The recent downgrades by global brokerages are expected to keep foreign investor flows under pressure and cap market upside over the next two to three quarters, driving a reset in India’s long-held overweight positioning amid earnings cuts and global reallocation.
Over the past few weeks, Goldman Sachs, Nomura, Citi and Bernstein have downgraded India from overweight to neutral and lowered Nifty targets by 10-15 per cent, citing a weaker risk-reward relative to other Asian markets.
Analysts say the shift reflects a deeper change in how India’s growth and valuations are being viewed. “The target cuts reflect a fundamental reassessment, not a routine revision. Global brokerages had constructed a bull case for India premised on an earnings recovery that kept getting deferred,” said Ajay Garg, Director and CEO, SMC Global Securities, adding that “markets will remain under pressure until a credible new earnings floor is established.”
Vinod Nair, Head of Research, Geojit Investments said, “target cuts reflect lowered earnings expectations and reduced valuations…due to higher energy costs and supply disruptions,” adding that the revisions remain modest for now, assuming the conflict remains short-lived.
FPI outflows
The impact is already visible in flows. Foreign investors have continued to pull out funds even after the ceasefire, with outflows of ₹48,905 crore so far in April, taking total FPI selling in 2026 to ₹1,90,046 crore. In March alone, FPIs sold a record ₹1,22,182 crore, according to exchange data.
“FIIs continue to sell India because of premium valuations and slowing domestic earnings, with the pressure increasing during the conflict given India’s dependence on energy imports,” Nair said, adding that finance, technology and consumption sectors have been the most affected.
Even so, analysts believe a significant portion of the selling may have already happened and brought valuations closer to more reasonable levels, creating selective opportunities. Sectors linked to domestic capex, defence and financials are seen as relatively better placed as investors turn more discerning.
However, continued foreign outflows could lead to “bigger headaches on balance of payments,” and in a prolonged stress scenario could “cut 3-4 per cent off GDP growth,” Bernstein said.
“The recovery time may take anywhere from a few days to months…crude is likely to stay elevated this year,” which could push inflation above 6 per cent, delay rate cuts by at least two quarters and weigh on growth. “Taking these into account, we’ve cut the year-end Nifty target to 26,000,” Bernstein said.
Looking ahead, the trajectory of markets will depend on how quickly macro conditions stabilise. Nair said selling pressure could ease as India’s valuation premium over other emerging markets moderates and geopolitical risks recede. “India continues to hold a comparatively stronger earnings outlook for FY27 versus FY26,” he said, placing the market between value-buying opportunities and the risk of further calibrated downgrades.