Goldman Sachs has downgraded its rating on Indian equities and slashed its target for Nifty 50, as it expects earnings downgrade cycle to begin due to the sustained rise in energy prices amid the US-Iran war.
The global brokerage firm has downgraded its stance on the market to ‘marketweight’ from ‘overweight’ on less attractive risk/reward than north Asian markets amid worsening macroeconomic conditions and slowing earnings growth. It has also cut its ’s 12-month target to 25,900 from 29,300 previously, based on earnings growth of 8% in CY26 and 13% in CY27 and 19.5x target PE.
“We see risks tilted to the downside in the next 3 to 6 months as we think the market may not be pricing in the full extent of earnings cuts,” Goldman Sachs said.
The US investment bank argues that higher‑for‑longer oil prices following tensions around the have meaningfully worsened India’s macro outlook and will force consensus profit estimates lower over the next few quarters.
The global investment bank highlighted that higher-for-longer oil prices have led to deteriorating macro mix for India. Reflecting India’s greater vulnerability to the energy shock, its economists have lowered estimates for 2026 by 1.1 pp to 5.9%, and raised CPI forecast by 70 bps. They expect a widened current account deficit of 2% of GDP, weakened rupee, and 50 bps repo rate hikes by the Reserve Bank of India (RBI) in 2026.
Earnings downgrades to begin
Goldman Sachs argued that Indian equities are more sensitive to an oil price shock than other markets in the region. Analysis shows that if crude oil price is higher by $45 per barrel on average for three months, India’s full-year earnings growth could be lower by c.9%, higher than the 6% impact to MSCI Asia Pacific ex-Japan Index earnings.
However, despite India’s high vulnerability, analyst expectations have not yet moved, although sentiment has started to soften in the recent weeks. The brokerage firm expects earnings downgrades to begin in a couple of weeks as we head into the March-end reporting season.
It expects MSCI India earnings growth of 8% in CY26 and 13% in CY27, about 11 pp below consensus cumulatively over the next 2 years, mainly on account of higher oil prices, slower GDP growth and a weaker rupee.
“Across sectors, we are most below consensus in domestic cyclical pockets – both investment and consumption,” it said.
Forthcoming earnings cuts, on top of the ongoing investor concerns over the potential adverse impact of Al, are expected to impede foreign re-buying after persistent net selling. Weak , coupled with rate hikes domestically, and likely softer risk appetite globally point to a lower fair-value multiple in the near-term, said Goldman Sachs.
Sector Allocation
Goldman Sachs prefers defensive consumption and upstream energy over domestic cyclicals and downstream energy. It remains overweight on , defensive consumption including staples, telcos (inelastic demand), and defense.
The brokerage firm upgrades upstream energy (refiners and E&P) to overweight on tight refining capacity and higher for longer oil prices, while it downgrades downstream oil marketing companies (OMCs) from overweight to underweight due to limited pass through of higher crude prices at the gas stations.
It also downgraded autos and durables from overweight to marketweight given demand sensitivity to higher inflation and interest rates, and margins vulnerability to higher input and logistics costs. It lowered NBFCs to marketweight on rising cost of funds in a tightening environment. On the funding side, the brokerage firm remains underweight on industrials, chemicals, IT and pharma.
“Stylistically, we advocate a shift towards quality favoring companies with stable earnings and strong balance sheets. Tactically, financials and staples that have low earnings sensitivity to oil shocks, and trade at historically low valuations, could outperform. We continue to like structural themes of energy security and defense which may be bolstered by the ramifications of the ongoing geopolitical events,” said Goldman Sachs.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.