Goldman Sachs warns that foreign investors may be poised to drive the next leg higher in Indian equities after a sharp wave of selling left overseas funds materially underweight the market. The brokerage points to an improved macro backdrop and relatively light foreign positioning as the principal factors that could permit fresh capital flows into Indian stocks in the second half of the year.
Scale of prior foreign selling
Over a concentrated three-and-a-half month span in the first half of 2026, foreign investors disposed of roughly $30 billion of Indian equities, Goldman said, noting that global funds used India as a funding market amid geopolitical tensions, elevated oil prices and currency weakness that sapped investor sentiment. The bank adds, however, that since mid-June foreigners have returned as modest net buyers, largely allocating to financial names - a move Goldman interprets as a sign that the most intense phase of the selling cycle may have ended.
Macroeconomic backdrop and index outlook
Goldman highlights a number of recent improvements in India's outlook: crude prices have eased from earlier, war-driven peaks; the rupee has stabilized; domestic growth indicators remain resilient; and analysts' visibility into second-quarter corporate performance has improved. Against this backdrop the bank reaffirmed its June 2027 Nifty target of 26,500. That target implies roughly 10% upside from current levels after the benchmark suffered about a 9% correction during the first half of the year.
Regional performance and positioning dynamics
Earlier in the year, Indian equities lagged many regional peers as foreign investors rotated into cheaper opportunities such as China and South Korea. Goldman notes that other markets benefited from specific catalysts - for example, Japanese stocks continued to gain from corporate governance reforms and Taiwan retained support from artificial intelligence-driven demand for semiconductors - while India's valuation premium made it more vulnerable during regional risk-off episodes.
More recently Indian assets have begun to stabilize. Goldman points out that the rupee has recovered from earlier weakness as oil prices moderated and the prospect of stronger capital inflows improved. Domestic institutional investors have also absorbed much of the foreign selling, which helped cushion declines in benchmark indexes.
Investor concerns and earnings outlook
The bank cautions that investors remain anxious about India's trade-off between growth and valuation, and Goldman expects another round of earnings downgrades before consensus estimates find a bottom. Nevertheless, the brokerage believes that clearer visibility on domestic demand should encourage investors to price in a recovery ahead of a sustained turnaround in earnings revisions.
Shares traded little changed on Monday amid a broader regional pull-back in Asia.
Sector implications and preferred exposures
Goldman anticipates a rotation into value-oriented stocks, large-cap names and domestically focused sectors as foreign positioning normalizes. The bank singles out banks as the primary beneficiaries, noting that financial stocks experienced about $12 billion of selling over the past four months. In addition to banks, Goldman favors utilities, energy refiners, tourism and defense. Conversely, it remains cautious on exporters and richly valued mid-cap shares.
Summary of key takeaways
- Heavy foreign selling in early 2026 created underweight positioning that could allow renewed inflows to have outsized market impact.
- Recent improvements in crude prices, rupee stability and domestic demand visibility underpin Goldman's more constructive stance.
- Goldman reiterates a June 2027 Nifty target of 26,500, implying roughly 10% upside from current levels after a near 9% first-half correction.