Global brokerage firm JP Morgan has downgraded Indian equities to a ‘Neutral’ rating, attributing this decision to rising macroeconomic risks, pressure on earnings, and limited participation in new-age technology sectors. This shift occurs as the brokerage takes a more bullish stance on Asian technology stocks, particularly those from Taiwan, amidst a rapidly accelerating artificial intelligence (AI) cycle.
In its latest Asia Equity Strategy report dated April 24, JP Morgan noted its strategy realignment to favor tech-heavy markets. “We lower our allocation in Indian equities to Neutral,” the report stated, while simultaneously upgrading technology sectors and Taiwan within its regional investment strategy.
The report highlights a strong momentum in AI stocks throughout Asia, mentioning significant gains over the past month. It emphasizes that improvements in model capabilities, pricing strategies, and funding avenues have “materially raised the future growth trajectory.”
As the macroeconomic landscape evolves, JP Morgan outlined concerns surrounding persistent inflation and slower economic growth, both of which shape its investment outlook. The report indicates that this scenario likens to a renewed phase of ‘stagflation,’ urging investors to seek out structural growth opportunities that are less sensitive to economic cycles.
JP Morgan identified several headwinds impacting India’s market. The downgrade reflects “elevated valuations relative to EM [Emerging Markets] peers, earnings risks, dilution concerns, and limited exposure to next-generation technology.” It pointed out that while India’s valuation premium has moderated, it remains elevated. Specifically, “India’s premium to MSCI EM has compressed to 65 percent… yet peers such as Korea, Brazil, and China still offer more attractive entry points.”
Concerns about earnings are also growing due to global uncertainties. “Energy supply disruptions are likely to pressure earnings through multiple channels… we lowered our CY26E/27E MSCI India EPS growth outlook to 11 percent and 13 percent,” JP Morgan stated.
The report also flagged structural issues, including high levels of equity issuance and minimal representation of emerging sectors such as AI, data centers, and semiconductors in India’s large-cap index. The brokerage remarked that capital raising through initial public offerings (IPOs) and stake sales is “diluting existing holders and capping upside potential.”
Additionally, the risk of a potentially weak monsoon and global commodity trends was underscored, with warnings that below-normal rainfall could adversely affect rural incomes and exacerbate inflationary pressures.
Despite this downgrade, JP Morgan maintains that India’s long-term growth narrative remains strong. “India’s structural growth story remains intact,” the report affirmed, citing ongoing policy reforms, capital expenditure initiatives, and growth in manufacturing as key drivers.
In conclusion, JP Morgan anticipates better investment opportunities in other emerging markets in the near term, particularly those driven by technology, as AI-led advancements reshape regional equity strategies.
