Oil Surge Sparks Fresh Downgrade: HSBC Turns Bearish on Indian Markets

HSBC has downgraded Indian equities to “underweight” from “neutral,” marking its second downgrade in less than a month, Reuters reported, citing the brokerage’s note. The move comes amid rising crude oil prices triggered by the war in Iran, with uncertainty clouding the durability of India’s earnings recovery.

Global crude oil, of which India imports nearly 90% to meet its domestic demand, has surged over 40% since the war began on February 28. Benchmark Brent crude, which was trading near $65 per barrel, has remained above $90 per barrel for more than seven weeks.

Elevated energy prices are expected to persist in the near to medium term, weighing on India’s import bill, the rupee, and the current account deficit.

The ongoing uncertainty has also complicated the Reserve Bank of India’s policy outlook, with the Monetary Policy Committee (MPC) cutting its growth projection to 6.9% for 2026–27. The panel has also flagged the possibility of a rate hike if crude prices remain elevated, given the risk of imported inflation.

At its April 6–8 meeting, the RBI held the repo rate steady at 5.25% and maintained a neutral stance. It expects inflation to average 4.6%, within its target band of 4% ± 2%.

“India now looks less attractive than North East Asian peers in the current macro setting,” HSBC said in a note on Thursday. Benchmark indices, the Nifty 50 and BSE Sensex, have fallen 6.7% and 7.9%, respectively, so far this year—making India among the worst-performing markets.

Oil Prices to Remain Elevated

HSBC noted that crude and broader energy markets are expected to remain tight due to supply and production constraints through the June and September quarters.

Against this backdrop, it expects earnings forecasts for 2026 to be revised lower and currently projects 16% year-on-year growth. A 20% increase in crude prices could trim earnings growth by 1.5 percentage points (150 basis points), the report said.

The brokerage added that although Indian equity valuations have corrected, they may continue to appear expensive amid likely earnings downgrades.

Hot Money Flight

India continues to see sustained foreign investor outflows, which have been a key factor behind the rupee emerging as one of the worst-performing Asian currencies in 2025. The domestic currency has depreciated nearly 10% so far this year despite a weaker dollar, as investors shifted funds to safer assets and pulled back from emerging markets.

Foreign portfolio investors have offloaded $18.5 billion worth of Indian equities in 2026 so far, after withdrawing $18.9 billion in 2025, according to available data.