Kamal Ghorui
As a direct fallout of the US-Iran war and rising crude oil prices, Goldman Sachs has adopted a more cautious view on Indian equities, revising its rating to “marketweight,. The global brokerage has also lowered its target for the Nifty, and cautioned that an earnings downgrade cycle driven by an energy shock is likely to emerge. The bank has reduced its 12-month Nifty target, for end-March 2027, to 25,900 from an earlier 29,300. This suggests expected returns of about 13% in rupee terms and 12% in dollar terms over the next year, which is lower than the 19% upside projected for the MXAPJ index. It expects these returns to be supported partly by earnings growth of 8% and 13% in calendar years 2026 and 2027, respectively, along with a modest re-rating in valuations to a lower fair value multiple of 19.5 times, compared with its earlier estimate of 20.8 times, as earnings downgrades take effect.The firm said persistently high oil prices amid tensions around the Strait of Hormuz have weakened India’s macroeconomic outlook and are expected to lead to downward revisions in profit estimates over the coming quarters, according to an ET report.Earlier this week, Bernstein also trimmed its year-end Nifty target to 26,000 and warned that, in a worst-case scenario, the benchmark index could fall to as low as 19,000.Goldman Sachs further noted that returns are likely to be skewed toward the latter part of the period. “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 said.The firm added that, historically, forward returns tend to remain subdued when valuations are in the 18–20 times range during an earnings downgrade phase. However, it pointed out that equities have typically recovered once earnings stabilise after about two to three quarters, as has been seen during past energy-related shocks.Strategists at Goldman Sachs now project Brent crude to average about $105 in March and rise to $115 in April, before gradually easing to $80 in the fourth quarter and stabilising at that level through 2027. The report highlights that, within Asia, India is particularly exposed to potential energy supply risks due to its relatively lower per capita income and heavy reliance on energy imports.The change in global energy dynamics has led the firm to significantly revise its outlook for India’s macroeconomic indicators. Since the onset of the Iran conflict, Goldman has cut its 2026 GDP growth forecast for India by 1.1 percentage points to 5.9%, increased its inflation projection by 70 basis points, widened the current account deficit estimate to 2% of GDP, lowered its outlook for the rupee, and factored in an additional 50 basis points of rate hikes in 2026.Its latest internal estimates for calendar year 2026 now assume real GDP growth of 5.9%, average CPI inflation of 4.6%, a current account deficit of 2% of GDP, a fiscal deficit of 4.7% of GDP, a year-end repo rate of 5.75%, and an average Brent crude price of $85 per barrel.Goldman also expects the weaker macro environment to eventually reflect in corporate earnings. Its VAR-based analysis indicates that if oil prices remain about $45 per barrel higher on average for three months, India’s full-year earnings growth could decline by roughly 9%, which is a larger impact compared to the estimated 6% hit to earnings for the MXAPJ index.
