume to grow, adding that the company is strengthening its strategy to reduce marketing volatility. According to the investment adviser, the potential medium-term stimuli for the company include project completions in FY26 and FY27, besides rising demand. The company's management also expects an upward revision in tariffs for its transmission business over the next few months, HSBC Global said.

The research firm further said it remains optimistic on long-term volume growth with infrastructure in place and possibly lower liquefied natural gas prices from FY27. The potential inclusion of natural gas in goods and services tax regime, making it cheaper, could be a catalyst for rising demand, according to its report.  End

Reported by Shakshi Jain

Edited by Nishant Maher

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