Goldman Sachs has materially lowered its earnings growth forecast for Indian companies by a cumulative 9 percentage points over the next two years.
Goldman Sachs has downgraded its outlook on Indian equities from 'overweight' to 'marketweight', citing a deteriorating macroeconomic landscape due to persistently high energy prices.
Key Points
- Goldman Sachs downgraded Indian equities citing rising energy prices and macroeconomic pressures impacting growth, inflation, and investor sentiment.
- The Nifty 50 target has been cut sharply to 25,900, reflecting lower earnings expectations and valuation adjustments.
- India's GDP growth forecast for 2026 has been reduced while inflation and current account deficit projections have increased.
- Corporate earnings outlook has weakened significantly, with projected growth lowered across the next two financial years.
- Financials and consumer staples sectors are expected to outperform due to resilience against oil shocks and stable earnings profiles.
Goldman Downgrades India Outlook
In a research note issued on Thursday, Goldman Sachs warned that a prolonged impairment of oil and gas flows through the Strait of Hormuz is creating significant headwinds for the domestic economy.
The downgrade reflects India's heightened vulnerability to energy shocks.
Goldman has lowered its 12-month Nifty 50 index target to 25,900, down from 29,300 previously.
This new target implies roughly 13 per cent upside, based on revised earnings growth and a target price-to-earnings (PE) multiple of 19.5x.
The shift in outlook also reflects softening investor sentiment.
GDP Growth And Inflation Outlook
Goldman Sachs economists have slashed their 2026 GDP growth forecast for the country by 1.1 percentage points to 5.9 per cent.
At the same time, they have raised their consumer price index (CPI) inflation forecast by 70 basis points, anticipating a widened current account deficit of 2 per cent of GDP and a weakened Indian rupee.
The report also factored in an additional 50 basis points in interest rate hikes during 2026 to combat these inflationary pressures.
Energy Prices Impact Economy
'Higher-for-longer energy prices lead to a deteriorating macro mix for India,' the report stated, pointing to the ongoing geopolitical tensions impacting global oil supply.
This challenging macro environment is expected to hit corporate bottom lines.
Goldman Sachs has materially lowered its earnings growth forecast for Indian companies by a cumulative 9 percentage points over the next two years.
They now project earnings growth of 8 per cent for CY26 and 13 per cent for CY27, down significantly from their prior estimates of 16 per cent and 14 per cent, respectively.
Foreign Outflows And Sector Strategy
'Forthcoming earnings cuts, on top of the ongoing investor concerns over the potential adverse impact of AI, will likely impede foreign re-buying after persistent net selling,' the analysts noted.
Since September 2024, foreign investors have pulled a record $42 billion from Indian markets.
The bank advocates for a focus on 'quality, earnings resilience, and structural themes,' highlighting companies with stable earnings and strong balance sheets.
They believe sectors like financials and staples, which have low sensitivity to oil shocks and are trading at historically low valuations, could outperform in the current climate.
Feature Presentation: Ashish Narsale/Rediff
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