Global bond yields may limit India's rate-cut room, HSBC Mutual Fund says

Rising global bond yields are likely to remain a headwind for India's monetary policy and could narrow the scope for further rate cuts, even as the country's economic growth holds up, HSBC Mutual Fund has said in its latest market outlook.

The fund house said the path of Indian interest rates would be shaped not only by domestic conditions but also by the global rate environment, especially the US rate cycle. With growth in India remaining broadly resilient, it added, any move on rates will hinge on the US cycle and on whether domestic inflationary pressures stay persistent.

Higher global yields tend to draw overseas investment and can weigh on emerging-market currencies and financial markets. For India, a sustained rise in yields could therefore become an important consideration for the Reserve Bank of India as it assesses the room for monetary easing.

HSBC Mutual Fund also identified commodity prices as a major risk. It noted that benign crude oil and fertiliser prices had helped India on inflation, the fiscal deficit and corporate margins in 2024 and 2025, but said geopolitical conflict has now reversed that trend and will act as a headwind in 2026-27. Costlier commodities could add to inflation and make aggressive easing harder.

On the growth side, the fund house expects the investment cycle to stay on a medium-term uptrend. It pointed to government infrastructure spending, continued support for manufacturing and a possible recovery in private investment as factors that could sustain activity.

Private investment is expected to pick up as industrial capacity utilisation remains reasonably high, while the continued expansion of the Production Linked Incentive scheme could encourage companies to invest more in targeted manufacturing sectors. Potential trade agreements with the European Union and the US are also seen supporting Indian manufacturing and private-sector investment over the medium term.

The assessment comes as India navigates a difficult global macroeconomic backdrop marked by elevated yields, geopolitical tensions and a reversal in commodity-price trends.