Global financial giants Goldman Sachs and HSBC have recently expressed bullish sentiments regarding Indian equities, projecting substantial gains by 2026. This optimistic outlook emerges even as Foreign Institutional Investors (FIIs) have been net sellers in the Indian market. The question now is whether these bullish calls will revive FII interest in India.
FIIs are entities like asset management companies, hedge funds, pension funds, insurance firms, and sovereign wealth funds that invest in financial markets outside of their home country. They play a significant role in the host country's economic growth. In India, the term FII refers to overseas entities investing in the Indian financial markets. These institutions must register with the Securities and Exchange Board of India (SEBI) to participate in equity, debt, or derivative segments.
Goldman Sachs has upgraded Indian equities to "Overweight," setting a Nifty target of 29,000 by the end of 2026, which implies a potential 14% upside from current levels. This upgrade is based on expectations of a revival in India's growth momentum, supported by accommodative monetary and fiscal policies, an earnings rebound, and renewed foreign investor interest. Goldman Sachs forecasts MSCI India profits to rise from 10% in 2025 to 14% in 2026, supported by a stronger nominal growth environment. They believe the next phase of market gains will be led by companies in the financial, consumer durables, defense, technology, media, telecom (TMT), and oil marketing sectors.
HSBC also shares a similar positive outlook on Indian stocks, arguing that the market has been oversold. Such high-profile bullish research can attract FII flows and lift Goldman's positioning and fee opportunities in India.
Several factors could contribute to a potential revival of FII interest. Valuations have cooled, and foreign risk appetite is improving. The Reserve Bank of India's (RBI) easing measures, including rate cuts, improved liquidity, and bank deregulation, along with reductions in Goods and Services Tax (GST) and slower fiscal consolidation, should bolster domestic demand over the next two years. Corporate earnings for the September quarter were better than expected, leading to upgrades in select sectors. Low food inflation, a robust agricultural cycle, GST rate reductions and potential wage increases are also likely to support mass consumption and raise demand and profits in consumer-related industries.
However, some analysts believe that the markets are likely to remain rangebound due to mixed global cues and ongoing FII outflows. Optimism surrounding good earnings and positive commentary could provide support, and any progress in India-U.S. trade talks could also act as a key catalyst. As the earnings season enters its final phase, focus may shift toward the domestic consumption theme, especially with the wedding season beginning soon.
Despite the recent selling by FIIs, the bullish bets from Goldman Sachs and HSBC could signal a turning point. If these predictions hold true and India's growth momentum revives, it could lead to a renewed interest from foreign investors, boosting the Indian stock market and economy.
