HSBC has maintained an 'underweight' stance on India, Taiwan and Pakistan, saying the 'big, easy buy story in Asia looks over'. It, however, stays 'overweight on Hong Kong, Singapore, Thailand and Indonesia, while maintaining a 'neutral' stance on China, Japan, Philippines, Malaysia and Korea.

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"The big, easy buy story in Asia looks over; we’re now in for a tough grind as a lot of high growth narratives get repriced. In EM, the mood of music has changed with emphasis shifting more towards inflation than growth in the global reflation debate. EM is likely to face more challenges in balancing recovery prospects and price pressures, especially relative to the US,” the global brokerage said in a note.

Not just that, HSBC further observed that substantial US stimulus is likely to create an overheating threat to emerging markets (EM) equities. The only silver lining for EMs is a dip in bond yields that can trigger an upside, it added.

Amid the ongoing pandemic, HSBC has raised their 2021 global and EM GDP forecasts to 5.6 percent from 4.8 percent and 6.6 percent 6.1 percent, respectively.

As regards India, the brokerage said that rapidly rising Covid cases pose a challenge to the overall economic growth.

“India started the year very good, it outperformed but over the 2 weeks it started to underperform and that’s a reflection of multiple things but valuations is one (reason) and of course corona cases is not helping India either,” Herald Van Der Linde, head-Asia equity strategy at HSBC said.

In an interview with CNBC-TV-18, he added that HSBC believes that the valuations in the Indian market are high. However, according to him, IT companies in India are one of the most profitable sectors globally.

“Valuations are high and markets are priced for blue-sky and it is very easy for clouds to appear, so the story starts to falter a bit and that’s what the concern with India as well,” he further noted.

For now, HSBC has retained its GDP forecast of 11.2 percent y-o-y for fiscal 2021-22 (FY22). “There were upside risks to these numbers before the second wave struck, which have gone away for now. If lockdowns intensify or spill over well into May, downside risks would emerge,” the note said.

(Edited by : Ajay Vaishnav)