Goldman Sachs Upgrades India to Overweight, Projects Nifty 50 at 29,000 by 2026
Goldman Sachs has revised its outlook on Indian equities, upgrading them to "Overweight" from a previous "Market Weight" rating. The investment bank anticipates a strong rebound in India's economic and market growth, setting a Nifty 50 index target of 29,000 by the end of 2026. This target represents a potential 14% upside from current levels, driven primarily by expectations of robust earnings growth.
The upgrade signals a significant shift in sentiment, as Goldman Sachs had downgraded India in October of last year, citing concerns over high valuations and a slowdown in corporate earnings. However, the firm now believes that Indian equities are poised to outperform in the coming year.
Factors Driving the Optimism
Goldman Sachs's renewed confidence in the Indian market is underpinned by several key factors:
- Supportive Government and RBI Policies: The investment bank expects growth-supportive policies from the Reserve Bank of India (RBI) and the government to aid in economic recovery. These policies include rate cuts, improved liquidity, bank deregulation, and potential GST (Goods and Services Tax) reductions.
- Earnings Revival: Goldman Sachs anticipates a rebound in corporate earnings, with MSCI India profits expected to grow from 10% in 2025 to 14% in 2026, bolstered by a favorable nominal growth environment. Corporate earnings for the September quarter were better than expected, leading to upgrades in select sectors.
- Under-Positioning by Institutional Investors: Foreign portfolio investors (FPIs) have net sold approximately $30 billion worth of Indian equities over the past year, pushing foreign ownership and mutual fund allocation to near two-decade lows. Goldman Sachs believes this under-positioning creates an opportunity for renewed foreign investor interest and capital inflows.
- Normalization of Valuations: Indian stocks' relative premium to Asia has normalized, leading to a cooling down of valuations.
Sector Preferences
Goldman Sachs is particularly bullish on specific sectors, including:
- Financials
- Consumer discretionary and consumer durables
- Defense
- Technology, Media, and Telecommunications (TMT)
- Oil marketing companies
The investment bank anticipates that the banking sector's profits will grow by 15% in 2026, up from 8% this year, driven by loan growth and stabilizing asset quality. The defense sector is also expected to exhibit strong earnings growth potential, especially among private sector companies.
Conversely, Goldman Sachs maintains an "Underweight" stance on sectors such as pharmaceuticals, infotech, industrials, and chemicals.
Broader Market Trends
Goldman Sachs expects mass consumption recovery to gain momentum over the next two years, supported by low food inflation, a strong agricultural cycle, the lagged effects of GST rate cuts, upcoming elections in key states through 2026-27, and potential wage hikes from the 8th Pay Commission.
HSBC has also upgraded Indian equities to "overweight" from "neutral", expecting the Sensex to reach 94,000 by the end of 2026. Morgan Stanley believes that the correction in the Indian stock market is over and sees the Sensex potentially hitting 100,000 by June 2026 in a bull-case scenario.
Potential Challenges
Despite the optimistic outlook, some challenges remain. HSBC cautions that domestic conditions could be affected by the 50% U.S. tariff on Indian exports, which could reduce GDP growth if it continues for a year.
Overall Sentiment
The prevailing sentiment suggests a positive outlook for the Indian equity market, with Goldman Sachs and other major investment banks anticipating a strong rebound and significant growth potential over the next two years. Supportive policies, improving earnings, and renewed foreign investor interest are expected to drive the market upward.
