Elevated Valuations, Weak Earnings Visibility and Persistent FII Selling Reduce Near-Term Appeal of Indian Markets
In its latest Asia strategy report, Goldman Sachs highlighted that Indian markets are trading at premium valuations despite increasing uncertainty around earnings growth, global liquidity conditions and foreign investor participation. The brokerage said investors are increasingly shifting attention toward markets that offer relatively cheaper valuations and stronger near-term earnings momentum.
According to the report, concerns related to slowing global growth, elevated crude oil prices and the rapid emergence of artificial intelligence-led disruption across industries are also weighing on investor confidence in Indian equities.
Foreign Investors Continue Massive Selling Spree
One of the biggest concerns for Indian markets remains the continuous outflow from foreign institutional investors (FIIs). Goldman Sachs noted that overseas investors have already sold nearly $22 billion worth of Indian equities in 2026 so far, surpassing the previous annual record outflow seen in 2025.
The brokerage further stated that since the peak reached in September 2024, foreign investors have cumulatively pulled out nearly $53 billion from Indian equities. This marks one of the largest sustained selling phases in the history of Indian capital markets.
Analysts said that while the majority of the selling pressure may already be behind the market, a sharp return of foreign money is unlikely in the immediate future.
Historically, FII flows into India have shown only a mild correlation with falling crude oil prices. Even during recent corrections in oil prices, foreign investors largely stayed away from Indian equities, indicating broader concerns around valuations and earnings outlook.
Earnings Downgrades Could Delay Recovery
Goldman Sachs also warned that weak earnings visibility across several sectors could continue to keep investors cautious. The brokerage expects earnings revisions to become a key driver of future foreign flows into Indian equities.
Several sectors have already started witnessing downward earnings revisions amid slowing consumption demand, margin pressure and uncertain global trade conditions. Analysts believe foreign investors may wait for clearer signs of earnings recovery before increasing exposure to Indian stocks again.
The report added that large-cap companies have witnessed the sharpest decline in foreign ownership over the past few quarters. Foreign shareholding in Indian equities has now reportedly dropped to a 14-year low.
Interestingly, domestic institutional investors (DIIs) have overtaken FIIs in ownership share for the first time in more than two decades. Rising SIP inflows and strong participation from retail investors have helped domestic institutions absorb a large part of the foreign selling.
Banking, Realty and Consumer Stocks Face Pressure
Sector-wise, Goldman Sachs observed that banking, real estate and consumer retail & services sectors saw the sharpest reduction in foreign ownership during the latest quarter.
Investors remain concerned about slowing urban consumption trends, rising competitive intensity and pressure on profitability in several consumer-focused businesses.
On the other hand, sectors such as industrials, utilities and metals witnessed an increase in foreign participation, reflecting investor preference for infrastructure-linked and manufacturing-focused themes.
Goldman Sachs Picks Stocks with Lower Oil Sensitivity
Despite the cautious broader outlook, Goldman Sachs continues to maintain a positive stance on select companies that are less vulnerable to oil price shocks and where foreign ownership remains relatively light.
The brokerage identified companies such as Hindustan Unilever, Larsen & Toubro, Bajaj Auto, Bank of Baroda, Trent, Solar Industries India, Siemens, Bosch, Swiggy and One 97 Communications among its preferred medium-term investment ideas.
According to analysts, these companies could potentially outperform once foreign investor sentiment improves and broader market stability returns.
Domestic Investors Continue Supporting Markets
While foreign investors remain cautious, domestic participation continues to provide strong support to Indian markets. Consistent inflows through mutual fund SIPs, retirement savings and insurance-linked investments have helped Indian benchmarks remain relatively resilient despite aggressive foreign selling.
Market experts believe India’s long-term structural growth story remains intact due to strong domestic demand, government-led infrastructure spending and rising formalisation of the economy. However, near-term volatility is expected to remain elevated amid global uncertainty, geopolitical tensions and fluctuating commodity prices.
Investors are likely to remain focused on upcoming quarterly earnings, inflation trends, central bank commentary and global crude oil movements for further market direction.