Goldman Sachs expects growth revival in India and sees a case to upgrade India to overweight, after a year in which the domestic market has lagged other emerging markets due to flight of foreign money.
It has raised India equities to Overweight with a Nifty target of 29,000 by 2026 year-end, a 14 per cent upside from current levels, led largely by earnings growth over the next two years. GS is bullish on sectors such as financials, consumer sectors, durables, defence, TMT (technology, media and telecommunications) and oil marketing companies.
GS had downgraded India in October last year due to stretched valuations and earnings slowdown. “As the year progressed and earnings cuts materialised, tariff headwinds soured sentiment further and led to large foreign de-risking. We now see a case for Indian equities to perform better over the coming year,” GS said in its latest report, “Leaning In as Growth Revives; Raising India back to Overweight.”
Reversal
The case for reversal in its view stems from growth-supportive policies by the Reserve Bank of India and the government, earnings revival, significant under-positioning by institutional investors and de-rating in valuations.
“Easing measures from RBI announced this year (rate cuts, improved liquidity, bank deregulation), GST cuts and slower fiscal consolidation ahead should aid growth recovery over the next two years,” the report said.
Corporate earnings in the September quarter are better than expected “leading to upgrades in select pockets,” GS said, adding, “We expect MSCI India profits to recover from 10 per cent this year to 14 per cent next year, aided by better nominal growth environment.”
FPIs have net sold $30 billion worth of Indian equities over the past year and this has pushed foreign ownership and mutual fund allocation to near two-decade lows. “However, recent reversals suggest improving foreign risk appetite and flows as earnings recover,” it said.
Indian stocks ‘relative premium to Asia has also normalised, cooling down valuations.
2025 Underperformance
MSCI India has lagged MSCI EM in 2025 by around 25 percentage points in 2025, the biggest underperformance in the past two decades.
This is in sharp contrast to the broader emerging markets, whose performance in 2025 was the strongest in the past 8 years, Goldman Sachs said.
This significant underperformance was triggered by a combination of peak starting valuations last year and expectations of a cyclical slowdown in growth and corporate earnings, said the report.
The year was also dominated by unfavourable macro and geopolitical news flow in the form of large US-tariffs (on account of Russian oil imports) while a steep increase in the cost of issuing H1B visas further soured market sentiment, it said.
Favourable sectors
GS said it expects mass consumption recovery to gather steam over the next two years amid “low food inflation, strong agricultural cycle, lagged effects of GST rate cuts, upcoming elections in key States through 2026-27 and potential wage hikes from the 8th Pay Commission.” This should help the consumer segments in industry.
RBI’s capital easing measures should support private credit growth and with stabilising asset quality and bank regulation tailwinds the banking sector’s profits are expected to grow 15 per cent in 2026, up from 8 per cent this year, aided by loan growth recovery in banks, GS said.
There is an increasing emphasis by the government on the defence sector’s indigenisation and self-sufficiency. “While valuations for the sector are high, we think defence stocks with competitive moats and steep earnings growth trajectories, especially the private sector companies are likely to enjoy richer valuations..,” it said.
GS said it was underweight on sectors such as pharma, infotech, industrials and chemicals.
Published on November 8, 2025
