​Ample room for FII flows to return to India, says Goldman Sachs

While renewed geopolitical tensions in West Asia are likely to keep markets choppy, the Nifty 50 could rise to 26,500 by June 2027, around 10 per cent upside from current levels, Goldman Sachs said.

Foreign selling in Indian equities is likely over, wrote analysts at Goldman Sachs in their July India Strategy note. Sentiment should turn incrementally favorable toward Indian equities due to an improved domestic outlook and ultra-light foreign positioning.  While renewed geopolitical tensions in West Asia are likely to keep markets choppy, Timothy Moe, co-head of Asia macro research and chief Asia-Pacific equity strategist at Goldman Sachs, wrote in a recent coauthored note with Amorita Goel and Sunil ​Koul, the Nifty 50 index could rise to 26,500 levels by June 2027, implying around 10 per cent upside from current levels.  The July view is in stark contrast to their stance in May 2026 when they saw the risk-reward equation as ‘less attractive’ for Indian equities compared to their North Asian peers. Apart from that, they did not expect foreign investors to return to Indian shores in a hurry, even if oil prices were to decline. READ ABOUT IT HERE  “Investor concerns over the potential adverse impact of artificial intelligence (AI) are also limiting gains regarding Indian equities,” Moe, Goel and Koul wrote in their May 2026 note.  Key catalyst  Global equity investors, Goldman Sachs said, used India as a funding market through H1-2026, selling a record $30 billion of Indian equities in a short span of 3.5 months. They have turned net buyers since mid-June, albeit modestly so, with $2 billion inflows, largely in financials. 

 

 

  "With large underweight positioning toward Indian equities, global funds have ample room to neutralize their exposure. While a continued earnings downgrade cycle and still less attractive growth-valuation mix relative to other markets will be key investor concerns, improving visibility on domestic recovery will act as a catalyst for investors to start pricing in the anticipated recovery in advance," Moe said. 

  Meanwhile, thus far in fiscal 2026-27 (FY27), foreign institutional investors (FIIs) have made a net outflow of Rs 1.28 trillion from Indian equities, data shows. In June, they pulled out Rs 49,340 crore, though in July, they invested a net Rs 15,157 crore in Indian stock markets, NSDL data shows.  Top picks  Going ahead, Goldman Sachs expects a rotation from ‘growth’ to ‘value’ as investors look for ‘undervalued’ or ‘reasonably valued’ pockets in anticipation of a market recovery ahead. Breadth of stocks trading at reasonable multiples has improved moderately to 2-3 year highs, Goldman Sachs said, providing an opportunity to pick reasonably valued stocks.  Among the lot, valuations for large-cap stocks, it said, now look more palatable, having de-rated close to their 15-year average multiples, even as mid-caps still trade significantly (+1.5 standard deviation) above average.  "Thematically, we recommend going long on banks, tourism, and defense, and favor large-caps over mid-caps, value over growth, power utilities over rural/agriculture stocks, and domestics over exporters. Structurally, we remain bullish on defense and energy security," Moe wrote. 

  Sectorally, Goldman Sachs has raised utilities to overweight on potential power shortages, and a likely stylistic rotation from growth to value. Staples remains a 'market-weight', while metals & mining and cement have been lowered to underweight due to seasonal weakness during monsoon and lingering cost pressures from commodity inflation and a weaker INR. Goldman Sachs also remains underweight on exporters (IT and pharma) and downstream oil (OMCs).  Reliance Industries, HDFC Bank, Adani Power, Adani Enterprises, Kotak Mahindra Bank, NTPC, Hindustan Aeronautics, Eternal (Zomato), Power Grid, Adani Green Energy, Interglobe Aviation, HDFC Life Insurance, Indian Hotels, Mazagaon Dock Shipyard and MakeMy Trip are the 15 stocks that Goldman Sachs is bullish on for H2CY26.