Indian Markets on Recovery Path, GDP Growth Set to Rebound: Goldman Sachs

A recent Goldman Sachs report says the worst may be behind Indian equity markets as far as economic growth and earnings path are concerned. But market volatility will continue due to global uncertainties, especially in the backdrop of rising reciprocal tariffs from the United States, the global brokerage house said.

India's economy saw a 6.4% year-over-year GDP growth during the fourth quarter of 2024, boosted by a pickup in private consumption. Goldman Sachs economists say the contraction in the country's GDP has probably hit bottom, with a slow turnaround expected in subsequent quarters.

Sectoral high-frequency indicators indicated robust rural activity in January, validating a growth range of 6.6% to 7% over the next four quarters. India's GDP growth for the calendar year 2025 is estimated at close to 6.4% year-on-year.

The brokerage pointed out the Indian government's budgeted 40-basis-point fiscal consolidation indicates that the worst of fiscal tightening is possibly in the rearview mirror. In spite of the ongoing emphasis on fiscal restraint, the report anticipates earnings stabilizing in the next few quarters.

But Goldman Sachs warned that valuations for small and midcaps are still pricey. In the meantime, an HSBC report published recently reaffirmed India's robust long-term economic prospects based on an uptrend in the investment cycle. This trend in growth is anticipated to be underpinned by government expenditure in infrastructure and manufacturing, rising private sector consumption, and a revival in the real estate industry.

The report also foresees increased private investments in clean energy, local sourcing of high-technology components, and India's greater integration in global value chains, all of which could facilitate more rapid economic growth.

India’s GDP growth improved to 6.2% year-on-year in the third quarter of FY25, while central government capital expenditure is projected to grow at 7% in FY25 and 10% in FY26. Additionally, the Reserve Bank of India (RBI) is now looking to ease policy rates to support economic growth.

“We believe the long-term outlook remains strong,” the HSBC report concluded.