Indian Equities Seen Attractive Over Long Term on Earnings, Private Capex

New Delhi, Aug 10: Indian equities are expected to remain attractive over the longer term, supported by improving corporate earnings, a recovery in private capital expenditure and the potential for stronger export growth, according to a report by HSBC Mutual Fund.

The fund house said India's investment cycle is likely to remain on a medium-term uptrend, driven by government infrastructure spending, continued policy support for manufacturing and an expected pickup in private-sector investment.

Potential trade agreements with the European Union and the US could provide further support to India's exports, while the ongoing recovery in corporate earnings is strengthening the outlook for equities.

The report said first-quarter FY27 earnings have so far remained strong, providing additional support to the market.

"Nifty valuations are now in-line with the 10-year average. Near-term outlook is now also improving assuming no re-escalation of geopolitical conflicts," the fund house said.

Indian equities gained 2.2 per cent in July despite volatility caused by geopolitical tensions, crude oil price movements and corporate earnings. The broader market also performed positively, with the Midcap Index rising 1.8 per cent and the Smallcap Index gaining 2.5 per cent.

Foreign institutional investors invested around $2.5 billion in Indian equities during July, while domestic institutional investors recorded inflows of $3.7 billion, supported by steady SIP and insurance flows.

Among sectors, IT, real estate and automobiles were among the better performers in July, while healthcare also outperformed the Nifty. Metals, FMCG, infrastructure, banks and telecom underperformed, while utilities, energy and industrials were among the weakest sectors.

The report also noted an improvement in monsoon conditions. India's cumulative rainfall deficit, which stood at 40 per cent below the long-period average at the end of June, narrowed to 12 per cent by the end of July.

The fund house, however, said it remains watchful of the monsoon outlook following the India Meteorological Department's forecast of below-normal rainfall for August.

On the monetary policy front, the Reserve Bank of India maintained the repo rate at 5.25 per cent with a neutral stance. GDP growth for FY27 was revised marginally higher to 6.7 per cent, while the inflation forecast was lowered to 5.0 per cent.

In fixed income, HSBC Mutual Fund sees opportunities in short-duration, banking and PSU debt, and corporate bond funds, depending on investors' investment horizons.

The report maintained a constructive longer-term outlook for Indian equities, citing the combination of earnings recovery, improving private investment, steady domestic flows and potential trade opportunities as key supports for the market.