Has Dalal Street's near term outlook improved? HSBC lists 4 headwinds, 3 tailwinds to watch out for

Published 10 August 2026 · finance

The Indian stock market remained resilient despite global macroeconomic challenges, recording modest gains of 2% in July after a volatile month, and the near-term outlook

The Indian stock market remained resilient despite global macroeconomic challenges, recording modest gains of 2% in July after a volatile month, and the near-term outlook is now improving, assuming no re-escalation of geopolitical conflicts, HSBC Mutual Fund said in its latest report.HSBC 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. It added that announcements of potential trade deals with the European Union and US should also support exports.India’s corporate earnings recovery continues with strong Q1 FY27 results growth till date and more earnings beat than misses over consensus estimates, HSBC noted, adding that Nifty valuations are now in-line with 10-year average. "We remain constructive on Indian equities on a longer-term basis. Near-term outlook is now also improving assuming no re-escalation of geo-political conflicts," it added.Explaining the macro-view, HSBC Mutual Fund said the re-escalations in the Middle East that effectively ended the interim ceasefire agreement spooked investors, while the disruption was compounded by a blockade in the Red Sea. With stable fiscal deficit for Q1 FY27, HSBC believes the government should be able to boost infrastructure spending in the second half of the ongoing FY27, although the full year may be flattish given the impact of the conflict on government finances.

Interest rate cuts by RBI, GST rate cut, and income tax rate cut announced by the Union government in FY26 should support consumption in FY27, according to the mutual fund house, which however noted that the risk of a below normal monsoon with negative consequences for food production and higher food inflation remains.HSBC has listed 4 key headwinds to watch for Dalal Street’s trajectory in the future. 1) Global commodity pricesBenign global prices of crude oil and fertilisers have been a positive for India from inflation, fiscal deficit and corporate margins perspective in 2024 and 2025. However, HSBC said that these trends have now reversed due to geopolitical conflict.This will likely be a headwind for India in 2026, according to the mutual fund house. This comes as oil prices remain elevated amid fresh escalations in the Middle East war, but sharply lower than the highs above $120 per barrel which were seen earlier this year during the raging war.2) Weak global growthOverall weak global growth is also likely to remain a headwind for India’s demand going forward, according to HSBC. It added that this is driven by a risk of tariffs, general policy uncertainty, mercantilist policies of certain countries and geo-political conflicts.3) Below normal monsoonRainfall in July was 1% above the long-period average, but that recovery followed a severely deficient June.