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HSBC downgraded Indian stocks to "underweight" from "overweight", citing slowing earnings growth, little room for rate cuts and potential negative impact from an unusual weather due to El Nino.
India remains one of the most over-owned market in Asia and the bank says the potential for more equity outflows has increased because foreign positions look stretched.
Overseas investors have sold nearly $2.2 billion worth of cash shares in the last 16 sessions, excluding Japan's Daiichi Sankyo's block sale of Sun Pharmaceutical Industries shares.
"Rate cuts beyond 2015...will depend on the government's structural reforms. If they are coming, there could be further space to cut. But if not, the RBI may just have to sit tight," wrote analysts Devendra Joshi and Herald van der Linde.
The investment bank also raised Philippines shares to "overweight" from "neutral" and Hong Kong to "neutral" from "underweight". China and Singapore remain "overweight".
