HSBC trims India exposure to boost South Korea as earnings growth surges past 200%

HSBC has made a tactical shift in its Asia equity strategy — trimming exposure to India to fund a bigger bet on South Korea. But the bank's Chief Asia Equity Strategist Herald van der Linde is quick to stress that this is not a verdict on India's long-term story. It is simply a matter of where the growth is more compelling right now.

At the start of 2026, South Korea's earnings growth was forecast at 50%. It has since surged past 200%. That kind of momentum is difficult for any fund manager to overlook. Van der Linde notes that positioning in Korea had become dangerously crowded earlier in the year, but the volatility of March cleared that out — creating a fresh entry point. India, by contrast, is being used as the funding source for this tactical reallocation, at least for now.

The more important message for Indian investors is that earnings have stopped falling. After a prolonged cycle of downgrades through 2025, the trajectory has turned upward. Van der Linde sees India's earnings growth moving from roughly 7–8% to the 13–15% range in FY27 — a meaningful recovery, even if slower than initially hoped due to geopolitical pressures and elevated oil prices.

The oil problem is real, but priced in. A 20% rise in crude oil has historically compressed India's earnings by around 1.5 percentage points. Van der Linde acknowledges this drag is already visible across Asia — with markets like the Philippines feeling it more acutely than India. The impact in India will likely show up as softer consumer confidence and reduced appetite for big-ticket purchases like cars and homes. However, he argues that markets have largely priced this in, and that policymakers still have tools — including room to cut interest rates eventually — to support growth over the next one to two years.

Foreign investors have long flagged rupee depreciation as a structural concern. Van der Linde takes a more measured view. Currency depreciation is simply part of the Indian equity story. If earnings grow at 13% and the rupee depreciates at 5% annually, investors still pocket roughly 7% in US dollar terms — a return that remains competitive globally.

The more nuanced part of Van der Linde's outlook concerns the type of companies that will drive India's next phase of growth. The era of a handful of dominant FMCG companies delivering outsized, monopoly-like returns is fading. Increased competition, better infrastructure, and the rise of delivery and distribution companies are levelling the playing field. He draws a parallel with Indonesia, where a similar opening-up of the economy brought more competition and slightly lower margins, but still delivered solid earnings and sales growth overall.

The sectors van der Linde flags for the next chapter of India's growth story include technology, hospitals and healthcare, property, banking, and new-age distribution companies — businesses that benefit from infrastructure investment and rising consumer access rather than the legacy distribution moats of the past.

HSBC's India downgrade is tactical, time-bound, and Korea-driven. The firm's long-term conviction on India remains intact. For investors with a multi-year horizon, van der Linde's message is clear: stay optimistic on Indian equities, rotate towards emerging sectors, and do not read too much into a short-term reallocation.