Synopsis : Goldman Sachs believes Indian equities could stage a recovery over the next year as foreign selling eases, valuations become attractive and domestic fundamentals strengthen. The brokerage has retained its June 2027 Nifty target of 26,500 while favouring banks, large caps and utilities.
After a volatile first half of 2026, Goldman Sachs believes Indian equities could be preparing for a turnaround.
The global brokerage has retained its June 2027 Nifty target of 26,500, implying nearly 10% upside from current levels. According to the brokerage, improving domestic fundamentals, easing foreign selling and more reasonable valuations could support the next leg of the market recovery.
However, Goldman Sachs believes the leadership of the rally is likely to change, with large-cap stocks, banks and utilities expected to outperform, while exporters and expensive mid-cap growth stocks may lose momentum.
Here are the key takeaways from Goldman Sachs' latest India strategy report.
Goldman Sachs retains Nifty target of 26,500
Despite geopolitical uncertainty and elevated crude oil prices, Goldman Sachs believes the broader outlook for Indian equities remains constructive.
The brokerage expects the market to recover gradually as macroeconomic conditions improve and foreign investor positioning normalises.
According to Goldman Sachs, the first half of 2026 saw:
- Around 9% correction in the Nifty
- Significant valuation compression
- Heavy foreign institutional selling
The brokerage believes much of this weakness is already reflected in stock prices.
Macro outlook is improving
Goldman Sachs highlighted several factors supporting India's economy:
- Stabilising rupee
- Softer commodity prices
- Resilient domestic demand
- Healthy corporate balance sheets
The brokerage expects MSCI India earnings to grow around 10% in CY2026, slightly below current market expectations.
It also believes earnings upgrades are possible in sectors such as:
- Consumer retail
- Energy
- Cement
- Chemicals
- Consumer staples
- Services
Meanwhile, it expects pressure to continue in:
- Metals
- Mining
- Healthcare
Has the ₹2.5 lakh crore FII selling finally peaked?
One of Goldman Sachs' biggest arguments for a market recovery is foreign investor positioning.
During the first half of 2026, foreign investors sold nearly US$30 billion worth of Indian equities in roughly three-and-a-half months.
That translates to approximately ₹2.5 lakh crore of selling.
However, since mid-June:
- Foreign flows have turned modestly positive.
- Financial stocks have attracted fresh buying.
- India remains among the most underweight emerging markets in global portfolios.
Goldman Sachs believes this creates room for foreign investors to rebuild positions if confidence improves.
Large caps may outperform midcaps
Goldman Sachs expects market leadership to rotate back toward large-cap companies.
During the first half:
- Midcaps and small caps significantly outperformed large caps.
- Foreign selling remained concentrated in larger companies.
This has resulted in:
- Large caps trading near long-term valuation averages.
- Midcaps still trading well above historical averages.
According to the brokerage:
- Large caps now trade at nearly a 30% valuation discount to midcaps.
- Earnings downgrades have been relatively smaller for larger companies.
This combination could support a tactical shift back into large-cap stocks.
Banks remain Goldman Sachs' top sector bet
The brokerage continues to maintain an Overweight rating on banks.
Its positive outlook is driven by:
- Attractive valuations
- Strong credit growth
- Healthy asset quality
- Improving liquidity
- Extremely light foreign ownership
Foreign investors sold approximately US$12 billion worth of Indian financial stocks during the recent correction, effectively reversing nearly a decade of cumulative inflows into the sector.
Goldman Sachs believes banks could become one of the biggest beneficiaries if foreign investors return.
The brokerage also expects RBI measures supporting capital flows to generate nearly US$60 billion of bond market inflows during CY2026.
It prefers traditional banks over NBFCs due to potential rural asset-quality risks associated with weather uncertainties.
Utilities upgraded to Overweight
Goldman Sachs has upgraded the utilities sector to Overweight.
The brokerage cited forecasts indicating a high probability of a strong El Niño event during late 2026.
Hotter temperatures combined with weaker rainfall could:
- Increase electricity demand
- Reduce hydropower generation
- Benefit power producers
Historically, utility stocks have outperformed during strong El Niño periods.
At the same time, Goldman Sachs remains cautious on agriculture and rural-focused businesses due to potential weather-related disruptions.
Domestic businesses preferred over exporters
Export-oriented sectors outperformed during the first half thanks to:
- Trade agreements
- Weak rupee
- Strong overseas demand
However, Goldman Sachs believes many of these positives are already reflected in valuations.
With the rupee stabilising and domestic growth improving, it now prefers companies whose revenues are primarily driven by India's domestic economy.
This explains its continued cautious stance on:
- Information Technology
- Pharmaceuticals
Tourism emerges as a tactical opportunity
The brokerage also highlighted tourism as an attractive tactical recovery theme.
Although tourism-related companies struggled during much of the first half, Goldman Sachs believes improving travel demand, resilient hotel occupancy and easing airline cost pressures could support stronger earnings during FY27.
Many tourism stocks also continue to trade below previous highs, leaving room for further upside.
Goldman Sachs' preferred sectors
Overweight
- Banks
- Energy
- Telecom
- Internet
- Utilities
- Defence
Marketweight
- NBFCs
- Insurance
- Industrials
- Consumer Discretionary
- Consumer Staples
- Real Estate
Underweight
- Information Technology
- Pharmaceuticals
- Metals & Mining
- Cement
- Chemicals
- Oil Marketing Companies
Conclusion
Goldman Sachs believes the correction in Indian equities has created opportunities rather than signalling the start of a prolonged downturn.
The brokerage expects the Nifty to reach 26,500 by June 2027, supported by improving macroeconomic conditions, stabilising foreign flows and more attractive valuations.
However, it expects the next phase of the market to be led by large-cap stocks, banks, utilities and domestic-facing businesses, rather than the broad-based rally seen in previous years.
Rather than chasing momentum, Goldman Sachs believes investors may benefit from focusing on sectors where valuations remain reasonable and earnings visibility continues to improve.
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