Indian equities are expected to remain resilient to global macroeconomic challenges such as a stronger US dollar, shallower easing in emerging markets, and potential US tariff hikes on China, according to Goldman Sachs’ latest report. Despite this external immunity, domestic economic growth has been cyclically slowing.
Goldman Sachs projects India’s GDP growth to decelerate to 6.3% year-on-year (YoY) in 2025, citing fiscal constraints and subdued credit growth. This slowdown is expected to weigh on corporate earnings, with consensus EPS estimates likely to be revised downward.
Stock Market Outlook
Goldman Sachs expects the India stock market to remain range-bound in the short term due to weak earnings and high valuations.
It forecasts MSCI India to deliver earnings growth of 12%, 13% and 16% in CY 2024, 2025 and 2026, respectively, slightly below consensus expectations. While the valuations have corrected 8% after the recent pullback, the forward price-to-earnings (PE) ratio for MSCI India remains elevated at 23x, significantly above its 10-year mean, and above Goldman Sachs’ ‘fair value’ estimate of 21x, suggesting further de-rating risk.
The global investment bank estimates a muted 3-month return for the Nifty 50 at 24,000, but expects a recovery to 27,000 over the next 12 months, driven by underlying earnings growth.
Tactical Allocation
The firm maintains a neutral stance on Indian equities within its Asia/EM 2025 allocations but has adjusted its sector preferences. It remains overweight (OW) on domestic sectors with strong earnings visibility, such as autos, telecom, insurance, real estate, and internet. Additionally, Goldman has upgraded exporters like IT and pharmaceuticals, citing stable demand, weaker rupee advantages, and defensive characteristics.
Quality and Alpha Themes in Focus
Goldman Sachs highlights “quality growth” as a key strategy amid the cyclical slowdown. It emphasizes stocks with strong balance sheets, high earnings visibility, positive EPS revisions, and low beta. Its medium-term investment themes include housing, agriculture, defense, tourism, and affluent consumer segments.
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