Goldman Sachs cut India's CAD forecast to 1.3% of GDP for CY26, citing lower oil and gold imports. It sees BoP surplus of 0.6% of GDP per year through FY27. RBI measures should bring $60bn inflows, but INR appreciation limited.
Alpha Score of 54 reflects moderate overall profile with strong momentum, poor value, poor quality, moderate sentiment.
Goldman Sachs cut its current account deficit forecasts for India after a stronger-than-expected Q1 balance of payments surplus and lower assumptions for oil and gold imports. The brokerage now expects the CAD at 1.3% of GDP for calendar 2026 and 1.7% for fiscal 2027. Earlier estimates were 2.0% and 2.1% respectively.
The revision followed a $7.2bn BoP surplus in Q1 CY26. That surplus came despite softer capital inflows. Remittances and services exports provided a buffer. Low oil imports also helped. India's oil intensity has fallen since the 1990s, the report noted. Post-pandemic oil import volumes have become more price-sensitive. When crude stays above $80 a barrel, volumes drop more than they used to. That limits the damage from higher global oil prices.
Goldman Sachs expects gold imports to cool after the recent budget raised duties. The brokerage said duty hikes historically reduce volumes after a one-to-two-month lag.
The rupee has weakened over the same period, creating a disconnect. Goldman Sachs attributed that to precautionary dollar demand linked to West Asia uncertainty, not to a deterioration in the country's external position. The rupee's weakness looks tactical rather than structural.
The RBI has rolled out a set of measures to boost dollar inflows. Concessional forex swap lines for banks and quasi-sovereign entities, plus tax exemptions on interest and capital gains for foreign investors in government securities, are part of the package. Goldman Sachs estimates these could attract roughly $60bn in inflows. That would help India record a BoP surplus of about 0.6% of GDP in each of CY26 and FY27.
The improved BoP outlook should reduce depreciation pressure on the rupee. A strong rally is unlikely, however. On a trade-weighted basis, the rupee looks roughly fairly valued. Any fresh inflows are more likely to be absorbed by the RBI building reserves and unwinding its forward short book. That caps the upside.
Two things could break the setup. A sustained spike in oil above $90 a barrel would increase the import bill. A sharp reversal in global risk appetite could slow portfolio flows. Either would strain the BoP again. On the other side, continued low oil prices and successful implementation of the RBI's inflow measures would confirm the positive trend.
The RBI's next monetary policy meeting is scheduled for next week. Q2 BoP data is due in September.
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