Recent analysis from HSBC Mutual Fund (MF) suggests that India's economic growth may have bottomed out, with strong domestic fundamentals paving the way for a revival. The report highlights several factors supporting this positive outlook, including favorable interest rates and liquidity conditions, a decline in crude oil prices, and expectations of a normal monsoon. These developments are expected to boost economic activity in the coming quarters.
India's GDP growth has already shown signs of resilience, improving to 6.2% year-on-year in the third quarter of FY25. The Reserve Bank of India (RBI) has also acknowledged the improving growth outlook, raising its FY26 GDP growth forecast to 6.8% year-on-year from the previous 6.5%. This revision came during the RBI's October 1, 2025, policy meeting, where key interest rates were held steady and a neutral policy stance was maintained, alongside regulatory changes to bolster credit growth.
While global trade uncertainties remain a concern and could potentially delay a full recovery in private capital expenditure in the short term, HSBC MF remains optimistic about India's medium-term investment outlook. This optimism is based on several factors, including strong government spending on infrastructure and manufacturing, a recovery in the real estate sector, and a gradual revival in private investments. Key areas expected to attract higher private investment include renewable energy and its related supply chains, as well as the localization of high-end technology manufacturing. India's increasing integration into global supply chains is also expected to contribute to faster economic growth in the years ahead.
The government's efforts to support growth, including income tax rate cuts announced in the Union Budget, are expected to boost private consumption, which had previously shown signs of slowing. Recent data indicates that India's retail inflation fell to an eight-year low in September, easing below the RBI's lower-end target range. This could further boost liquidity and economic sentiment.
Despite a 1% downward revision in Nifty's earnings per share estimate for CY26, HSBC MF notes that the forward price-to-earnings ratio of 20.4x is in line with its five-year average and carries a 10% premium to the 10-year average. Stock market valuations have also corrected recently, bringing Nifty valuations in line with their 5- and 10-year averages, making Indian equities relatively more attractive. The outlook for Indian equities remains positive, supported by the country's improving medium-term growth prospects.
However, the global macroeconomic environment remains challenging, with heightened geopolitical and economic uncertainties. The imposition of 50% US trade tariffs and other geopolitical factors could affect both US and global growth. Additionally, supply disruptions and rising raw material prices could impact the fertilizer sector, potentially increasing subsidy requirements.
Overall, while some challenges remain, the Indian economy appears to be on a path to recovery, supported by strong domestic fundamentals and proactive government policies. HSBC MF's analysis suggests that the worst may be over, and a period of renewed growth lies ahead.
