Goldman Sachs has expressed confidence in India’s economic prospects, forecasting the country to emerge as one of the best-performing markets in 2025. The global investment bank attributes this optimism to India’s robust macroeconomic stability, underpinned by improving terms of trade, effective inflation targeting, and reliable domestic risk capital.
The bank anticipates an impressive annual earnings growth of 18-20% over the next four to five years. This growth is expected to be driven by a renewed cycle of private capital expenditure, corporate balance sheet re-leveraging, and a structural increase in discretionary consumption. These dynamics have significantly reduced India’s beta to emerging markets to approximately 0.4, justifying its premium valuation multiples.
Goldman Sachs’ earnings estimates for India remain ahead of the consensus, highlighting a declining correlation of Indian equities with global markets. Despite this, global factors such as policy actions in the U.S. and China, along with geopolitical developments, will continue to influence the Indian markets.
The investment bank expects India’s macro stability to be further bolstered by fiscal consolidation, increased private investment, and a positive real growth-real rates gap. Assumptions of strong domestic growth, no recession in the U.S., stable oil prices, modest rate cuts, and a supportive liquidity environment paint a promising picture. Sensex earnings are projected to compound at an annual rate of 17.3% through FY27, which is 15% above the consensus.
In its portfolio strategy, Goldman Sachs favors cyclicals over defensives and small-to-mid-cap stocks over large caps, recommending overweight positions in Financials, Consumer Discretionary, Industrials, and Technology sectors.
A recent report by Goldman Sachs Research indicated that the Indian economy is expected to remain relatively insulated against global shocks in the coming year, including potential tariffs from the U.S. under President-elect Donald Trump’s administration. While India’s GDP is projected to grow strongly in the long term, a short-term slowdown is anticipated due to reduced government spending and slower credit growth.
Goldman Sachs’ economists foresee India’s economy growing at an average rate of 6.5% between 2025 and 2030. The bank also expects headline inflation in India to average 4.2% year-on-year in 2025, with food inflation at 4.6%, significantly lower than the previous year’s estimates due to favorable weather conditions and good summer crop sowing.
However, the report cautions that food supply shocks resulting from weather-related disruptions remain a key risk. So far, elevated and volatile food inflation, primarily driven by vegetable prices due to weather shocks, has prevented the Reserve Bank of India from easing monetary policy. Despite these challenges, Goldman Sachs remains optimistic about India’s structural long-term growth, driven by favorable demographics and stable governance.
