With anticipated better earnings growth in FY27 and a potential trade deal with the US, a report suggests that foreign institutional investors (FIIs) are likely to return to India in 2026. HSBC Mutual Fund’s report indicates a positive outlook for the equity markets in 2026, with Nifty valuations aligning with historical averages and a slight premium.
The report highlights the fund’s preference for banks and non-bank financial companies (NBFCs), expecting improved net interest margins for banks in FY27. It forecasts a recovery in private banks’ asset quality, driving mid-teens earnings growth after a sluggish FY26.
NBFCs are experiencing robust earnings growth due to strong credit demand and enhanced margins from declining interest rates. Additionally, the fund favors the consumer discretionary sector, particularly internet platforms benefiting from evolving consumer behavior towards Quick commerce and e-commerce.
The report emphasizes the significance of electronic manufacturing services as a structural theme supported by the government’s focus on building an electronics manufacturing value chain in India. However, HSBC remains cautious on metals, citing that the upside for aluminium and steel is already factored into valuations.
The report also notes the performance divergence in 2025, with Nifty TRI up by 12%, NSE Midcaps by 6.5%, and BSE Smallcap index down by 5%. Despite challenges in 2025, the report remains optimistic about the economic outlook supporting market performance in 2026.
