Additionally, the global financial research firm maintained its previous target for Sensex at 94,000 for the upcoming year.
"We are overweight India in an Asia context; our unchanged Sensex end-2026 target is 94,000, up 11 per cent from current levels," the HSBC report said.
HSBC, in the report, noted that consensus forecasts point to 10 per cent growth in FY26e and 16 per cent in FY27 (14 per cent for large caps).
"The worst of the earnings downgrades seems to be behind us, and recent results have boosted our confidence in the growth outlook," it highlighted.
Valuations are now more reasonable, with India's premium over other emerging markets back to normal levels.
"We also anticipate more foreign flows as funds look to diversify beyond AI-focused sectors in Asia," the firm noted.
Sectors including autos should benefit from lower rates, while telecoms enjoy strong pricing power and limited competition.
"We also like Energy because the companies in the sector are well-placed, given softer oil prices," the report said.
However, according to the report, four factors could dampen interest-- a slower growth recovery, AI enthusiasm elsewhere in Asia, rising geopolitical tensions, and currency swings.
A trade deal with the US would be positive, but, in our view, it is not essential for the return of foreign investors, it added.
Earlier, SBI Funds Management in its report said that India’s market outlook is turning increasingly constructive, as resilient GDP growth, improving earnings expectations and supportive monetary policy begin to lift investor sentiment.
The fund management company noted that while near-term challenges persist, the overall environment for equities is gradually strengthening, setting the stage for a measured but steady improvement ahead.
According to SBI Funds, India’s real GDP growth remained well above forecasts, with the economy expanding 7.8 per cent in Q1 FY26 and 8.2 per cent in Q2 FY26.
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