New Delhi: Foreign investor outflows and rising global bond yields are likely to remain key headwinds for Indian markets, even as a recovery in corporate earnings is expected to drive equity returns in the near term, HSBC Mutual Fund said in its equity and debt market reviews.
The fund house said Indian equities faced a broad-based correction in September amid rising crude oil prices, renewed geopolitical tensions in the Middle East and tighter monetary policies across major economies. It expects earnings growth to play a central role in determining market performance amid continued global uncertainty.
The Nifty 50 declined 6 per cent in September, while the Nifty Midcap 150 fell 7.1 per cent and the Nifty Smallcap 250 dropped 3.1 per cent. Information technology and automobile stocks were the worst-performing major sectors, falling 11 per cent and 9 per cent, respectively.
Foreign institutional investors (FIIs) withdrew USD 4.1 billion from Indian equities during the month, reversing inflows of USD 2.4 billion in August and taking their total selling in 2026 to USD 28.3 billion, the report said. Domestic institutional investors, however, remained net buyers, bringing in USD 8.1 billion during September.
HSBC said India's longer-term equity outlook remained supported by a potential recovery in corporate earnings, higher private investment and possible trade agreements with the European Union and the United States.
“Amid global uncertainty, corporate earnings growth is likely to be the driver of market returns in the near-term,” the fund house said.
However, the reports flagged higher global bond yields and commodity prices as continuing risks. Brent crude rose 14 per cent during September, while the global shift towards tighter monetary policy added pressure on Indian debt and equity markets.
In its debt market review, HSBC said the RBI's October 7 rate hike to 5.50 per cent and shift to calibrated tightening reflected rising inflation risks from elevated commodity prices and deficient monsoon conditions. The fund house expects the repo rate to rise further to 6 per cent if inflation worsens or global interest rates remain elevated.
While debt market sentiment remains weak, HSBC said bond valuations were becoming more favourable after yields rose significantly, and it would consider adding duration if US Treasury yields or crude oil prices moderate sustainably.
HSBC also noted that the Nifty 50 was trading at 17 times its one-year forward earnings, around 13 per cent below its five-year average valuation.
The fund house said the outlook for Indian markets would depend on the recovery in corporate earnings, a possible revival in private capital expenditure and developments in global yields, crude oil prices and domestic inflation.