US-Iran war impact: Global brokerage HSBC has doubled down on its bearish view on the Indian equities, downgrading it twice in less than a month as it sees US-Iran war clouds and the subsequent oil price spike to dent the earnings recovery.
HSBC, in a report dated 23 April, downgraded India to ‘underweight’ after changing its stance to ‘neutral’ from ‘overweight’ on 31 March. At the same time, it raised its stance on Korean equities to neutral, adding “we fund our Korea upgrade by downgrading India”.
What’s behind HSBC’s bearish view on Indian stocks?
HSBC expects India’s earnings recovery to be delayed amid the impact of higher crude oil prices. Brent crude is up almost 40% since the Middle East war, which started in late February, and is currently trading above $100 a barrel, raising inflation and growth risks.
“Given India’s reliance on imported energy and the potential knock-on effects on inflation and domestic demand, we are concerned about the durability of the ongoing earnings recovery,” said the brokerage. India is the world’s third-largest oil importer.
It added that the ongoing Middle East conflict has refocused attention on downside growth risks. While growth has shown signs of improvement in the last two quarters, HSBC now thinks the recovery from hereon will be delayed.
HSBC said that the Indian government is likely to revise retail petrol and diesel prices higher once state elections conclude, as energy prices are likely to remain elevated in the months, resulting in a renewed rise in inflation, which could “undermine the gradual recovery in demand and contribute to higher non-performing loans (NPLs) across the lending sector, creating downside risks to 2026 earnings”.
It expects consensus forecasts to be revised down in the coming months from current expectations of 16% YoY for 2026.
Though the Indian stock market‘s valuations have corrected meaningfully from their peak, they might appear elevated as earnings downgrades feed through, HSBC added.
It also highlighted concerns among foreign investors, particularly the risk of rupee depreciation if oil prices remain high, alongside rising worries about the impact of artificial intelligence on India’s software services sector. Foreign portfolio investors have already sold $18.5 billion worth of Indian equities in 2026, following net outflows of $18.9 billion in the previous year.
Despite this backdrop, HSBC continues to see opportunities among private banks, base metals, and select healthcare companies.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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