After a year of heavy FII exits, Goldman Sachs sees a cleaner entry point for India

Goldman Sachs says the sharp foreign investor selling in the past year has created a cleaner starting point for India’s equity market. The firm upgraded India to ‘overweight’ after 13 months, noting that foreign positioning is now “considerably lighter,” which improves the market’s risk-reward outlook.Timothy Moe, co-head of Asia macro research at Goldman Sachs, said the reset in flows was a major factor behind the upgrade. Overseas investors have sold almost $30 billion since last October, including $16 billion this year alone. “This gives you a different starting point,” he said.

Moe explained that last year’s downgrade came when India was trading at high valuations and the economy was slowing. He said both conditions have now changed. Forward valuations have eased to around 22 times earnings, and the economy has shown early signs of stabilising.

Also Read | EPFR sees no FII revival in India yet as global funds chase early AI beneficiariesHe added that the earnings downgrade cycle, which was a concern last year, has now flattened. “It’s basically flat and even there’s a touch of upgrades,” he said. Quarterly earnings could come in at about 14% year-on-year instead of the earlier 9% expectation.
Goldman Sachs expects earnings to grow 13–14% annually over the next few years. The firm is positive on themes such as mass consumption, self-sufficiency in defence and energy, digital services, and small and mid-cap growth opportunities. Sector-wise, it prefers consumer durables and financials. The team has initiated a long position on financials versus the Nifty.Across Asia, Moe said markets offer a range of opportunities. Korea remains attractive due to its AI-linked momentum but is still trading at 11–12 times earnings. China also stands out, with Goldman Sachs expecting close to 30% upside over two years. The firm is underweight on Australia and most of ASEAN due to limited catalysts.

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A potential US–India trade deal may help sentiment, but Moe said earnings delivery will be the key driver. “Valuations are full… earnings have to come through,” he said.

On the macro side, he said India has kept inflation in check and continued gradual fiscal consolidation. While this leads to lower nominal GDP growth, it supports a more stable backdrop. He expects the rupee to stay range-bound and said equity returns will rely more on earnings than currency movement.

For the full interview, watch the accompanying video

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