The Indian equity market outlook has seen improvement with factors like lower crude oil prices, strong domestic consumption, and reduced earnings risks boosting investment prospects. According to HSBC brokerage, the Sensex is projected to potentially hit 84,000 by the end of 2026. Recent weeks have witnessed a positive shift in the macroeconomic environment for Indian equities, driven by the quicker-than-expected retreat of crude oil prices to pre-conflict levels.
Valuations have normalized after a 7% decline in the FTSE India index since January 2025 in US dollar terms, attributed to expensive valuations and a weaker earnings outlook. However, the scenario has improved with lower energy costs and resilient consumption patterns. The report highlights the potential moderation in consumption following recent front-loading activities, with El Niño posing a risk to rural demand.
HSBC analysts anticipate a reduction in consensus estimates for FY27 earnings growth, with expectations of settling in the low double digits eventually. The recent measures by the RBI to attract foreign investments have helped stabilize the rupee and reduce foreign outflows, with foreign institutional investors showing positive net inflows of around $1.8 billion in July. Despite upgrading Indian equities to ‘neutral,’ the brokerage warns of possible shifts in overseas inflows towards AI-related opportunities in other markets.
In terms of sectors, HSBC favors private banks, consumer discretionary, real estate, commodities, and select industrials. The preference for consumer discretionary over staples is noted, while caution remains on software services due to AI-related concerns despite significant valuation corrections.
