Goldman Sachs Says Market Volatility May Remain But India's Worst Economic Slowdown Over
"The worst is likely behind us in terms of economic growth and earnings trajectory, and prices have corrected meaningfully," Goldman Sachs says in its note.
The worst phase of India’s economic slowdown and earnings decline appears to be over, according to global financial firm Goldman Sachs. However, it warns that market volatility may persist due to high domestic investments in small- and mid-cap stocks and global uncertainties, particularly trade tariffs.
“The worst is likely behind us in terms of economic growth and earnings trajectory, and prices have corrected meaningfully," the firm stated in its latest report.
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Goldman Sachs maintained a “Market Weight" stance on India within the emerging markets (EM) category, advising investors to focus on stocks with strong earnings visibility and quality growth.
Factors Behind Market Correction
The report highlighted that the NIFTY 50 index has declined 10% from its September 2024 peak, driven by weaker macroeconomic conditions and a sharp reduction in valuation multiples across sectors. Analysts noted that earnings per share (EPS) expectations for FY26 have been lowered by an average of 7% across the market.
Goldman Sachs attributed the slowdown to cyclical rather than structural factors. It pointed to policy tightness, including strict credit regulations in late 2023, cautious monetary policy, tight liquidity due to foreign exchange outflows, and fiscal tightening, as key reasons behind the weaker growth momentum.
“The growth slowdown is cyclical rather than structural, and largely reflects policy tightness – the lagged effects of credit regulation in late 2023, cautious monetary policy, and (until recently) tight liquidity amidst FX outflows," the report stated.
Recovery Signals and Risks Ahead
Despite the recent slowdown, Goldman Sachs believes that some policy changes could support an economic rebound in the coming months. Measures such as income tax relief in the Union Budget and policy rate cuts by the Reserve Bank of India (RBI) are expected to boost economic activity.
Goldman Sachs’ economists project that India’s real GDP growth could improve to 6.4% in the second half of 2025.
However, the report also warned of lingering risks, particularly potential US tariffs on Indian goods, which could impact trade and economic growth.
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