Indian equities attractive long-term on earnings, private capex: HSBC MF
Synopsis
HSBC Mutual Fund's August 2026 report makes a measured bull case for Indian equities: Nifty valuations have reverted to their 10-year mean, FII and DII flows stayed positive in July, and the RBI has nudged its GDP forecast higher. The wildcard is the monsoon — still 12% below average — which could yet cloud the rural demand picture.
Key Takeaways
HSBC Mutual Fund says Indian equities remain constructive over the longer term, backed by earnings recovery and private capex.
Nifty valuations are now in line with the 10-year average ; near-term outlook improving barring fresh geopolitical flare-ups.
Indian equities gained 2.2% in July 2026 ; Midcap Index up 1.8% , Smallcap Index up 2.5% .
FII inflows stood at $2.5 billion and DII inflows at $3.7 billion in July.
RBI held the repo rate at 5.25% , raised GDP forecast to 6.7% , and cut inflation estimate to 5.0% for FY27 .
Monsoon deficit narrowed to 12% below average by end-July, but IMD forecasts a below-normal August.
Indian equities remain constructive over the longer term, underpinned by a recovery in corporate earnings, a pickup in private capital expenditure, and the prospect of trade deals with major economies, according to a report released on Monday, 10 August 2026. The assessment comes from HSBC Mutual Fund, which sees India's investment cycle on a medium-term uptrend.
Investment Cycle and Growth Drivers
The fund house noted that India's investment cycle is expected to be driven by government infrastructure spending, manufacturing support, and a rise in private investments. Potential trade agreements with the European Union (EU) and the United States (US) are seen as additional tailwinds for exports.
On valuations, the report observed that Nifty valuations have returned to levels in line with their 10-year average. 'Near-term outlook is now also improving assuming no re-escalation of geo-political conflicts,' the fund house said. Corporate earnings recovery continues, with strong first-quarter FY27 results supporting the case.
Sector Performance in July
In equity markets, IT, real estate, and automobiles were among the best-performing sectors during July 2026. Healthcare also outperformed the Nifty benchmark. On the other hand, metals, FMCG, infrastructure, banks, and telecom underperformed, while utilities, energy, and industrials were the worst performers for the month.
Indian equities ended July with a 2.2% gain despite volatility from geopolitical tensions, crude oil movements, and corporate earnings surprises. The Midcap Index rose 1.8% and the Smallcap Index climbed 2.5% over the same period.
Capital Flows and Macro Signals
India recorded $2.5 billion in Foreign Institutional Investor (FII) inflows in July, while Domestic Institutional Investor (DII) inflows remained positive at $3.7 billion, supported by steady SIP and insurance flows. The combination of foreign and domestic buying provided a cushion against external volatility.
On the macroeconomic front, the Reserve Bank of India (RBI) maintained the repo rate at 5.25% with a neutral stance. The central bank revised its GDP growth forecast marginally higher to 6.7% and trimmed its inflation projection to 5.0% for FY27.
Monsoon Watch and Fixed Income Outlook
Cumulative rainfall in India was 40% below the long-period average at the end of June 2026 but recovered to 12% below average by the end of July 2026. However, the India Meteorological Department (IMD) has forecast a below-normal monsoon for August, prompting the fund house to remain watchful for further cues on rural demand and food inflation.
In fixed income, HSBC Mutual Fund sees opportunities across short-duration, banking and PSU debt, and corporate bond funds, depending on investor horizons. The interplay of a stable repo rate, easing inflation, and improving growth could support bond returns over the medium term.
With earnings recovery intact, institutional flows steady, and macro parameters broadly supportive, the next key variables to watch are monsoon outcomes for August and any fresh escalation in global geopolitical tensions.
Point of View
But mean-reversion is not a catalyst; it merely removes a valuation headwind. The more consequential variable is the monsoon: a second consecutive below-normal August could pressure food inflation just as the RBI has guided it lower, creating an uncomfortable policy bind. Meanwhile, the $2.5 billion FII inflow in July looks solid until you note that DII flows at $3.7 billion are doing the heavier lifting — suggesting domestic retail confidence, via SIPs, is now the market's real foundation. That is a structural positive, but it also means any SIP redemption pressure in a risk-off environment would hit harder than it once did.
NationPress
10 Aug 2026
Frequently Asked Questions
Why does HSBC Mutual Fund consider Indian equities attractive for the long term?
HSBC Mutual Fund cites a recovery in corporate earnings, a pickup in private capital expenditure, government infrastructure spending, and potential trade deals with the EU and the US as key drivers. Nifty valuations have also returned to their 10-year average, reducing valuation risk.
How did Indian equities perform in July 2026?
Indian equities gained 2.2% in July 2026 despite geopolitical volatility and crude oil swings. The Midcap Index rose 1.8% and the Smallcap Index climbed 2.5% over the same period.
What is the RBI's current stance on interest rates and growth?
The RBI held the repo rate at 5.25% with a neutral stance. It revised its FY27 GDP growth forecast marginally higher to 6.7% and lowered its inflation projection to 5.0%.
What is the monsoon situation and why does it matter for markets?
Cumulative rainfall recovered from 40% below the long-period average at end-June 2026 to 12% below average by end-July 2026. However, the IMD has forecast a below-normal monsoon for August, which could affect rural demand and food inflation — key variables for both consumption stocks and RBI policy.
Which sectors outperformed and underperformed in July 2026?
IT, real estate, and automobiles were the best-performing sectors in July, with healthcare also beating the Nifty. Metals, FMCG, infrastructure, banks, and telecom underperformed, while utilities, energy, and industrials were the weakest sectors for the month.
