The worst phase of India’s economic slowdown and earnings decline is likely over, maintained Goldman Sachs.
The worst phase of India’s economic slowdown and earnings decline is likely over according to the global financial firm Goldman Sachs. However, it expects market volatility to continue in the near term because of high domestic investment in small- and mid-cap stocks and global uncertainties, particularly from tariffs.
“The worst is likely behind us in terms of economic growth and earnings trajectory, and prices have corrected meaningfully,” it said.
In a recent report, the firm maintained a “Market Weight” stance on India within the emerging markets (EM) category. It advised investors to focus on stocks with strong earnings visibility and quality growth. The report highlighted that the NIFTY 50 index has corrected by 10 per cent from its peak in September 2024. This decline was driven by a slowdown in earnings growth due to weaker macroeconomic conditions and a sharp reduction in valuation multiples across sectors. Analysts noted that earnings per share (EPS) expectations for FY26 have been cut by an average of 7 per cent across the market.
Goldman Sachs attributed the recent economic slowdown to cyclical factors rather than structural weaknesses. It explained that policy measures such as strict credit regulations in late 2023, a cautious monetary approach, tight liquidity due to foreign exchange outflows, and fiscal tightening had contributed to the weaker growth momentum.
he report said “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” However, the report suggested that some recent policy changes could help the economy recover in the coming months. These include income tax relief announced in the Union Budget and policy rate cuts by the Reserve Bank of India (RBI).
Goldman Sachs’ economists project that India’s real GDP growth could improve to 6.4 per cent in the second half of 2025. Despite this optimism, the report cautioned that risks remain, particularly from potential U.S. tariffs on Indian goods, which could impact trade and economic growth. Overall, while the worst phase of the slowdown may be behind, investors should remain cautious about market volatility and external risks affecting India’s economic outlook.