The outlook for Indian equities has improved materially, with the benchmark Sensex projected to reach 84,000 by end-2026, according to an analysis by HSBC brokerage released on 16 July. Easing crude oil prices, resilient domestic consumption, and moderating earnings risks are collectively strengthening the investment case for Indian markets.

Oil Price Retreat Lifts Macro Backdrop

Crude oil prices have retreated to pre-conflict levels faster than anticipated, according to the HSBC report. The decline has eased pressure on corporate margins and reduced the probability of sharp earnings downgrades — two factors that had weighed heavily on sentiment earlier in the year.

The FTSE India index had declined around 7 per cent since January 2025 in US dollar terms, underperforming the broader region by approximately 62 percentage points, dragged by expensive valuations, a weaker earnings outlook, and investor preference for artificial intelligence (AI)-related opportunities elsewhere.

Valuations Normalise, Earnings Outlook Improves

The brokerage noted that valuations have now normalised following the correction. Lower energy costs and resilient consumption have improved the near-term earnings trajectory, prompting HSBC to upgrade Indian equities to 'neutral' from 'underweight'.

However, the firm cautioned that consensus estimates for FY27 earnings growth — excluding commodities — have already been trimmed to 15 per cent from 18 per cent earlier. It expects further downgrades, with earnings growth eventually settling in the low double digits. Consumption could also moderate in the coming months after recent front-loading, while El Niño remains a key risk to rural demand.

FII Flows Stabilise, Rupee Steadies

Recent Reserve Bank of India (RBI) measures to attract foreign inflows into bonds and bank deposits have helped stabilise the rupee and reduce foreign outflows, the report noted. Foreign institutional investors (FIIs) have turned net buyers, with inflows of around $1.8 billion recorded so far in July.

Despite the improved sentiment, HSBC analysts cautioned that overseas inflows may not remain durable, as global investors could once again pivot toward AI-linked opportunities in other markets. Domestic investor demand for equities, however, is expected to remain resilient.

Preferred Sectors and Key Risks

On the sectoral front, HSBC favours private banks, consumer discretionary, real estate, commodities, and select industrials. The brokerage prefers consumer discretionary over staples. It remains cautious on software services, citing AI-related disruption concerns despite the sector's significant valuation correction.

With FII flows fragile and El Niño risks on the horizon, the trajectory to 84,000 will depend on whether the macro tailwinds — particularly on oil and consumption — hold through the second half of 2026.