HSBC downgrades India equities to underweight

HSBC downgraded Indian equities to “underweight” from “neutral” on April 23 , pointing to rising energy costs linked to the Middle East conflict and the risk that higher oil prices could undermine the durability of India’s corporate earnings recovery. The move was described as HSBC’s second downgrade for India in less than a month.

In its note, HSBC highlighted the scale of the oil move: Brent crude has risen 42% since late February and is trading above $100 per barrel . The brokerage said the increase creates inflation and growth risks for India, which it described as the world’s third-largest oil importer. HSBC also flagged potential pressure on the rupee if elevated oil prices persist.

HSBC said it expects oil and gas markets to remain tight through the June and September quarters. It added that this backdrop could trigger downward revisions to consensus earnings expectations for 2026, which it cited as 16% year-on-year growth . HSBC quantified the sensitivity by stating that a 20% increase in crude prices could reduce earnings growth by 1.5 percentage points .

While noting that Indian equity valuations have already corrected, HSBC argued that valuations could look expensive again if earnings downgrades begin to materialize. The brokerage also pointed to foreign flow dynamics, saying foreign investors have sold $18.5 billion of Indian stocks in 2026 after selling $18.9 billion in 2025. HSBC said domestic flows have been supportive, but it added that a renewed pickup in foreign demand is needed, particularly as IPO activity increases.

Beyond energy and currency risks, HSBC cited concerns about the impact of artificial intelligence on Indian software services. It also said that, despite identifying selective opportunities in private banks, base metals, and healthcare, the broader investment case for Indian equities has weakened relative to North East Asian peers.