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Goldman Sachs has downgraded Indian equities to "market weight," citing a worsening macroeconomic outlook driven by persistently high energy prices and weaker earnings growth prospects.
In its India Strategy report dated March 26, Thursday, the global investment bank said that "higher-for-longer energy prices lead to deteriorating macro mix for India," as it raised oil and gas price forecasts amid continued disruption risks to Strait of Hormuz flows. Reflecting India's vulnerability to energy shocks, Goldman Sachs noted that it has "lowered 2026 GDP growth by 1.1pp to 5.9%, raised CPI forecast by 70bp, widened current account deficit to 2% of GDP, weakened INR, and added 50bps rate hikes in 2026." The brokerage also cut its earnings growth expectations, stating, "We lower our earnings growth forecast materially for India, by 9pp cumulatively over the next 2 years, to 8%/13% for CY26/27 (vs. 16%/14% prior)." It added that consensus estimates are likely to see "meaningful" downgrades over the next few quarters, particularly in cyclical sectors. Goldman Sachs flagged near-term pressure on investor sentiment, highlighting that "forthcoming earnings cuts... will likely impede foreign re-buying after persistent net selling." Weak foreign flows and rising domestic interest rates are expected to weigh on valuations, with the report noting that these factors "point to a lower fair-value multiple in the near-term." Amid these headwinds, the firm said it is "downgrading India to market weight" and prefers a more defensive positioning. "Amid worsening macro and slowing earnings growth, we lower Indian equities to market weight from overweight," the report said, adding that the risk-reward has become less attractive relative to other Asian markets. Goldman Sachs also revised its NIFTY 12-month target to 25,900 from 29,300 earlier, implying a potential upside of about 13%, but warned that "risks [are] tilted to the downside in the next 3 to 6 months" as markets may not yet fully reflect expected earnings cuts. Sectorally, the firm recommends a tilt toward defensives and quality stocks. "We prefer defensive over cyclical sectors," it said, maintaining overweight positions in banks, staples, telecoms, defence, and upstream energy, while remaining underweight on downstream sectors such as autos, NBFCs and oil marketing companies. The report also emphasized a shift toward resilience and balance sheet strength. "We advocate a shift towards quality favoring companies with stable earnings and strong balance sheets," Goldman Sachs said, adding that sectors with low sensitivity to oil shocks could outperform in the current environment. However, despite near-term challenges, the firm sees potential upside triggers, including "earlier-than-assumed resumption of oil flows, and a clear recovery in India's earnings cycle," while maintaining a preference for structural themes such as energy security and defence. (ANI)
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