On a day that rupee fell sharply and stocks tumbled in another major sell-off caused by uncertainty in the Middle East, Goldman Sachs predicted that rupee was likely to reach Rs 72 per dollar in six months’ time.
"In India, we have cut our full-year GDP growth forecast to 4%, from 6%,” Goldman Sachs said in a research note.
It added that the rupee was likely to reach 72 per dollar in six months' time, recovering to R70 over a 12-month horizon.
Goldman Sachs said there was a risk of "near-term overshooting of our targets if economic and financing conditions worsen, and especially if there are pressures on the banking and corporate sectors due to weakness in growth".
In the near term, Goldman Sachs sees risks as the economy is likely to need an adjustment in the current account and fiscal balances, and says it "may require below-potential growth for several more quarters to reduce inflation, before we can see an economic recovery".
Goldman Sachs joined a series of investment houses from HSBC to Nomura which have cut their growth forecasts for the once-booming Indian economy.
On Monday, an HSBC survey showed that India's manufacturing shrank in August for the first time in over four years.