India Equity Strategy Report

Market Outlook

Despite a sharp 55% oil price spike, HSBC believes there is limited room for further de-rating in Indian equities, as valuations have already reached stressed levels seen in past crises.

Market Sensitivity

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The market has absorbed the bulk of the oil-and-FX shock, with a 10% supply-driven rise in oil prices typically associated with a 1.3% decline in the broader Indian equity index. Currency weakness magnifies the pain, with every 1% depreciation in the INR versus the USD adding another 1% market drag.

Earnings Risk

Near-term earnings are cushioned, with most companies holding several weeks of inventory for both inputs and finished goods. Direct exposure is confined to a handful of sectors, including airlines, oil marketing companies, and agrochemicals. However, the bigger test comes in FY27, with a 20% rise in crude translating into roughly 1.5 percentage points of earnings compression for FTSE India companies.

Scenarios

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• Oil at USD 80/bbl: 15% growth in FY27 EPS
• Oil at USD 100/bbl: 13% growth in FY27 EPS
• Oil at USD 120/bbl: 11% growth in FY27 EPS (a 5ppt hit)

Clear Winners and Losers

High downside risk:

• Airlines
• Oil marketing companies
• Paints
• Agro-chemicals
• Real estate
• Consumer electronics
• Autos

Medium risk:

• FMCG
• Downstream gas utilities
• Retailers
• Lenders
• Metals
• Cables & wires
• Industrials

Low / neutral / positive:

• Upstream oil
• Insurers
• IT services
• Software services

Recommendation

HSBC recommends a rotation into defensives and quality compounders that now look even more compelling.