The outlook on Indian equities remains constructive, with resilient domestic growth, recovering private capital expenditure (capex), and prospective trade agreements with the European Union and the United States acting as medium-term tailwinds, according to a report by HSBC Mutual Fund released on Friday, 17 July.

Growth Drivers Supporting the Equity Outlook

The report noted that India's growth and investment cycle should underpin equities as easing oil and fertiliser prices, policy rate cuts, and improving private capex prospects converge. The Reserve Bank of India's (RBI) interest rate cuts, the GST rate cut, and the income tax rate cut announced by the Union government in FY26 are expected to bolster consumption and private sector investment through FY27.

According to the fund house, the easing of the Middle East conflict and the correction in crude and fertiliser prices to pre-conflict levels are 'major macro positives' that should support growth in the second half of FY27.

Government Infrastructure Spending and Capex Cycle

The report indicated that the government should be in a position to accelerate infrastructure spending in H2FY27, though it cautioned that full-year figures may remain broadly flat given the fiscal impact of the earlier conflict period. India's investment cycle is seen as being on a medium-term uptrend, supported by state-led infrastructure outlays, manufacturing incentives, and a pickup in private investments.

'We believe the government should be able to boost infra spending in H2FY27 although the full year may be flattish given the impact of the conflict on government finances,' the report stated.

Trade Deals With EU and US as a Catalyst

Announcements of potential trade agreements with the EU and the US are expected to strengthen private capex by improving medium-term tariff certainty and export competitiveness, the report said. This development is seen as a structural positive for sectors with high export exposure.

Near-Term Risks to Watch

Despite the constructive stance, the report flagged the risk of a below-normal monsoon, which could hurt food production and push up food inflation — a near-term stress for the broader economy. Investors will also be watching whether private capex momentum translates into verifiable output and employment gains across sectors.

June Market Performance

Equity benchmarks posted gains in June, with the BSE Sensex rising 2.6% and the NSE Nifty advancing 1.7%. Broader indices outperformed, with the NSE Midcap index edging up 1% and the BSE Smallcap index surging 5.4%. Banks were the best-performing sector in June, followed by realty and healthcare, while autos and capital goods also delivered positive returns.

With rate cuts, fiscal support, and trade deal momentum aligning, the near-term trajectory of private capex and monsoon performance will be the key variables to watch heading into the second half of FY27.