The domestic equity market outlook has improved as easing crude oil prices, resilient domestic consumption, and moderating earnings risks strengthen the investment case, with the benchmark Sensex likely to touch 84,000 by the end of 2026, according to a report.
According to an analysis by HSBC brokerage, the macroeconomic backdrop for Indian equities has improved significantly in recent weeks as crude oil prices have retreated to pre-conflict levels faster than expected.
The decline in oil prices has eased pressure on corporate margins and reduced the likelihood of sharp earnings downgrades, it added.
It further noted that the FTSE India index has declined around 7 per cent since January 2025 in US dollar terms, underperforming the broader region by about 62 percentage points due to expensive valuations, a weaker earnings outlook and investor preference for artificial intelligence (AI)-related opportunities.
However, valuations have now normalised, while lower energy prices and resilient consumption have improved the earnings outlook.
Moreover, consumption could moderate in the coming months after recent front-loading, while El Niño remains a key risk to rural demand.
The report also noted that consensus estimates for FY27 earnings growth, excluding commodities, have already been lowered to 15 per cent from 18 per cent earlier.
It expects further downgrades, with earnings growth eventually settling in the low double digits.
Recent RBI measures to attract foreign inflows into bonds and bank deposits have helped stabilise the rupee and reduce foreign outflows, according to HSBC analysts.
Foreign institutional investors have also turned net buyers, with inflows of around $1.8 billion so far in July, they highlighted.
Despite upgrading Indian equities to ‘neutral’ from ‘underweight’, the brokerage cautioned that overseas inflows may not remain durable as global investors could once again shift their focus to AI-linked opportunities in other markets.
However, it expects domestic investor demand for equities to remain resilient.
Additionally, on the sectoral front, the brokerage prefers private banks, consumer discretionary, real estate, commodities and select industrials. It also favours consumer discretionary over staples, while remaining cautious on software services because of AI-related concerns despite the sector’s significant valuation correction.
