Indian Economy: Goldman Sachs Sees Light at the End of the Tunnel

Cautious Optimism for India’s Economic Future

Global investment firm Goldman Sachs has a positive, albeit cautious, outlook on the Indian economy. They believe the worst of the economic slowdown is likely over, but advise investors to be wary of potential market volatility.

Market Fluctuations and Growth Prospects

• Goldman Sachs foresees market fluctuations due to substantial domestic investments in small- and mid-cap stocks, as well as global uncertainties, such as tariff concerns.
• Despite these challenges, they anticipate continued growth, stating, “The worst is likely behind us in terms of economic growth and earnings trajectory, and prices have corrected significantly.”

Investment Recommendations

Goldman Sachs maintains its “Market Weight” position on India within emerging markets (EM) and advises investors to focus on shares with consistent earnings visibility and sustainable growth.

NIFTY 50 Index Correction

• The NIFTY 50 index dropped by 10% from its September 2024 peak, due to reduced earnings growth affected by unfavorable macroeconomic conditions and significant decreases in valuation multiples across sectors.
• Analysts observed that FY26 earnings per share (EPS) estimates have dropped by around 7% across the market.

Cyclical Factors and Economic Recovery

The firm attributes the recent economic slowdown to cyclical factors, rather than fundamental weaknesses. They highlight regulatory measures, such as strict credit rules in late 2023, conservative monetary policies, restricted liquidity from foreign exchange outflows, and fiscal constraints, as contributors to the reduced growth momentum.

Policy Changes and GDP Growth

• Recent policy changes, including income tax relief in the Union Budget and Reserve Bank of India (RBI) rate reductions, could help revive the economy.
• The firm’s economists predict India’s real GDP growth to reach 6.4% in the second half of 2025.

Ongoing Concerns and Market Volatility

Although the most severe phase of the slowdown seems to be over, the report urges investors to stay alert to market volatility and external factors impacting India’s economic prospects. Ongoing concerns include potential US tariffs on Indian products, which could impact trade and economic expansion.