Global investment bank Goldman Sachs has revised its outlook for India’s stock market to overweight. This means that the bank now has more confidence in the Indian stock market than ever before. In October 2024, Goldman Sachs had given India a neutral rating, but now believes that India is returning to a strong economic and corporate position. The bank says that despite heavy selling by foreign investors last year and weak results, India’s economy and corporate conditions are now strengthening again.
According to the report, India could become the fastest and most stable growing economy among emerging markets in the next few years. Goldman Sachs estimates that the Nifty 50 index could reach 29,000 by the end of 2026. According to the report, India’s recovery depends on four key factors: policy support, improved earnings, balanced foreign investment and stable valuations. The report said India underperformed by about 25 per cent this year compared to other emerging markets, but now the situation is changing due to improvements in infrastructure and policies. The bank estimates that MSCI India’s profit will grow by 14 percent by 2026, compared to 10 percent this year. Additionally, the country’s nominal gross domestic product (GDP) is expected to grow by about 11 percent.
Foreign investors sold shares worth about $30 billion in 2025, reducing the valuation of the Indian market slightly. However, domestic institutional investors invested more than $70 billion during this period, keeping the market stable. Goldman Sachs believes that India has now again become one of the most attractive markets in Asia. The Reserve Bank of India (RBI) has also played an important role in this process. The repo rate was cut by 100 basis points in 2025, making loans cheaper and boosting economic activity. Apart from this, the cash reserve ratio (CRR) was also reduced by 1 percent, thereby providing more liquidity to the banks. On the fiscal front, the government has attempted to revive consumption through GST and income tax relief, public investment and slow fiscal tightening. This will increase the spending capacity of the general public, which will revive the economy.
Which areas are favourite?
Corporate results for Q3FY25 (July-September) were about 2 per cent better than expected, especially in the banking and commodity sectors. This shows that corporate earnings have started to recover and will accelerate further in the coming months.
Goldman Sachs has identified some sectors as “favorites” for investors. These include banking and financial services, where credit growth is expected to pick up; auto, consumer goods and durables, where sales may pick up due to tax incentives and rural demand; the defense sector, which is getting a boost from the government’s Atmanirbhar Bharat initiative; and oil marketing companies and the telecommunications sector, whose earnings have remained stagnant.
The bank has also described new economy sectors such as digital platforms, electric mobility and defense technology as attractive for future investment. Government policies and private investment are working together in these areas. However, the report cautioned that India’s momentum could be somewhat impacted if earnings recovery remains slower than expected, global headwinds, or an AI-related boom in Asian markets. Still, Goldman Sachs believes India’s fundamentals are strong, and it will outperform emerging markets over the next two years.