HSBC has signaled a strong bullish outlook on the Indian equity market, projecting the Sensex to reach 94,000 by the end of 2026. This target represents a potential upside of approximately 13% from current levels. The financial services firm suggests India presents a diversification opportunity for investors seeking to reduce their exposure to crowded trades in Artificial Intelligence (AI).
The brokerage firm believes that earnings have bottomed out in India and anticipates a broad-based recovery in the calendar year 2026. Consensus estimates point towards an Earnings Per Share (EPS) growth of 15% for 2026, with a lower risk of downgrades compared to 2025. HSBC noted that banks had been a drag on growth this year, but margins should expand in the coming quarters as time deposits are rolled over. Encouraging management commentary also suggests a positive outlook for tech companies.
HSBC has upgraded Indian equities to "Overweight" from "Neutral", highlighting attractive valuations, supportive government policies, and resilient domestic investor flows. This upgrade signifies a strategic shift, positioning India as an appealing market amid volatility in other Asian markets.
Foreign investors have heavily gravitated towards AI-related stocks in Asia recently, partly by reducing their exposure to India. Consequently, India is currently the most underweight market in Global Emerging Market (GEM) portfolios, with only a quarter of the funds tracked by HSBC being overweight on India compared to their benchmark. HSBC views India as a good hedge against AI and a source of diversification for those concerned about the AI rally. The firm anticipates India will be a significant beneficiary of additional funds flowing into the EM region.
According to a report by HSBC Global Investment Research, Indian equities are expected to experience increased foreign inflows, and recent market trends suggest the worst of the underperformance is over. This presents an opportunity to diversify away from the global AI rally. Herald van der Linde, CFA and Head of Equity Strategy, Asia Pacific, noted that Indian equities are currently the biggest underweight in GEM portfolios, with only a quarter of the funds tracked by the firm overweight on India.
While retaining its bullish view on the Indian equity market, HSBC believes that the benchmark equity index—BSE Sensex—may touch the 94,000-mark by December 2026. On a year-to-date basis, Sensex and Nifty50 have gained 6.6% and 7.89%, respectively, till November 6.
Risks to this outlook include a delay in the earnings recovery, further diversion of global flows into the AI theme, and reduced domestic appetite for equities. However, valuations are no longer as significant a concern as they were a year ago, and the Indian market now offers value compared to Chinese equities. Consumer-related sectors, including autos, are poised to benefit from GST reductions, lower inflation, and lower interest rates.
