Easing oil prices brighten outlook for Indian markets; Sensex could reach 84,000 by end of 2026: HSBC

Mumbai: India's equity market outlook has turned more positive as falling crude oil prices, strong domestic consumption and improving macroeconomic conditions are expected to support corporate earnings, with the benchmark Sensex projected to touch 84,000 by the end of 2026, according to a report by HSBC.

The brokerage said crude oil prices have fallen back to pre-conflict levels much faster than anticipated, easing pressure on corporate profit margins and lowering the risk of significant earnings downgrades.

HSBC noted that the FTSE India Index has declined around 7 per cent in US dollar terms since January 2025, underperforming broader regional markets by nearly 62 percentage points. The weakness was largely driven by expensive valuations, a softer earnings outlook and investors shifting their focus to artificial intelligence (AI)-related opportunities in global markets.

However, the brokerage believes valuations have now become more reasonable, while lower energy costs and resilient domestic consumption have improved the earnings outlook for Indian companies.

At the same time, the report cautioned that consumption growth could slow in the coming months after recent front-loaded spending, while the possibility of an El Niño weather pattern remains a key risk for rural demand.

HSBC also pointed out that consensus estimates for FY27 earnings growth, excluding commodity companies, have already been revised down from 18 per cent to 15 per cent. It expects further moderation, with earnings growth eventually settling in the low double digits.

According to the report, recent measures by the Reserve Bank of India to encourage foreign investment in bonds and bank deposits have helped stabilise the rupee and reduce capital outflows.

Foreign institutional investors have also returned as net buyers, investing around $1.8 billion in Indian equities so far in July, the brokerage said.

Although HSBC has upgraded its view on Indian equities to "neutral" from "underweight", it warned that foreign investment flows may remain volatile, as global investors could once again favour AI-driven opportunities in other markets.

Even so, the brokerage expects strong participation from domestic investors to continue supporting the market.

From a sectoral perspective, HSBC prefers private sector banks, consumer discretionary, real estate, commodities and selected industrial stocks. It also favours consumer discretionary over consumer staples, while remaining cautious on software services because of AI-related uncertainties despite the sharp correction in valuations.

With inputs from IANS