Indian Equity Markets Show Promise as Oil Prices Decline; Sensex Could Reach 84,000 by Year-End

Mumbai, July 16: The outlook for Indian equity markets has improved, with the Sensex projected to reach 84,000 by the end of this year. This positive trend is attributed to a decline in crude oil prices in international markets, strong domestic consumption, and reduced earnings-related risks for companies, according to a recent report.

According to HSBC’s brokerage report, the macroeconomic environment for Indian equities has significantly improved in recent weeks, as crude oil prices have rebounded faster than expected from previous struggles.

The report states that the drop in oil prices has alleviated pressure on corporate margins and reduced the likelihood of significant cuts to earnings forecasts.

Valuations have now normalized, while lower energy prices and robust consumption have enhanced the earnings outlook.

However, it is noted that consumption may slow in the coming months following recent heavy purchasing, and the El Niño phenomenon poses a significant risk to rural demand.

The report also indicates that the expected earnings growth for FY27 (excluding commodities) has been revised down from 18% to 15%. Further cuts are anticipated.

HSBC analysts noted that recent measures by the RBI to attract foreign investment in bonds and bank deposits have helped stabilize the rupee and reduce capital outflows.

They highlighted that foreign institutional investors have turned into net buyers, with approximately $1.8 billion invested so far in July.

Despite upgrading Indian equities from ‘underweight’ to ‘neutral,’ the brokerage cautioned that foreign investment may not remain stable for long, as global investors might refocus on AI-related opportunities in other markets.

However, they remain optimistic that demand from domestic investors for equities will stay strong.

Additionally, the brokerage prioritized India’s private banks, consumer discretionary sectors, real estate, commodities, and select industrial companies. They expressed caution regarding the software services sector due to AI-related concerns, despite significant improvements in valuations within this sector.