Goldman Sachs downgrades Indian equities to 'marketweight' from 'overweight' - Here’s why

Indian equity market is set for more volatility, according to Goldman Sachs, which has downgraded its stance from 'overweight' to 'marketweight'. The brokerage cites slower earnings growth and concerns toward rising crude prices behind a change in its outlook. 

The brokerage lowered its earnings growth forecast materially for India, by 9 percentage points cumulatively over the next 2 years, to 8%/13% for CY26/27 (against 16%/14% prior to Iran conflict). 

The market will take time to recover from the crude oil price shock, according to the brokerage, which said higher-for-longer energy prices lead to deteriorating macro mix for India. 

Brent crude oil prices zoomed to a high of $113.41 during the ongoing US-Iran war. 

"Our commodity analysts have raised their oil and gas price forecasts due to a longer impairment of Strait of Hormuz flows, said . 

The global brokerage further said considering India’s greater vulnerability to the energy shock, its economists have lowered 2026 GDP growth by 1.1 percentge points to 5.9%, raised CPI forecast by 70 bps, widened current account deficit to 2% of GDP, weakened rupee, and added 50bps rate hikes in 2026. 

While downgrading Indian equities to market weight, the brokerage said its prefers defensive over cyclical sectors.

"Amid worsening macro and slowing earnings growth, we lower Indian equities to marketweight from overweight on less attractive risk/reward than north Asian markets," said the global brokerage. 

"We expect consensus estimates to be cut meaningfully over the next 2-3 quarters, in line with trends in prior oil-supply shocks, with the largest cuts in domestic cyclical pockets," it added. 

It expects financials and staples that have low earnings sensitivity to oil shocks, and trade at historically low valuations to outperform in the Indian market. 

Meanwhile, the brokerage is overweight on banks, staples, telcos, defence and energy and downgraded cyclicals and downstream sectors like durables (MW), autos (MW), NBFCs (MW) and OMCs (UW).