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Foreign investors may have largely completed their sell-off in Indian equities, with sentiment expected to improve as India's domestic economy strengthens and overseas investors remain significantly underweight on the market, according to Goldman Sachs' latest India Strategy report for July.

The global investment bank has projected that the benchmark Nifty 50 index could rise to 26,500 by June 2027, representing a potential upside of around 10% from current levels. However, Goldman Sachs cautioned that geopolitical tensions in West Asia could continue to trigger short-term market volatility. Investor Sentiment Expected to Improve

Goldman Sachs analysts, led by Timothy Moe along with Amorita Goel and Sunil Koul, said investor confidence in Indian equities is likely to strengthen as the domestic economic outlook improves and foreign investor positioning remains exceptionally light.

The brokerage believes the combination of improving macroeconomic fundamentals and a gradual return of foreign capital could support Indian markets over the next year.

Shift From Earlier Cautious View

The latest outlook marks a notable change from Goldman Sachs' stance in May 2026, when it had described Indian equities as offering a less attractive risk-reward profile compared to North Asian markets.

At the time, the firm had also expressed concerns that foreign investors would be slow to return to India, even if crude oil prices moderated. It had additionally warned that the growing impact of artificial intelligence (AI) on India's services sector was affecting investor sentiment.

Foreign Outflows Begin to Reverse

According to Goldman Sachs, global investors used India as a funding market during the first half of 2026, selling a record USD 30 billion worth of Indian equities in just three and a half months.

However, the trend has started reversing since mid-June. Overseas investors have turned modest net buyers, investing nearly USD 2 billion, with financial stocks attracting the bulk of these inflows.

FII Flows Still Negative for FY27

Despite the recent improvement, foreign institutional investors (FIIs) remain net sellers for the current financial year.

Market data shows that FIIs have pulled out Rs 1.28 lakh crore from Indian equities so far in FY27. In June alone, they sold shares worth Rs 49,340 crore.

The sentiment improved in July, with FIIs turning net buyers and investing Rs 15,157 crore in Indian stock markets, according to NSDL data.

Positive Outlook Despite Global Risks

Goldman Sachs believes that improving domestic economic conditions, easing foreign underweight positions and a gradual recovery in overseas investment flows could provide sustained support to Indian equities in the coming months.

However, the investment bank warned that ongoing geopolitical developments in West Asia are likely to keep market volatility elevated in the near term.