HSBC has upgraded Indian equities to 'Neutral' from 'Underweight', saying the fading oil price shock, resilient consumption and easing earnings risks have improved the market's outlook. The brokerage has set an end-2026 Sensex target of 84,000.
Why The Upgrade?
Explaining the upgrade, HSBC analysts Herald van der Linde, Prerna Garg, Adam Qi and Varun Pai, said “the macro backdrop for India equities has improved quite a bit in recent weeks,” largely because crude prices have retreated to pre-conflict levels faster than expected. According to the brokerage, this has eased pressure on corporate margins and reduced the need for aggressive earnings downgrades.
HSBC noted that FTSE India has fallen around 7% since January 2025 in US dollar terms, but highlighted a much bigger 62-percentage-point underperformance versus the region, driven by rich valuations, a softer earnings backdrop and investors' focus on the artificial intelligence theme.
Analysts said valuations have now normalised, while lower energy prices and resilient consumption have reduced earnings risks.
Key Risks Remain
HSBC cautioned that consumption could moderate in coming months after some front-loading, while El Niño remains a key risk to rural demand.
The brokerage added that consensus FY27 earnings growth estimates, excluding commodities, have already been cut to 15% from 18%, and it expects further downgrades, with earnings growth settling in the low double digits.
HSBC also said recent RBI measures to attract foreign inflows into bonds and bank deposits have helped stabilise the rupee, reducing foreign outflows. It noted that foreign institutional investors have turned net buyers, with inflows of around $1.8 billion in July 2026 so far.
Despite the upgrade, HSBC remained cautious on the durability of overseas inflows, saying investors could again shift attention to AI-linked opportunities elsewhere. It also said domestic demand for equities is likely to remain resilient.
Sector Preferences
HSBC said it favours private banks, consumer discretionary, real estate, commodities and select industrials. It prefers discretionary over staples, while expecting software services to remain out of favour due to AI-related concerns, despite the sector's major de-rating.
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