Indian equities rebounded on a weekly basis, with improving earnings and flows, but weak monsoons pose macro risks

Overview

This report is Goldman Sachs' weekly review of Indian equities, covering NIFTY performance, MSCI India earnings progress, earnings revisions, flows, valuations, monsoon rainfall, and India's macro forecasts. The report believes that lower oil prices, the recent return of positive foreign flows, and stronger-than-expected 2QCY26/1QFY27 earnings together supported the rebound in Indian markets; however, high valuation premiums, deficient monsoon rainfall, weakening agriculture-related indicators, and foreign investors' continued year-to-date net outflows mean that further upside still requires continued confirmation from earnings and flows.

Core views

Goldman Sachs maintains India at Marketweight and expects NIFTY to reach 26,500 by June 2027. On earnings, the proportion of companies beating expectations currently exceeds the proportion falling short, non-commodity industry earnings growth remains in the double digits, earnings downgrades have stabilized, and revision sentiment has turned modestly positive. On flows, foreign investors turned net buyers in July, domestic fund inflows improved, and active funds' underweight position in India relative to their benchmark implies potential room for catch-up buying. On risks, MSCI India's valuation remains significantly higher than that of Asia-Pacific ex-Japan markets, while deficient monsoon rainfall could affect agricultural income, rural consumption, and inflation expectations.

Analysis framework

The report uses a weekly market review framework that combines index and sector performance, foreign and domestic flows, the proportion of companies beating earnings expectations, earnings revisions, macro weather indicators, relative valuation premiums, and risk-sentiment indicators to assess the short- to medium-term allocation appeal of Indian equities.

Methodology notes

• Earnings analysisEarnings beats and revision tracking

  Compare reported companies' earnings, revenue, and margin performance relative to consensus expectations, while monitoring the breadth of EPS upgrades and downgrades.

  Based on 89 MSCI India companies that have reported, the report measures earnings beats, misses, and average earnings surprises, and tracks whether EPS revisions have stabilized quarter to date.

• Flow analysisFII/DII flows

  Track net purchases or net sales by foreign and domestic institutions in India's cash equity market.

  Foreign investors recorded $0.4bn of net purchases this week and turned net buyers in July, while domestic institutions recorded $0.3bn of net purchases this week, indicating a marginal improvement in recent flows.

• Valuation analysis12-month forward P/E relative premium

  Use MSCI India's forward P/E and its premium relative to MXAPJ to measure market valuation pressure.

  MSCI India's 12-month forward P/E is 20.5x, an approximately 94% premium to MXAPJ, indicating that although earnings improvement supports the market, valuation tolerance is limited.

• Macro and weather trackingMonsoon Tracker

  Track cumulative monsoon rainfall, reservoir levels, summer crop sowing, and agricultural tractor sales.

  Rainfall was 14% below normal, approximately 50% of regions experienced deficient rainfall, and reservoir levels were 8% below normal, highlighting downside risks to agricultural output and rural demand.

• Risk monitoringGS India Equity Risk Barometer

  Assess risk appetite by combining indicators including flows, positioning, technical factors, volatility, foreign exchange, and credit spreads.

  The report uses this indicator as an auxiliary monitoring tool for risk sentiment and positioning pressure in Indian equities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• NIFTY

  Core index and target asset

  Strengths

  Rose 3% on a weekly basis; Goldman Sachs' target is 26,500, and both foreign and domestic flows have recently been net positive.

  Weaknesses

  Year-to-date returns remain negative, while valuation and earnings-delivery pressures are elevated.

  Comparison

  Relative to other Asia-Pacific markets, India is rated Marketweight; MSCI India's valuation carries an approximately 94% premium to MXAPJ.

  Risks

  Insufficient monsoon rainfall, valuation premiums, year-to-date foreign net outflows, and a renewed widening of earnings downgrades.

• MSCI India

  Benchmark for earnings and valuation analysis

  Strengths

  Among companies that have reported, the proportion beating expectations exceeds the proportion missing, while non-commodity earnings grew 13% year on year.

  Weaknesses

  The 12-month forward P/E is 20.5x, indicating expensive valuations.

  Comparison

  The approximately 94% premium to MXAPJ creates greater valuation constraints than in regional markets.

  Risks

  If earnings growth cannot be sustained, the high valuation could create downside pressure.

• Banks / Financials

  One of Goldman Sachs' overweight sectors

  Strengths

  Financials, Utilities, and Staples contributed a relatively large share of earnings beats among non-commodity sectors; Banks are rated ow.

  Weaknesses

  The credit cycle, asset quality, and interest-rate path still require monitoring.

  Comparison

  Banks have a more positive allocation rating than underweight sectors such as Infotech, Pharma, and Metals & Mining.

  Risks

  Higher interest rates, rising credit costs, or funding-cost pressures.

• Energy

  Commodity-cycle and oil-price-sensitive sector

  Strengths

  Energy Refineries/E&P are rated ow, and lower oil prices are supportive of India's macro backdrop.

  Weaknesses

  The Energy sector lagged this week and is highly sensitive to oil prices and policy.

  Comparison

  Oil Marketing Companies are rated uw, indicating divergent positioning within Energy.

  Risks

  A rebound in oil prices, volatility in refining margins, and policy intervention.

• Infotech / Pharma

  Export-oriented and defensive sectors

  Strengths

  IT led weekly performance, while Pharma has performed relatively well year to date.

  Weaknesses

  Both Infotech and Pharma are rated uw, possibly reflecting valuation or earnings-expectation constraints.

  Comparison

  Their allocation appeal is lower than that of overweight sectors such as Banks, Energy, and Utilities.

  Risks

  Slowing global demand, exchange-rate volatility, and downward earnings revisions.

Key data

• NIFTY weekly performance+3% w/wThe rise was supported in part by an 8% weekly decline in Brent crude prices.
• Current NIFTY level24,384The table states that pricing data are as of July 31, 2026.
• NIFTY target level26,500 by Jun'27Goldman Sachs maintains India at Marketweight.
• MSCI India forward valuation20.5x fP/EApproximately a 94% premium to MXAPJ.
• Foreign investor flows+$0.4bn wtd; -$27bn YTDJuly was the first month of net purchases since February 2026; India saw the largest buying among EM peers in July, at approximately +$2bn.
• Domestic institutional flows+$0.3bn wtd; +$54bn YTDDomestic flows remain an important support for Indian equities.
• Number of companies reporting results89 MSCI India companiesCovering approximately 66% of index market capitalization.
• Earnings beat rate49% beat vs 33% missedAverage earnings exceeded expectations by approximately +3%.
• MSCI India non-commodity earnings growth+13% yoy; flat qoqBased on currently reported results.
• NIFTY non-commodity earnings growth+10% yoy; -1% qoqEarnings growth remained positive but was slightly weaker sequentially.
• Cumulative monsoon rainfall14% below normalThe measurement period was June 1 to July 30, 2026.
• Coverage of rainfall deficiencyApproximately 50% of IndiaReservoir levels were 8% below normal.
• India real GDP forecastCY26E 6.9%; CY27E 7.4%From Goldman Sachs' macro forecast table.
• India CPI forecastCY26E 4.4%; CY27E 4.7%Annual average year-on-year forecasts.
• Domestic equity fund inflowsUS$3.1bn in June, +27% m/mThe improvement was broad-based across most fund categories.
• SIP dollar inflowsUS$3.4bn, +3% m/mIndicating continued improvement in retail systematic investment flows.

Impact & implications

For investors, Indian markets have near-term support from marginal improvements in earnings and flows, while lower oil prices benefit India's macro backdrop and corporate profits. However, elevated valuations mean that further upside requires continued earnings upgrades, additional foreign inflows, and easing monsoon risks. If deficient rainfall weighs on rural consumption or pushes up inflation, the market may refocus on macro pressures and sector differentiation.

Risks

• Monsoon rainfall was 14% below normal, potentially affecting agricultural income, rural consumption, and food inflation.
• MSCI India's 12-month forward P/E is 20.5x, with an approximately 94% premium to MXAPJ, leaving limited valuation tolerance.
• Although foreign flows have recently turned positive, year-to-date net sales remain approximately $27bn, so a sustained reversal in flows still requires confirmation.
• Summer crop sowing is below recent-year levels, while agricultural tractor sales growth has fallen to a one-year low, indicating that rural demand may be weakening.
• If the breadth of earnings upgrades cannot be sustained, the current market rebound may lack further fundamental support.
• A renewed rise in oil prices could weaken the improvement narrative for India's macro economy and corporate profits.

What to watch

• Whether upcoming earnings releases from MSCI India and NIFTY constituents continue to show broad-based beats.
• Whether EPS upgrades continue to outnumber downgrades, particularly in sectors such as Financials, Energy, Materials, and Autos.
• Whether FII net purchases continue after August, and whether global active funds reduce their underweight positions in India.
• Whether monsoon rainfall, reservoir levels, summer crop sowing, and high-frequency rural consumption indicators improve.
• Whether MSCI India's valuation premium to MXAPJ narrows or is absorbed by earnings growth.
• The trajectory of Brent crude and its impact on India's inflation, current account, and earnings expectations.