The bank has slashed its 12‑month Nifty target (to end‑March 2027) to 25,900 from 29,300 previously, implying “13%/12% returns in INR/USD over the next 12 months for Indian equities (below the 19% USD upside expectation for MXAPJ)”. The projected return will be driven “in part by earnings growth of 8%/13% in CY26/27 and in part by modest valuation re‑rating to our lower NIFTY fair‑value of 19.5x (previously 20.8x) as earnings cuts come through”.
Earlier this week, Bernstein had also reduced Nifty’s year-end target to 26,000 and flagged the risk of the headline index falling to as low as 19,000 in the worst case scenario.
Goldman also cautions that the path of returns is likely to be back‑loaded. “We see risks tilted to the downside in the next 3 to 6 months as we think the market may not be pricing in the full extent of the earnings downgrades, and low earnings visibility in the near‑term could demand a higher risk premium,” it says.
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Historically, “forward returns have…been muted at starting multiples of 18‑20x when earnings are in a downgrade cycle”, the strategists note, even as they flag that “once earnings stabilise after 2‑3 quarters, which has been the typical downgrade period in the past energy shocks, earnings growth could drive equities higher”.
Goldman’s strategists now expect Brent to average $105 in March and $115 in April, before gradually tapering to $80 in Q4 and remaining there in 2027. “Within Asia, India stands out as particularly vulnerable to potential energy shortages, given it is a lower per capita income economy with high energy imports,” the report warns.The shift in the global energy baseline has triggered a wholesale downgrade of Goldman’s India macro forecasts. “Since the start of the Iran war, they have lowered India’s 2026 GDP growth by 1.1pp to 5.9%, raised CPI forecast by 70bp, widened current account deficit to 2% of GDP, weakened INR, and added 50bps rate hikes in 2026,” the report notes. The latest in‑house projections for calendar 2026 now factor in real GDP growth of 5.9 per cent, average CPI inflation of 4.6 per cent, a current account deficit of 2 per cent of GDP, a fiscal deficit of 4.7 per cent of GDP, a year‑end repo rate of 5.75 per cent and an average Brent price of 85 dollars a barrel.
Goldman believes this adverse macro turn will soon show up in corporate earnings. Its VAR‑based analysis suggests that if oil is “higher by $45/bbl on average for 3 months, India’s full‑year earnings growth could be lower by c.9%, higher than the 6% impact to MXAPJ earnings”.
Episodic analysis of past oil‑supply disruptions like the 2011 Libyan civil war, 2012 EU oil embargo on Iran and 2022 Russian invasion of Ukraine shows that “MSCI India’s earnings got downgraded by 6‑13% (median 7%) in the 12 months after the event”, with downgrades lagging the shock by about a quarter and peaking in the second and third quarters.
Against that backdrop, the house has already acted on its own numbers. “We lower our earnings growth forecast materially for India, by 9pp cumulatively over the next 2 years, to 8%/13% for CY26/27 (vs. 16%/14% prior to Iran conflict),” the strategists write. They “anticipate significant cuts to consensus earnings forecasts over the next 2‑3 quarters”, and now expect MSCI India earnings growth of “8%/13% in CY26/27, about 11pp below consensus cumulatively over the next 2 years (consensus: 16%/16% in CY26/27)”.
Since the Gulf war began in late February, Goldman says it has “cumulatively lowered our growth forecast materially by about 9pp (pre‑Gulf war: 16%/14% in CY26/27), mainly on account of higher oil prices, slower GDP growth and a weaker INR”, adding that it is “most below consensus in domestic cyclical pockets – both investment and consumption”.
These cuts feed directly into its call on the benchmark index. “Amid worsening macro and slowing earnings growth, we lower Indian equities to marketweight from overweight in our regional allocations on less attractive risk/reward than North Asian markets,” the report says.
Sectorally, the downgrade comes with a clear tilt towards defensives and upstream energy. “We remain overweight banks (NIM expansion in higher rates environment, good asset quality), defensive consumption including staples, telcos (inelastic demand), and defence (strategically important for the government),” Goldman says.
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It has upgraded upstream energy (refiners and E&P) to overweight on tight refining capacity and higher for longer oil prices, but downgraded downstream oil marketing companies (OMCs) from overweight to underweight due to limited pass-through of higher crude prices at the gas stations.
Autos and durables are cut from overweight to marketweight “given demand sensitivity to higher inflation and interest rates, and margins vulnerability to higher input and logistics costs”, while NBFCs are lowered to marketweight on “rising cost of funds in a tightening environment”. The firm stays underweight industrials, chemicals, IT and pharma, citing risks from capex cuts, feedstock and cost pressures and elevated valuations.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)