Stock market underperformance to unwind in 2026; double-digit return likely: HSBC

HSBC in its outlook 2026 note said Indian equities underperformed most global markets in 2025, driven by earnings misses and India’s relatively weak position in the AI value chain. While structural challenges persist, the brokerage believes a part of this underperformance should unwind in 2026. It highlighted that government initiatives to revive consumption on likely potential tax cuts, RBI rate cuts and easing of trading restrictions, together with a potentially more favourable regulatory backdrop, could enable India to deliver a double-digit return in 2026.

At the sector level, HSBC expected a modest recovery in IT demand, a pickup in domestic consumption, and stronger credit off-take. It said cement consolidation may lift prices, while the oil and gas sector may benefit from higher gas supply and softer crude prices. The brokerage reiterated its positive stance on property developers as homebuyers upgrade to larger homes, and continued to find insurance and hospitals attractive.
It classified domestic sectors into three evolutionary buckets: Pure-play penetration stories such as quick commerce and healthcare;m arket-expansion themes such as passenger vehicles and consumer durables; and mature sectors such as fast-moving consumer goods.

It noted that growth drivers diverge across these stages, implying that investors need to recalibrate valuation expectations accordingly.

In the long term, HSBC said favourable demographics remain a key strength. Building manufacturing capabilities—especially in semiconductors and electronics—and improving rural incomes should add to the structural story. While high-end manufacturing and services attract significant attention, the brokerage emphasised the need to accelerate low-tech manufacturing to generate jobs for India’s young workforce. Conversely, it flagged persistent gaps: under-investment in education from primary to tertiary levels, slow urbanisation compared to China and Indonesia, and a high dependency ratio weighing on near-term productivity.

HSBC concluded that despite these push-pull factors, 2026 appears better positioned than 2025 for Indian investors. The note also referenced the first edition of its India’s Trajectory series published on 6 September 2023 and the fully updated second edition released on 4 April 2024.