The Indian stock market remained resilient despite global macroeconomic challenges, recording modest gains of 2% in July after a volatile month, according to HSBC Mutual Fund in its latest report. The mutual fund house expects India's investment cycle to be on a medium-term uptrend supported by government investment in infrastructure, support to manufacturing and pickup in private investments. India's corporate earnings recovery continues with strong Q1 FY27 results growth and more earnings beat than misses over consensus estimates, as reported by HSBC.
HSBC has identified four key headwinds for Dalal Street's trajectory in the future. Global commodity prices have reversed from benign trends in 2024-2025 due to geopolitical conflict, creating a headwind for India in 2026. Weak global growth driven by tariff risks, policy uncertainty and geopolitical conflicts remains a concern for India's demand outlook. Below-normal monsoon conditions with cumulative rainfall since June 1 still 12.6% below normal as of July 31 can lead to higher food inflation and negative impact on consumption and government budgets. Sharp slowdown in government capex represents another key headwind for the Indian stock market.
HSBC has identified three key tailwinds for Dalal Street. Corporate earnings recovery continues with better-than-expected Q1 results, supported by RBI's regulatory easing, government measures on taxation (GST/income tax) and lower US tariffs. Recovery in private capex is indicated by industry capacity utilisation at reasonably high levels and continued expansion of the Production Linked Incentive (PLI) scheme. Potential trade deals with EU and US would be a tailwind for Indian manufacturing over the medium term and encourage private sector investments, according to HSBC.
According to HSBC, IT, real estate and automobiles were the best performing sectors in July, while healthcare also outperformed Nifty. Metals, FMCG, infrastructure, banks and telecom underperformed Nifty, with utilities, energy and industrials being the worst performing sectors. Nifty now trades at 18.3x 1-year forward PE, which is at a 6% discount to its 5-year average and a 2% discount to its 10-year average. The mutual fund house remains constructive on Indian equities on a longer-term basis, with the near-term outlook now improving assuming no re-escalation of geopolitical conflicts.
