The Iran conflict has exposed India as Asia’s most vulnerable large economy to an energy shock. Goldman Sachs says earnings could be hit. Here is the full damage assessment and the investment playbook that follows from it
Of all the major Asian economies caught in the crossfire of the Iran-US-Israel conflict, India sits in the most exposed position. That is the blunt conclusion of a Goldman Sachs strategy note published on March 2026, which has materially revised India’s macroeconomic and earnings outlook downward and laid out a detailed roadmap for how investors should reposition their portfolios in response.
Goldman says it has lowered India’s 2026 earnings growth forecast by 9 percentage points cumulatively over the next two years, to 8% for CY2026 and 13% for CY2027, compared to 16% and 14% respectively before the conflict began.
The firm expects consensus forecasts — which still sit at 16%/16% — to be cut meaningfully over the next two to three quarters. The divergence between Goldman’s numbers and the street is one of the largest it has been in years, and history suggests the street will move toward Goldman, not the other way around.
Why India Gets Hit
The starting point for Goldman’s revised outlook is a commodity team assessment that now assumes a six-week reduction in Strait of Hormuz flows to 5% of normal levels, followed by a gradual one-month recovery, plus structurally higher stockpiling globally. Goldman now expects Brent to average $105 per barrel in March and $115 in April before tapering to $80 in the fourth quarter of 2026.
India, the report says, “stands out as particularly vulnerable to potential energy shortages, given it is a lower per capita income economy with high energy imports.” The VAR impulse shock analysis in the note is stark: if oil prices are higher by $45 per barrel on average for three months, India’s full-year earnings growth could fall by approximately 9% — more than the 6% impact on broader Asia-Pacific ex-Japan earnings. India is, in short, the region’s most oil-sensitive major equity market.
The macro consequences flow directly from that vulnerability. Since the start of the Iran war, Goldman’s economists have revised India’s 2026 GDP growth down by 1.1 percentage points to 5.9%, raised the CPI forecast by 70 basis points to 4.6%, widened the current account deficit to 2% of GDP, weakened the rupee forecast to 95 against the dollar, and added 50 basis points of rate hikes — taking the expected repo rate to 5.75% by year end.
| Macro Indicator | Pre-Gulf War | March 13 Update | Latest (March 25) |
|---|---|---|---|
| Real GDP growth | 7.1% | 6.5% | 5.9% |
| CPI Inflation | 3.9% | 4.2% | 4.6% |
| Current Account (% GDP) | -0.9% | -1.2% | -2.0% |
| Repo Rate (year end) | 5.25% | 5.25% | 5.75% |
| Fiscal Balance (% GDP) | -4.3% | -4.3% | -4.7% |
| Brent Average ($/bbl) | 64 | 77 | 85 |
The earnings cuts, Goldman warns, have not yet arrived. Analyst expectations have barely moved despite the macro deterioration, but the March-end reporting season that begins in April will be the trigger. Based on past oil-supply shocks — the 2011 Libyan civil war, the 2012 EU oil embargo on Iran and the 2022 Russian invasion of Ukraine — MSCI India earnings were downgraded by between 6% and 13% in the twelve months following each event, with the bulk of cuts arriving in the second and third quarters after the shock.
That timeline puts the worst of the earnings revision cycle squarely in the middle of 2026. Goldman has also, as a consequence of all of the above, lowered its Nifty 12-month target from 29,300 to 25,900 — a note worth reading, though the more important story for wealth-building investors is what to do about it sectorally.
Defensive Up, Cyclical Down
Goldman’s sector reallocation is decisive and worth following closely. The firm is overweight banks, consumer staples, telecom, defence and — in a new upgrade — upstream energy including refiners and exploration and production companies. It has downgraded oil marketing companies to underweight, cut autos and consumer durables to marketweight, and lowered NBFCs to marketweight. IT, pharma, industrials and chemicals remain underweight.
Banks benefit from net interest margin expansion in a higher rate environment and carry strong asset quality. Staples offer revenue stability because demand for essential goods does not collapse when inflation rises. Telecom provides inelastic, recurring revenue.
Defence benefits from government indigenisation policy that the conflict has only accelerated. Upstream energy refiners and E&P companies gain directly from structurally higher oil prices and tight refining capacity. Downstream OMCs, by contrast, face the worst of both worlds — higher input costs and a political inability to pass them on at the pump, particularly with multiple state elections on the horizon.
Goldman also continues to advocate for its energy security and defence thematic baskets, both of which have underperformed the Nifty by 26 percentage points and 16 percentage points respectively since the conflict began — a dislocation the firm describes as a compelling entry point rather than a reason for caution.
Foreigners have sold a record $42 billion of Indian equities since the September 2024 peak, the second largest sell-off as a percentage of market cap in history, strongly correlating with India’s earnings downcycle. When that cycle turns — and Goldman believes it will once earnings stabilise after two to three quarters — the recovery in quality names with resilient earnings could be sharp. The time to position for that recovery, the note implies clearly, is now.