Goldman Sachs has upgraded equities to overweight in its global portfolio on a three-month tactical basis, arguing that falling valuations, a reset in investor positioning and expectations of strong corporate earnings have improved the risk-reward balance despite continued market volatility.
Sunil Koul, Global Emerging Market Equity Strategist at Goldman Sachs, told CNBC-TV18 that the recent pressure on global markets has been driven by concerns over artificial intelligence (AI)-related investments, funding risks and elevated energy prices. However, the correction has also made valuations more attractive, while corporate earnings are expected to remain strong across several major markets.
However, Koul cautioned that a recovery may take time, particularly for semiconductor stocks, while elevated crude oil prices remain a key risk for India.
Why Goldman Sachs is turning positive on equities
Goldman Sachs believes the recent market correction has created a more favourable entry point for equity investors. Its assessment rests on falling valuations, reduced investor exposure to crowded trades and expectations of strong third-quarter earnings.
Koul said equity multiples across Asia and global markets had fallen by close to 20% year to date, even as earnings continued to grow. India, meanwhile, had returned to its average valuation levels.
The bank also expects third-quarter earnings to be strong across the US, Europe and emerging markets, although the drivers will vary. AI-related demand could support technology companies, while banks and energy companies are expected to contribute to earnings growth in other markets.
Explaining the decision to upgrade equities, Koul said: “With micro strength, valuations and positioning having reset, we felt that the asymmetry for equity markets at current levels looked a little better.”
The upgrade is a tactical call for three months, rather than a prediction of an immediate market rebound. Goldman Sachs believes the combination of lower valuations and resilient earnings has improved the potential returns relative to the risks facing equity investors.
Why are AI stocks under pressure despite strong demand?
The recent weakness in AI-linked stocks reflects concerns about funding and investor positioning, rather than a clear deterioration in underlying demand for computing capacity, according to Koul.
Investors are questioning whether the more leveraged parts of the AI ecosystem can finance the capital expenditure required to sustain the infrastructure build-out. At the same time, substantial positions had accumulated in semiconductor stocks, leaving them vulnerable to selling as sentiment weakened.
Koul said demand for computing capacity remained strong, with companies providing encouraging preliminary numbers and guidance. However, he expects sentiment to take time to recover, meaning semiconductor stocks may not see an immediate, sharp rebound.
The selling has also prompted some investors to rotate from semiconductor companies towards software stocks. According to Koul, positioning in semiconductors had been crowded, while exposure to software was relatively light.
Despite the near-term pressure, Goldman Sachs expects strong earnings to support AI-linked markets over a longer period. Koul said the bank expects markets to be higher over the next 12 months if underlying earnings growth remains strong.
How could India benefit from the global market correction?
India could attract investor interest as global funds diversify away from markets and sectors heavily exposed to the AI trade.
Koul said India’s headline equity index has an inverse relationship with the AI trade, making it a potential source of diversification for investors seeking to reduce their exposure to technology and semiconductor stocks. He also pointed to relatively clean positioning in India and the strength of underlying earnings.
However, the bank’s outlook for India is conditional on the broader macroeconomic environment, particularly crude oil prices. Elevated oil prices remain a concern in Goldman Sachs’ conversations with clients, while a decline could encourage investors to build exposure to Indian equities.
Koul described India as a large, liquid market with a place in diversified portfolios. Its relative appeal will depend partly on whether global investors become more willing to allocate funds to markets outside the AI trade and whether oil prices ease.
Why has Goldman Sachs also favoured buying bonds?
Goldman Sachs has also turned more constructive on bonds after the recent rise in yields.
Koul said bond yields had climbed significantly above the firms fair-value estimates, making longer-duration bonds more attractive. The view reflects the assessment that yields had risen too far, creating a better balance between potential returns and risks for investors buying bonds at current levels.
Bonds could also provide a hedge during periods of broad market de-risking, although their effectiveness would depend on how yields move. Koul emphasised that investors should maintain balanced portfolios, with diversification across regions and investment factors rather than relying heavily on a single market theme.
The bond call, like the equity upgrade, is based on the bank’s assessment that market movements have created opportunities as investors reassess risk.
Why is crude oil still expensive despite recovering Persian Gulf exports?
Elevated crude oil prices remain a key risk for markets, particularly India. However, Koul said the high price of oil reflects not just the volume of supplies moving through the Persian Gulf but also the additional costs and risks associated with shipping during the conflict.
Goldman Sachs tracks oil flows through the region, including some less transparent shipments. Koul said aggregate Persian Gulf exports monitored by the firm had returned close to pre-war levels. In September, flows were running at around 110-120% of the 2025 average, although they had eased somewhat since then.
Despite the recovery in shipments, Brent crude remains expensive because of higher shipping costs and the premium associated with the war.
Koul estimated that the combined shipping-cost and war premium was around $20-25 per barrel. Goldman Sachs has a year-end Brent crude target of $90 per barrel, indicating that the firm expects some of this premium to persist, even if it declines from current levels.
For India, a reduction in oil prices could ease one of the main concerns holding back investor interest. If crude remains elevated, however, it could continue to weigh on sentiment and limit the scope for increased foreign investment.
Goldman Sachs’ outlook therefore hinges on a distinction between near-term market volatility and the underlying earnings outlook. It sees opportunities in equities after the correction, but the pace of any recovery will depend on earnings delivery, investor positioning and whether macroeconomic pressures, particularly those stemming from oil prices, begin to ease.