India Insights October 2026

India Insights Strong buffers and broader opportunities

October 2026 Marketing Communication. For professional clients only.

Market spotlight: From external pressure to stronger buffers India's economy has faced a number of external threats, ranging from higher oil prices to tighter global financial conditions. However, it has absorbed these shocks much better than expected, supported by stronger foreign currency inflows and a more stable current account, while policy measures have strengthened the buffer against further volatility. To illustrate India’s resilience, real GDP expanded 7.8% year-on-year in the three months to June 2026, ahead of the 7.4% market expectation and the RBI’s 7.0% forecast. Investment was particularly strong, with gross fixed capital formation rising around 12%, while net exports also made a meaningful contribution. This points to a broader growth mix rather than one dependent on consumption alone. A second source of resilience has come from foreign currency funding. Measures introduced by RBI on 8 June improved the economics of Foreign Currency Non-Resident (Bank), or FCNR(B), deposits for non-resident Indians, including through attractive hedged returns. This prompted an unusually strong response with around US$133 billion flowing through FCNR(B) deposits by end-August, taking total FCNR(B), external commercial borrowings (ECBs) and other foreign currency borrowing to US$143.5 billion. Those inflows have helped rebuild foreign exchange reserves to US$780 billion by mid-September, from US$671.6 billion around the June policy announcement window. That does not necessarily imply sustained rupee appreciation, as elevated oil prices and global rates remain significant headwinds. Instead, the larger reserve buffer reduces the risk that renewed external pressure turns into a disorderly currency adjustment. India’s FX reserves versus the USD/INR spot rate 840 100

440 FX reserves 60 USD INR FX (RHS) 340 50

Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22 Feb-23 Aug-23 Feb-24 Aug-24 Feb-25 Aug-25 Feb-26 Aug-26

Source: Bloomberg, Reserve Bank of India, HSBC Asset Management, September 2026.

The improvement is also broader than reserve accumulation alone. India’s resilient services exports and remittances continue to offset part of the goods deficit, giving the current account a more stable foundation. The policy challenge is therefore changing. Earlier in the year, attention centred on external vulnerability. Now, resilient growth and stronger capital inflows are creating a different set of questions around domestic liquidity and inflation. That transition carries directly into markets. For equities, stronger fundamentals are beginning to show through in earnings and foreign flows. While for fixed income, these inflows strengthened India’s external position but created substantial surplus liquidity for the RBI to absorb. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. The views expressed above were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target.

India equities Fundamentals are beginning to catch up The stronger macro foundation is increasingly visible in Indian equities. The first half of 2026 was difficult as global investors favoured AI-heavy markets, while higher energy prices and rupee weakness added to the pressure. More recently, however, market leadership has started to broaden, allowing India’s more domestically driven earnings story to come back into focus. India’s equity story is shifting from recovery to Corporate results provide the clearest evidence of that improvement. Revenue growth a broader, domestically among NIFTY companies in the latest reporting season was the strongest in ten driven growth cycle quarters, while earnings growth of around 19% came in meaningfully ahead of…