In a significant move reflecting the prevailing global economic landscape, HSBC has downgraded its outlook on Indian equities from ‘neutral’ to ‘underweight’, marking the second such reduction within a month. This decision comes against the backdrop of soaring global oil prices, driven by ongoing tensions in West Asia, particularly the conflict involving Iran.

The latest downgrade, reported on Thursday, highlights concerns over how elevated oil prices could adversely affect corporate earnings in India. This follows an earlier downgrade on March 31, when HSBC revised its rating from ‘overweight’ to ‘neutral’ due to similar economic apprehensions. The firm now suggests that investors should reduce their holdings in Indian stocks as inflationary pressures mount.

As of Thursday, Brent crude oil was trading above the $100 per barrel mark, a stark increase from $78 per barrel on February 27, just before the outbreak of the conflict. The uncertainty surrounding diplomatic efforts, particularly between the United States and Iran regarding a potential resolution, continues to fuel speculation and anxiety in global markets. Consequently, this volatility has contributed to a bearish trend in Indian stock indices as well as markets in Tokyo, Hong Kong, Shanghai, and other major Asian cities.

In India, the impact is palpable, with the benchmark Sensex dropping nearly 7.9% and the Nifty index falling approximately 6.7% year-to-date, according to reports. Investors are becoming increasingly cautious, and HSBC’s analysis indicates that India is now perceived as less appealing compared to its North East Asian counterparts in the current macroeconomic environment.

HSBC’s note emphasizes that the ongoing war in West Asia has shifted investor focus to potential downsides rather than opportunities, raising red flags about India’s economic growth trajectory. With inflation concerns and high oil prices looming large, the outlook for Indian equities appears more precarious than ever.