Goldman Sachs downgrades Indian equities, slashes Nifty target by 14%

Goldman Sachs downgrades Indian equities, slashes Nifty target by 14%

Goldman Sachs has downgraded its rating on Indian equities from 'overweight' to 'marketweight,' and slashed its Nifty 50 target.

The global brokerage firm has lowered its 12-month Nifty target to the range of 25,300-25,900 from the previous estimate of around 29,300-29,500. This marks a significant cut of nearly 14%.

The downgrade comes amid deteriorating macro conditions and a potential earnings downgrade cycle due to rising energy prices amid the US-Iran war.

Earnings downgrade cycle expected to begin

Goldman Sachs expects an earnings downgrade cycle to begin in the next two to three quarters, especially for sectors linked with domestic consumption and investment.

The firm has already revised its earnings growth estimates for India downwards to 8% in 2026 and 13% in 2027.

This is much lower than earlier projections as consensus estimates have yet not fully adjusted despite a softening market sentiment.

Impact of rising energy prices on India

The sustained rise in energy prices, particularly due to tensions around the Strait of Hormuz, is a major factor behind Goldman Sachs' downgrade.

The firm said that high oil prices are worsening India's macroeconomic outlook due to its heavy reliance on imports.

It estimates that a $45 per barrel increase in crude over three months could cut India's full-year earnings growth by some 9%—a sharper impact than seen across broader Asia.

Changes in GDP growth and inflation outlook

In light of these challenges, Goldman Sachs has revised India's 2026 GDP growth forecast to 5.9% and raised its inflation outlook.

The firm expects a current account deficit widening to 2% of GDP, a weaker rupee, and around 50 basis points of rate hikes in 2026.

These changes indicate a tighter financial environment amid slowing growth.

Foreign portfolio investors pull out record $42 billion from India

Goldman Sachs also notes that foreign portfolio investors have pulled out a record $42 billion from Indian equities since the September 2024 peak.

The firm cautions that earnings downgrades, persistent global uncertainty, and investor concerns over AI's impact could delay a meaningful return of foreign capital.

Weaker foreign flows and domestic rate hikes are likely to keep market valuations under pressure in the near term.