India’s economic slowdown and earnings decline have likely bottomed out, as per a recent report by Goldman Sachs. However, it warns that market volatility may continue due to strong domestic investments in small- and mid-cap stocks and global uncertainties, particularly trade tariffs. The report noted that the growth slowdown is cyclical rather than structural, primarily driven by policy tightness, including the delayed impact of credit regulations from late 2023, a cautious monetary policy, and previously tight liquidity due to FX outflows.
India has likely moved past the worst phase of its economic slowdown and earnings decline, according to Global financial firm Goldman Sachs. However, market volatility is expected to persist due to high domestic investment in small- and mid-cap stocks and global uncertainties, particularly from tariffs. The firm maintained a “Market Weight” stance on India within the emerging markets category, advising investors to focus on stocks with strong earnings visibility and quality growth.
The report highlighted that the NIFTY 50 index has declined by 10% from its September 2024 peak, primarily due to weaker macroeconomic conditions and a sharp reduction in valuation multiples across sectors. Analysts also noted that earnings per share (EPS) expectations for FY26 have been cut by an average of 7% across the market.
Goldman Sachs attributed the slowdown to cyclical factors rather than structural weaknesses. It pointed to strict credit regulations in late 2023, a cautious monetary approach, tight liquidity due to foreign exchange outflows, and fiscal tightening as key contributors to weaker growth momentum. However, recent policy changes, such as income tax relief in the Union Budget and policy rate cuts by the RBI, could support economic recovery in the coming months.
The firm’s economists project India’s real GDP growth to improve to 6.4% in the second half of 2025. Despite this positive outlook, the report warned of potential risks, particularly from U.S. tariffs on Indian goods, which could affect trade and economic growth. While the worst of the slowdown may have passed, investors are advised to remain cautious due to ongoing market volatility and external economic risks.
