Indian Market Outlook: HSBC MF stays bullish on India amid growth revival and fair valuations
Indian equity markets continued their upward momentum in May 2025, driven by solid domestic and foreign investor flows, according to HSBC Mutual Fund. In its latest monthly commentary, HSBC MF said the BSE Sensex and NSE Nifty gained 1.7 percent and 1.9 percent, respectively, during the month, reflecting a steady rise in frontline indices.
Broader markets displayed even stronger performance, HSBC MF noted. The NSE Midcap Index surged 6.0 percent, while the BSE Smallcap Index posted an impressive 10.6 percent gain. Sectorally, Capital Goods emerged as the top performer, followed by Realty, Metals, IT, and Autos. HSBC MF said Power and Oil & Gas tracked in line with the Nifty, while Healthcare and Banking stocks also delivered gains but lagged behind. FMCG, however, ended in negative territory.
On the earnings front, HSBC MF highlighted a marginal downward revision of 1 percent in the Nifty consensus EPS estimate for calendar year 2026 during May. Despite this, the market rally pushed the Nifty’s one-year forward price-to-earnings (PE) multiple to 20.4x. HSBC MF explained that this valuation is now in line with the index’s 5-year average and represents about a 10 percent premium to the 10-year average. It added that midcap and smallcap valuations have also recovered in tandem with their recent price rallies.
Growth Cycle Bottoming Out, Valuations Turn Reasonable
Looking ahead to June and beyond, HSBC MF expressed optimism that India’s growth cycle may be bottoming out. The fund house pointed to several tailwinds, including the decline in crude oil prices, a supportive interest rate and liquidity environment, and expectations of a normal monsoon, all of which could aid a revival in growth.
While HSBC MF acknowledged that global trade uncertainties could continue to weigh on private capital expenditure in the short term, it remained confident about the medium-term trajectory. “India’s investment cycle is poised for an uptrend, driven by sustained government infrastructure push, rising private investments, and a revival in the real estate sector,” the fund house said.
HSBC MF further highlighted emerging sectors like renewable energy, localisation of high-tech components, and India’s expanding role in global supply chains as key catalysts that could accelerate growth. “Nifty valuations are now aligned with their 5- and 10-year averages post the recent correction, and we remain constructive on Indian equities,” it added.
Global Risks Persist, But Domestic Tailwinds Strong
On the macroeconomic front, HSBC MF flagged a challenging global backdrop marked by rising geopolitical tensions and economic uncertainties. It noted that the recent announcement of reciprocal tariffs by the US government could cast a shadow on both US and global growth prospects. However, India’s Q4FY25 GDP growth at 7.4 percent year-on-year was a bright spot.
HSBC MF pointed out that the government has sought to stimulate private consumption by reducing income tax rates in the Union Budget. Although government capex has moderated, it believes that private capex may pick up gradually, supported by policy measures and easing liquidity conditions. “RBI’s shift to more accommodative monetary policy, amid a weakening dollar and lower crude oil prices, has created further room for easing,” HSBC MF said, adding that a 50 basis point rate cut is now widely expected by economists.
Additionally, the fund house cited the forecast of an above-normal monsoon as a positive driver for rural demand in the coming months.
Despite headwinds such as weak global growth, global policy uncertainty, and slowing government capex, HSBC MF identified several domestic positives. These include a recovery in private capex, strong demand and lower inventories in the real estate sector, and stable global commodity prices benefiting India’s inflation and fiscal dynamics.
In summary, HSBC MF said it remains constructive on Indian equities despite global uncertainties, as domestic fundamentals continue to strengthen. The fund house believes that a supportive policy environment, improving macro indicators, and encouraging trends in private and public investments are likely to sustain market momentum over the medium term. While challenges remain, particularly on the global front, the outlook for India appears resilient and poised for continued growth.
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