Goldman Sachs analysts in their July report on the India strategy suggested that foreign selling of Indian stocks has likely concluded. They believe that sentiment towards Indian equities should gradually become more favorable due to an improved domestic outlook and extremely low levels of foreign investor positioning.
Nifty 50 Index Forecast
Despite renewed geopolitical tensions in the Middle East potentially keeping markets volatile, Timothy Moe, Co-head of Asia Macro Research and Chief Strategist for Asia-Pacific Equities at Goldman Sachs, wrote in a joint note with Amrita Goel and Sunil Kaul that the Nifty 50 index could reach 26,500 by June 2027. This implies a potential growth of approximately 10 percent from current levels.
Shift in Sentiment and Investment Flows
This July view sharply contrasts with their position in May 2026, when they assessed the risk-reward ratio for Indian stocks as 'less attractive' compared to their North Asian counterparts. At that time, they also did not expect a rapid return of foreign investors, even with falling oil prices. Moe, Goel, and Kaul noted in their May 2026 note that investor concerns about the potential negative impact of artificial intelligence (AI) were also limiting the growth of Indian stocks.
Goldman Sachs reported that global investors used India as a funding market in the first half of 2026, selling a record $30 billion in Indian stocks over a short period of 3.5 months. However, since mid-June, they have been net buyers, albeit modestly, with an inflow of $2 billion, mainly into the financial sector. Moe stated that because global funds have significant underweight in Indian equities, they have ample room to neutralize their exposure. He added that while continued profit decline and a less attractive combination of growth and valuation compared to other markets will remain key challenges for investors, an improvement in the visibility of domestic recovery will serve as a catalyst for pricing in the expected rebound.
Capital Flows in Fiscal Year
According to data, so far in fiscal year 2026-27 (FY27), Foreign Institutional Investors (FIIs) have recorded a net outflow of 1.28 trillion rupees from Indian equities. In June, they withdrew 49,340 crore rupees, but in July, according to NSDL, they invested a net 15,157 crore rupees in Indian stock markets.
Recommendations and Sector Preferences
Going forward, Goldman Sachs expects a shift from a 'growth' to a 'value' orientation as investors seek undervalued or reasonably priced segments ahead of the market recovery. Analysts noted that the breadth of stocks trading at reasonable multiples has moderately improved to two-to-three-year highs, creating opportunities to select value stocks. Furthermore, the valuation of large-cap stocks has become more acceptable, approaching their 15-year average multiples, while mid-cap stocks continue to trade significantly above average (at 1.5 standard deviations).
Moe recommended buying banks, tourism, and defense industries, favoring large-caps over mid-caps, value stocks over growth stocks, utilities over agriculture/rural stocks, and domestic companies over exporters. Structurally, they maintain optimism regarding the defense industry and energy security. Sectorally, Goldman Sachs upgraded the rating for utilities to 'overweight' due to potential power shortages and the likely stylistic shift from growth to value. Staples remain in the 'market weight' category, while metallurgy, mining, and cement were downgraded to 'underweight' due to seasonal weakness during monsoons and persistent cost pressures from commodity inflation and the weakening Indian rupee. Goldman Sachs also remains skeptical of exporters (IT and pharmaceuticals) and oil refiners (OMCs).
List of Recommended Stocks
The list of 15 stocks in which Goldman Sachs is optimistic for the second half of 2026 includes Reliance Industries, HDFC Bank, Adani Power, Adani Enterprises, Kotak Mahindra Bank, NTPC, Hindustan Aeronautics, Eternal (Zomato), Power Grid, Adani Green Energy, Interglobe Aviation, HDFC Life Insurance, Indian Hotels, Mazagon Dock Shipyard, and MakeMy Trip.
