Goldman Sachs Sees Foreign Inflows Fueling Next Indian Equity Rally

Goldman Sachs projects that a significant return of foreign capital could ignite the next rally in Indian equities, arguing that global funds are now sharply underweight the market following a period of record selling in the first half of the year.

Foreign Selling Subsides

According to the investment bank, overseas investors sold approximately $30 billion worth of Indian equities over just three-and-a-half months during the first half of 2026. This sell-off was driven by investors using India as a "funding market" amid geopolitical tensions, higher oil prices, and a weakening rupee.

Since mid-June, however, the trend has started to reverse. Foreign investors have returned as modest net buyers, primarily in financial stocks, suggesting the most intense phase of the selling cycle may be over. This shift comes after Indian equities underperformed most major Asian markets earlier in the year as capital rotated toward cheaper markets like China and South Korea.

Improved Macroeconomic Outlook

Goldman Sachs's constructive stance is supported by an improving macroeconomic picture. The bank cited several positive developments, including:

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• Easing crude oil prices from their recent highs.
• Stabilization of the Indian rupee.
• Resilient domestic growth and improving corporate earnings expectations.

Reflecting this improved outlook, the bank reiterated its June 2027 target for the Nifty 50 index of 26,500, which implies an upside of approximately 10% from current levels. The benchmark index had corrected by about 9% during the first half of the year.

Sector Rotation and Valuations

While the outlook is brightening, Goldman Sachs cautioned that investors remain concerned about India's growth-versus-valuation trade-off and may expect another round of earnings downgrades before estimates fully recover. Domestic institutional investors have played a key role in absorbing foreign selling, helping to cushion market declines.

The bank anticipates a rotation toward value stocks, large-cap companies, and domestically focused sectors. It highlighted banks as a primary beneficiary of normalizing foreign positioning, noting that financials saw outflows of approximately $12 billion over the past four months. Goldman also favors utilities, energy refiners, tourism, and defense, while remaining cautious on exporters and richly valued mid-cap shares.