India weekly preview: NIFTY pullback, energy shock intensifies, but earnings and domestic flows still provide support
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India weekly preview: NIFTY pullback, energy shock intensifies, but earnings and domestic flows still provide support
Goldman Sachs points out that Indian equities came under pressure this week, the government rolled out measures to address the energy crisis, domestic fund inflows slowed but remained positive, 1Q earnings were generally ahead of expectations, and investor sentiment is cautious in the near term.
- NIFTY fell 2% this week, Pharma and Metals rose about 2%, Real Estate and IT fell 6% to 8%, and small and mid caps declined 2% to 5%.
- Foreign investors sold about US$1.3bn of Indian equities this week, bringing year-to-date outflows to about US$23bn; domestic institutions bought about US$2.1bn this week, with year-to-date inflows of about US$37bn.
- April equity mutual fund inflows fell 5% month over month to about US$4bn, with Largecap inflows down 15% month over month and SMID cap fund inflows up 8% to 10%.
- Earnings have been reported for 80% of MXIN market cap; about 48% of companies beat expectations and only about 30% missed, with MSCI India earnings growth tracking at about 8% year over year.
- The government raised gold import tariffs from 6% to 15% and increased pump prices by INR3/liter, as investors watch the pressure from high oil prices on INR, economic growth, and supply chains.
Report interpretation
Overview
This report is Goldman Sachs Global Investment Research's weekly strategy preview on the Indian market, covering NIFTY/MSCI India performance, government policy responses to the energy crisis, domestic and foreign fund flows, 4QFY26/1QCY26 earnings progress, relative sector performance, thematic and style monitoring, and foreign positioning in India. The report notes that the Indian market is under near-term pressure from energy prices, supply shortages, and valuation stress, but domestic flows remain net positive and corporate earnings disclosures have been broad.
Core views
The core views are: first, NIFTY fell 2% this week, with Pharma and Metals leading relative performance while Real Estate and IT lagged significantly, and small and mid caps underperformed large caps. Second, India still trades at about a 60% valuation premium to MXAPJ, with MSCI India forward P/E at about 20.3x. Third, foreign investors continue to sell Indian equities, but domestic institutions and mutual fund flows continue to provide a buffer, although inflow momentum eased slightly in April. Fourth, the energy shock is the main near-term macro variable, and the government is responding through measures such as raising gold import tariffs, increasing fuel prices, and calling for restraint in consumption. Fifth, the earnings season is currently better than expected, but input-cost discussions have risen to a 10-year high and mentions of supply shortages have increased, with the market having cut MXIN CY26 EPS by about 2%.
Analysis framework
The report uses a top-down market strategy framework, combining weekly index performance, sector relative returns, valuation multiples, foreign and domestic fund flows, mutual fund cash allocations, the share of companies beating or missing earnings expectations, investor feedback, and thematic/style performance to assess short-term risk and medium-term positioning in India.
Methodology notes
Use weekly and medium-term performance of NIFTY, MSCI India, and sector indices to assess market momentum, style rotation, and defensive/cyclical preference.
The report tracks relative performance across Pharma, Metals, Real Estate, IT, small and mid caps, and MSCI India sectors, and compares groups such as Commodity Cyclicals, Domestic Cyclicals, Defensives, and Exporters.
Observe foreign investors, domestic institutions, equity mutual funds, SIP, and cash positions together to judge the source and sustainability of market support.
The report discloses that foreign investors sold US$1.3bn this week and have outflows of US$23bn year to date, domestic institutions bought US$2.1bn this week and have inflows of US$37bn year to date, and that April equity mutual fund inflows fell 5% month over month.
Measure earnings-season quality by disclosed market-cap coverage, the share of companies beating or missing expectations, year-over-year profit growth, and consensus revisions.
The report says 80% of MXIN market cap has reported, about 48% of companies beat expectations and about 30% missed, MSCI India profit growth is tracking at about 8% year over year, and MXIN CY26 EPS was cut by about 2% after the energy shock.
Identify structural opportunities and risks that investors are focusing on through investor feedback and thematic basket performance.
The report says high-conviction themes include energy security, data-center capital equipment, commodity exporters, and small-cap stocks, and that the semiconductor memory upcycle is a dominant topic in investor discussions.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- NIFTY / MSCI IndiaCore market index and strategy target
- Strengths
- Domestic institutional flows continue to come in, earnings-season breadth is broad, and Goldman Sachs expects NIFTY to reach 25,900 by March 2027.
- Weaknesses
- The index fell 2% this week, and MSCI India still trades at a 20.3x forward P/E with about a 60% premium to MXAPJ.
- Comparison
- Valuation is higher than the Asia Pacific ex Japan market, while active foreign capital allocation is near the low end of the past 20 years.
- Risks
- High oil prices, INR pressure, supply shortages, EPS cuts, and continued foreign outflows.
- Indian defensive sectorsPreferred strategy direction
- Strengths
- In the face of the energy shock and growth uncertainty, defensive sectors are more attractive than cyclical sectors for allocation.
- Weaknesses
- If risk appetite quickly recovers, defensive sectors may lag high-beta cyclical stocks and small caps.
- Comparison
- The report explicitly says it favors defensive sectors over cyclical sectors.
- Risks
- Excessive valuations, insufficient earnings delivery, or a rotation back into cyclical sectors.
- India domestic mutual funds and DII flowsMarket liquidity support
- Strengths
- DII inflows are about US$37bn year to date, equity mutual funds still saw about US$4bn in April inflows, and SIP inflows are still about US$3.3bn.
- Weaknesses
- April equity mutual fund inflows fell 5% month over month, SIP inflows fell 3% month over month, and Largecap inflows declined 15% month over month.
- Comparison
- This offsets year-to-date foreign outflows of US$23bn.
- Risks
- If passive inflows slow, domestic support for the market may weaken.
- Pharma and MetalsThis week's leading sectors
- Strengths
- Both rose about 2% this week and were relatively resilient despite the broader market decline.
- Weaknesses
- Performance may be influenced by short-term events and commodity price volatility.
- Comparison
- Clearly outperformed Real Estate and IT.
- Risks
- Earnings revisions, regulation, commodity price declines, or weaker global demand.
- Real Estate and ITThis week's lagging sectors
- Strengths
- They have rebound potential if rates or global demand improve.
- Weaknesses
- They fell about 6% to 8% this week and clearly lagged the broader market.
- Comparison
- Weaker than Pharma, Metals, and overall NIFTY performance.
- Risks
- Valuation pressure, slowing demand, FX volatility, and margin pressure.
- Semiconductor memory cycleA core theme in investor discussions
- Strengths
- DRAM and NAND show tight supply-demand conditions in 2026E, and the chart suggests shortages are driving price and profit expansion.
- Weaknesses
- This is a global cyclical theme and is highly exposed to supply expansion and demand volatility.
- Comparison
- It was one of the dominant discussion topics in investor feedback.
- Risks
- A decline in memory prices, a faster-than-expected recovery in capex, or end-demand below expectations.
Key data
- NIFTY weekly performance-2% w/wPharma and Metals rose about 2%, Real Estate and IT fell 6% to 8%, and small and mid caps declined 2% to 5%.
- MSCI India forward P/E20.3xThis implies about a 60% valuation premium versus MXAPJ.
- Foreign equity fund flowsOutflow of US$1.3bn this week; outflow of US$23bn year to dateShows that active global capital continues to leave India.
- Domestic institutional fund flowsInflow of US$2.1bn this week; inflow of US$37bn year to dateDomestic capital remains an important support for the Indian equity market.
- Equity mutual fund inflowsAbout US$4bn in April, -5% month over monthLargecap inflows were down 15% month over month, while SMID cap fund inflows were up 8% to 10% month over month.
- SIP inflowsAbout US$3.3bn, -3% month over monthSystematic investment plan inflows slowed slightly.
- Mutual fund cash positionsAbout US$14bn, roughly 3.5% of AUMThe report estimates cash holdings fell slightly; the chart also shows cash allocation of about 3.8% for the top 200 equity mutual funds.
- Earnings disclosure progress80% of MXIN market cap has reportedAbout 48% of companies beat expectations and about 30% missed.
- MSCI India profit growthAbout 8% yoyOverall earnings season tracking is better than expected.
- NIFTY target25,900 by March 2027The report also says it favors defensive sectors over cyclical sectors.
- Gold import tariffRaised from 6% to 15%One of the government's measures to address the energy crisis and external pressure.
- Fuel pump pricesRaised by INR3/literHigh oil prices and potential supply shortages are the main macro risks investors are watching.
Impact & implications
The investment implication of the report is that the Indian market may continue to be constrained in the near term by high oil prices, INR pressure, supply shortages, rising input costs, and a roughly 60% valuation premium; however, domestic flows and earnings resilience should help offset the impact of foreign outflows. In positioning terms, it is more appropriate to focus on defensive sectors, industries with higher earnings delivery, and themes related to energy security, data-center capital equipment, and the semiconductor memory cycle, while remaining cautious on cyclical sectors and downstream industries sensitive to energy costs.
Risks
- Higher energy prices could weigh on INR and economic growth.
- Potential energy or supply-chain shortages could raise corporate input costs.
- Corporate discussion of rising input costs has already reached a 10-year high.
- After the energy shock, MXIN CY26 EPS consensus has already been cut by about 2%.
- Foreign investors may continue to sell, with active global capital allocation to India near a 20-year low.
- Domestic fund inflows and SIP inflows have already slowed on a month-over-month basis.
- India still carries a relatively high valuation premium versus regional markets.
- Cyclical sectors and downstream industries sensitive to energy costs face elevated earnings risk.
What to watch
- The beat/miss ratio for the roughly 30 remaining MXIN companies still to report.
- Whether NIFTY can move toward Goldman Sachs's March 2027 target of 25,900.
- Whether FII outflows slow and whether DII and mutual fund flows can continue offsetting foreign pressure.
- Changes in equity mutual fund, Largecap, SMID cap, and SIP inflows after April.
- Crude oil prices, INR trends, government energy policy, and signs of supply shortages.
- The frequency of mentions of input costs and supply shortages in earnings calls.
- The continued relative performance of defensive sectors versus cyclical sectors.
- The supply-demand gap, price trend, and profit trend in the DRAM/NAND semiconductor memory cycle.