Goldman Sachs has downgraded Indian equities to 'marketweight' from 'overweight' and sharply cut its Nifty 50 target, citing deteriorating macro conditions and a looming earnings downgrade cycle.

The brokerage has reduced its 12-month Nifty target to around 25,300–25,900, down from earlier projections near 29,300–29,500, a cut of roughly 14 percent.

The shift reflects what the firm calls a less attractive risk-reward compared with other Asian markets, particularly as global and domestic headwinds intensify.

Earnings downgrade cycle likely to begin

Goldman Sachs expects corporate earnings estimates to be revised downward over the next two to three quarters, especially in sectors linked to domestic consumption and investment.

The brokerage has already cut its earnings growth forecasts for India to 8 percent for 2026 and 13 percent for 2027, significantly lower than earlier projections.

It said consensus estimates have not yet fully adjusted, even as market sentiment has begun to soften, suggesting further downside risk as companies report results in the coming quarters.

Oil shock emerges as central risk

At the heart of the downgrade is a sustained rise in energy prices, driven by disruptions linked to tensions around the Strait of Hormuz.

Goldman Sachs said higher-for-longer oil prices are worsening India’s macroeconomic outlook, given the country’s heavy dependence on imports.

The brokerage estimates that a $45 per barrel increase in crude over three months could reduce India’s full-year earnings growth by about 9 percent, a sharper impact than seen in broader Asia.

Macro outlook weakens: growth cut, inflation rises

Reflecting these pressures, Goldman Sachs has lowered India’s 2026 GDP growth forecast to 5.9 percent, while raising its inflation outlook.

The firm expects:

* Inflation to rise by about 70 basis points

* Current account deficit to widen to 2 percent of GDP

* The rupee to weaken

* Around 50 basis points of rate hikes in 2026 These shifts point to a tighter financial environment alongside slowing growth.

Foreign flows remain a key overhang

Foreign portfolio investors have already pulled out a record $42 billion from Indian equities since the September 2024 peak, according to the brokerage.

Goldman Sachs warned that a combination of earnings downgrades, persistent global uncertainty, and investor concerns, including the impact of AI, could delay a meaningful return of foreign capital.

Weaker foreign flows, along with domestic rate hikes, are expected to keep market valuations under pressure in the near term.

Sector call: shift to defensives, cut cyclicals

The brokerage has advised a shift towards sectors with stable earnings and lower sensitivity to oil shocks.

It remains overweight on: Banks, Consumer staples, Telecom, Defence, Upstream energy.

At the same time, it has downgraded: Autos and consumer durables, NBFCs, Oil marketing companies

The preference reflects a tilt towards 'quality' stocks with stronger balance sheets and resilient demand profiles.