HSBC has sharply cut its forecast for India's GDP growth by 140 basis points, citing an energy price shock and a forecast of below-normal rainfall as the key pressures weighing on the economy.

A 140 basis point cut is a large move for a single revision, it signals that HSBC sees materially worse conditions ahead, not just a minor adjustment. The bank pointed to two specific headwinds: energy costs and the monsoon outlook. Energy shocks raise input costs across manufacturing, transport, and agriculture, squeezing margins and household budgets at the same time. A deficit rainfall forecast compounds the problem, since a weak monsoon typically reduces farm output, lifts food prices, and dampens rural demand, a significant driver of India's consumer economy.

Where This Sits Against Official Estimates

The Reserve Bank of India projected GDP growth at 6.9% for 2026-27 in its most recent estimate. HSBC's revised number would sit well below that, though the bank's exact revised figure was not disclosed in the available source. The gap between HSBC's view and the RBI's official forecast is the key tension here, it suggests the bank sees downside risks that the central bank's baseline does not fully capture.

What to Watch

The monsoon's actual progress through June and July will be an early test of whether the rainfall deficit materialises as feared. Any escalation in global energy prices, through supply cuts or geopolitical disruption, would add further pressure. On the policy side, the RBI has room to cut rates if growth disappoints, and the government could lean on capital spending to offset demand weakness. Whether those levers are used quickly enough matters for whether the growth slowdown stays contained or deepens.

Energy shock: Higher input costs across industries and transport could compress margins and slow investment.
Deficit rainfall: Weak monsoon risks lower farm yields, higher food inflation, and reduced rural spending power.
RBI baseline: The central bank's 6.9% forecast for 2026-27 now looks optimistic relative to HSBC's revised view.
Policy response: Rate cuts or fiscal stimulus are possible offsets, but timing and scale remain uncertain.

For markets, a growth downgrade of this size from a major global bank can shift sentiment on Indian equities and the rupee, particularly in rate-sensitive and consumption-driven sectors. Watch for whether other forecasters follow HSBC's lead in the coming weeks.