HSBC Global Research has identified India’s limited participation in the global artificial intelligence boom as a significant risk to its equity markets, despite projecting the BSE Sensex to reach 94,000 by 2026. The brokerage upgraded India to “overweight” six weeks ago, citing its role as a strategic hedge for foreign institutional investors (FIIs) seeking to avoid AI-led rallies in developed markets. With India now the most underweighted major market in global portfolios, HSBC anticipates renewed FII inflows as emerging market allocations increase.

Valuations remain elevated but are considered manageable following recent corrections, with Indian equities underperforming Asian peers by approximately 30% over the past year. HSBC asserts that the worst of the downturn has passed and that India offers relative value compared to China. Only about 25% of tracked global funds maintain overweight positions in India, positioning the market to benefit disproportionately from any reallocation toward emerging economies.

Corporate earnings are expected to recover broadly by 2026, led by the banking, technology, and consumption sectors. Banks, which lagged in 2025, are projected to see margin expansion as high-cost deposits mature, while technology firms benefit from improving global demand. The recent reduction in goods and services tax rates is anticipated to support growth in the automotive sector. Long-term structural drivers—infrastructure development, retail formalization, and integration into global supply chains—remain firmly in place.

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Key downside risks include delays in earnings recovery, diversion of global capital to AI-centric markets, and weakening domestic investor sentiment. Should FIIs prioritize AI-exposed regions, India’s underweight status could persist. Nevertheless, HSBC maintains a constructive outlook, emphasizing India’s undervalued position and potential for outsized gains in a rebalancing scenario.

With India serving as a non-AI counterweight in global portfolios, HSBC’s 94,000 Sensex target reflects confidence in structural growth and improving fundamentals, provided execution risks are contained.

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