HSBC Downgrades Indian Equities Second Time In A Month Anticipating Elevated Oil Prices Impact

War in West Asia is weighing on the Indian stock market, and tough days do not seem to subside even in the coming quarters.

According to HSBC, the war is a threat to the recovery in India Inc’s earnings. Hence, the global financial institution has downgraded Indian equities to ‘underweight’ from ‘neutral’. This is its second downgrade for Indian equities in less than a month, according to a report by Reuters.

“India now looks less attractive than North East Asian peers in the current macro setting,” HSBC said in a note on Thursday, according to the report.

Benchmark indices Nifty 50 and Sensex have slipped over 6.7 percent and 7.9 percent this year. The Indian benchmarks are among the worst-performing across global equity markets.

Despite ongoing peace efforts to contain the war, crude oil prices have not shown any respite. Global oil benchmark Brent Crude on Thursday breached the $100 per barrel mark for the first time in two weeks.

Elevated oil prices are set to impact the earnings of import-dependent Indian businesses.

HSBC anticipates that oil and gas markets may remain tight even in the June and September quarters. Hence, the consensus earnings growth forecast for 2026 may be revised lower. Currently, the earnings forecast is set at 16 percent.

A 20 percent increase in crude oil prices could trim about 1.5 percentage points from the earnings growth of India Inc.

The brokerage said that although domestic equity valuations have corrected from their peaks, they may appear expensive again as earnings downgrades filter through.

According to the report, foreign institutional investors have already sold $18.5 billion of Indian equities so far this year. This is close to the full-year figure of $18.9 billion for 2025.

Domestic flows, particularly through SIPs, have remained supportive. Still, stronger IPO activity after a seasonally weak first quarter may require a renewed pickup in foreign demand, the brokerage said.