Brokerage firm HSBC upgraded Indian equities to "neutral" from "underweight" on Tuesday, saying valuations were more reasonable, investors` holdings were very low and strong earnings growth would continue next year. India is one of the fastest growing markets in Asia, with MSCI India EPS growth consensus -- a design to measure large-, mid- and small-cap segments of the stock market, seen at 18.8 percent in 2018 and 24 percent in 2019, HSBC said in a note titled "The Flying Dutchman".

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With the parliament elections scheduled for 2019, HSBC said it expected equities to gain like in the previous three polls, probably "because more pro-growth policies are implemented before elections or that the market is more willing to anticipate such policies".

MSCI India has underperformed MSCI`s broadest index of Asia-Pacific shares outside Japan since the end of August, primarily due to currency weakness and volatile oil prices which HSBC expects to remain key risks going forward.

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As of Monday, Indian stock markets had declined about 6 percent since August, hurt by issues at banks and non-banking financial companies, but positive September-quarter earnings have boosted investor sentiment recently.

Separately, Morgan Stanley said India`s growth recovery was on track as policy decisions remain supportive of an improvement in productivity dynamics with GDP forecast to rise 7.7 percent and 7.6 percent in 2018 and 2019, respectively.

Morgan Stanley said it expected the Reserve Bank of India to resume the rate hiking cycle in the second quarter of 2019 and build in two increases in 2019 and two more the following year, as inflation rises from the 2018 low.