Goldman Sachs flags $22bn FII exit, cuts Nifty target

Nifty above 24,000 and the immediate context

Indian equities ended a volatile stretch with the Nifty 50 closing above the 24,000 mark, with the index last reported at 24,050. The benchmark gained 5.89% over the week and added 1.16% on the final trading day, helped by short covering after a reported US-Iran ceasefire improved global risk appetite. Market participants also pointed to lower crude prices after the easing of tensions, which reduced near-term pressure on India’s import bill. In conversations captured during the move, the view was that the macro backdrop looked “decent” for the time being. But the tone remained cautious on whether foreign institutional investors (FIIs) would return in a durable way.

FII selling is slowing, but the trend is still negative

One data point investors tracked closely was the pace of equity outflows. Over the last five trading sessions (excluding the current day referenced in the discussion), net equity outflows were ₹2,555 crore. That compared with ₹31,115 crore of outflows in the first five trading sessions of June, a sharp contrast that suggested selling pressure had moderated. The same discussion noted that FIIs “coming back” could still be some time away, even if the pace of selling had eased. The working assumption was that foreign selling was dissipating rather than reversing decisively.

Weekly flows show DIIs offsetting FIIs

Exchange data for the week reinforced the divergence between foreign and domestic activity. FIIs sold equities worth ₹20,710 crore during the week, while domestic institutional investors (DIIs) bought ₹21,602 crore. On Friday, FIIs recorded a net inflow of ₹672 crore, their first positive session since February 25, although strategists cautioned that follow-through would be needed to call a durable shift in sentiment. Month-to-date numbers remained weak: FIIs withdrew ₹38,973 crore, while DIIs invested ₹35,983 crore. Analysts linked the persistence of FII selling to macro and global factors including geopolitical tensions, elevated crude oil prices, rupee weakness, rising global bond yields, and inflationary pressures.

What is holding back foreign re-entry: earnings and currency

Investor conversations cited two recurring concerns over the last several months: weak earnings and currency depreciation. The same commentary suggested the currency had “more or less” stabilised, shifting attention back to earnings. Earnings growth was described as having come down to around 13%, still above an 8% earnings growth expectation referenced in the discussion. The expectation was for earnings downgrades over the next couple of quarters, especially if input pressures fed into margins. Another overhang mentioned was the possibility of the RBI hiking rates later in the year, a factor seen as weighing on sentiment.

Goldman Sachs: selling may be near exhaustion, but rebound is not automatic

Goldman Sachs argued in a recent note that the bulk of foreign selling is likely over, but it does not expect foreign investors to return to Indian equities “in a hurry,” even if oil prices decline. The note said empirical evidence suggests FII flows do not immediately return when oil prices fall. As an example, foreign capital did not return during an early-April oil price correction, despite heavy selling during a preceding oil rally in March. Goldman also highlighted that earnings revisions have become an increasingly important variable for foreign flows. With visibility on earnings recovery still low, the bank said near-term foreign re-buying could remain constrained.

Record outflows and where they sit in past cycles

Goldman said foreigners have sold $12 billion in Indian equities year-to-date, surpassing the annual selloff record of $19 billion outflows in 2025 over the last 2.5 decades. On a rolling 250-day basis, the cumulative sell-off was cited at around $10 billion, close to the $18-32 billion range seen at major troughs during 2022 and 2025. The bank also estimated incremental downside risk to foreign selling at about $1-5 billion even if geopolitical risks such as the Iran conflict were to persist. Separately, a summary of the same “near exhaustion” view cited foreign ownership falling to a 14-year low and dropping below domestic institutions for the first time in over two decades.

Valuations versus North Asia and the AI overhang

Goldman also flagged a valuation challenge: it described the risk-reward as “less attractive” for Indian equities compared with North Asian peers because India trades at significantly higher growth-adjusted valuations. In the same context, the note said investor concerns about the potential adverse impact of artificial intelligence (AI) were limiting gains for Indian equities. The message was that even if the flow cycle is maturing, valuation and uncertainty around earnings could keep foreign investors selective.

Targets and stance shifts: multiple calls in play

Across the material referenced, targets and stances varied and changed with the macro narrative. One market view cited a Nifty target of 26,500, described as roughly 12-13% upside depending on pricing date. Separately, one line noted Goldman Sachs downgraded India to “marketweight” and cut its Nifty target by 14% to 25,300, citing weaker earnings and near-term risks. Another Goldman note said it cut its 12-month Nifty target to end-March 2027 to 25,900 from 29,300, with expected returns of 13% in INR and 12% in USD over the next 12 months, below a 19% USD upside expectation for MXAPJ. That same note referenced earnings growth of 8% and 13% in CY26 and CY27, respectively, and a lower Nifty fair-value multiple of 19.5x (previously 20.8x), alongside a warning of downside risk over the next 3-6 months due to earnings downgrades and low visibility.

Key figures at a glance

What investors are watching next

Near-term flow direction is being linked to developments in US-Iran negotiations, their impact on crude prices, and corporate earnings. The common thread across the commentary and Goldman’s notes is that a slower pace of outflows does not automatically mean a return of sustained foreign buying. Earnings revisions, margin pressure from inputs, and the path of interest rates remain central to the next leg of positioning. For Indian markets, the immediate support from DIIs has been visible in the weekly numbers, while the next signal investors will look for is whether sporadic positive FII sessions turn into consistent inflows.