Goldman Sachs downgrades India, cuts Nifty 50 target by 14% to 25,300

Goldman Sachs has downgraded India's equity market to "marketweight" from its earlier rating of "overweight", and also cut its target for the Nifty 50 index, in its latest note on Friday, March 27.

The brokerage has cut its 12-month Nifty 50 target to 25,300 from 29,500 earlier, a 14% cut, along with "materially lowering" their earnings growth forecast for India. For calendar year 2026 and 2027, the earnings growth forecast has been cut to 8% and 13% respectively, from 16% and 14%, prior to the war in West Asia.

"We expect consensus estimates to be cut meaningfully over the next 2-3 quarters, in-line with trends in prior oil-supply shocks, with the largest cuts in domestic cyclical pockets," Goldman Sachs wrote in its note.

Foreign Portfolio Investors (FPIs) have sold a record $42 billion in Indian equities since the September 2024 peak. Goldman Sachs believes that the forthcoming earnings cuts, on top of the ongoing investor concerns regarding the potential adverse impact of AI, will mostly impede their re-entry into the markets.

"Weak foreign flows, coupled with rate hikes domestically, and likely softer risk appetite globally point to a lower fair-value multiple in the near-term," the Goldman Sachs note stated.

Goldman Sachs stated that their commodity analysts have raised their oil and gas price forecasts due to a longer impairment of Strait of Hormuz flows. As a result of India's greater vulnerability to the energy shock, economists at the firm have already lowered India's 2026 GDP growth to 5.9%, raised their CPI forecasts by 70 basis points, widened their current account deficit estimates to 2% of GDP, and factored in a weaker rupee, along with 50 basis points of rate hikes in 2026.

The brokerage sees risks tilted to the downside over the next three to six months and that the market may not be pricing in the full extent of the earnings cut.

As a result, Goldman Sachs is overweight on banks, staples, telecom, defence and energy, while it has downgraded domestic cyclicals such as Durables, Autos and NBFCs to "market-weight", and oil marketing companies to "underweight."

Risks to the upside include earlier-than-assumed resumption of oil flows, and a clear recovery in India's earnings cycle.