As the market traded firm most days this month on the back of boosted investor sentiment, American brokerage firm Goldman Sachs, in its latest report, said that 'Foreign institutional investors' (FII) flows will "gradually return" to India despite the recent flare-up in tensions in West Asia. Predicting a decent rise in the Indian equity market, the brokerage said that the NSE's NIFTY--the 50-share index-- is estimated to rise 10 per cent to be at 26,500 points in a year.

"Foreign selling is likely over, and sentiment should turn incrementally favourable on improved domestic outlook and ultra-light foreign positioning," said Goldman Sachs in a note.

FII's have turned net buyers since mid June

The note pointed out that India, as a financial market, has hit a record high of US$30 billion in more than three months in the first half of 2026. But since mid-June, investors have turned into net buyers and invested US$2 billion, it added.

"With most of the buying being in the financial sector and it's largely underweight in Indian equities, there is ample scope for global funds to rebalance their investments," it said.

Currently, the broker said investor concerns regarding such foreign institutional investors (FIIs) include an ongoing earnings decline cycle and a growth-price mix that is still unattractive compared to other markets.

However, the improved outlook for domestic recovery will act as a catalyst for investors to start expecting a recovery, it added.

Nifty Down 9% 

From a market perspective, it acknowledged that Nifty returns were at a three-decade low in the first half of 2026, with the index down 9 per cent; However, it added that it believed there was a chance for recovery.

"...while renewed geopolitical tensions in the Middle East may fuel near-term volatility, as domestic recovery starts to get priced in, we expect NIFTY to rebound towards our June 27 target of 26,500, implying a 10 per cent upside from current levels," it said.

Large-cap stocks saw relatively smaller earnings declines than mid-cap stocks in the first half of 2026, the report said, and this improved earnings clarity, pointing out that banks, energy and domestic sectors would be better choices than exports.

Disclaimer: This story is written with the agency's input.