If the intent was to increase precision, either an arc mode display (as previously discussed) or a magnified window section of the HSI would be appropriate.
As for precision coming from showing it as an oval, the biggest problem is that the precision is variable--both across the gauge itself, and depending on if you're viewing it at 40% or 50/100%. Regardless of the type of information displayed, it should be immediately clear what the scale is--with an oval, it is continuously changing. And no matter what, the gauge should be as consistent across the cockpit as possible!
Bottom line--an HSI is a representation of 360 degrees around a circle, and it should therefore be presented as a circle.
Also, the HSI on the 40% page is not circular; see screenshot attached. Actually, I noticed it was an oval on the 40% page first...then toggled and was even more horrified!