Goldman Sachs upgrades India to overweight on strong earnings, macros; lists favoured sectors leading rebound

Global investment bank Goldman Sachs has upgraded Indian equities to ‘Overweight’, reversing its October 2024 downgrade after what it described as India’s worst relative underperformance in two decades. However, the reversal rests not merely on the prospect of catch-up after a year of heavy foreign outflows and earnings downgrades, but also on renewed macro-economic and corporate strength.

India, the laggard of emerging markets in 2025, is now likely to re-emerge as one of the most resilient growth stories, with Nifty 50 expected to hit 29,000 by end-2026.

Backbone of India upgrade: Macro and corporate strength, not just a catch-up trade

In its latest EM Equity Strategy report, “Leaning In as Growth Revives; Raising India back to Overweight,” Goldman said that India’s comeback rests on four pillars -- policy support, an earnings revival, improved foreign positioning, and defensible valuations.

While Goldman’s upgrade partly recognises India’s catch-up potential after lagging other emerging-market peers by nearly 25 percentage points this year, the firm highlighted that a structural strengthening of fundamentals is under way. Earnings downgrades have stabilised, the economy is benefiting from the fastest monetary-easing cycle since the global financial crisis, and fiscal and regulatory policies have turned more supportive.

Goldman forecasts MSCI India profit growth of 14 percent in 2026, up from 10 percent this year, underpinned by nominal GDP growth of about 11 percent. The Nifty 50 target is 29,000 by end-2026, implying an upside of roughly 14 percent from current levels.

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Why Goldman Sachs’ reversal matters

India’s valuation premium has narrowed sharply this year, foreign investors have sold $30 billion of equities, and mutual-fund allocations are near two-decade lows. This has left the market under-owned, even as domestic institutions -- with inflows exceeding $70 billion YTD -- absorbed record equity issuance.

With earnings stabilising and foreign flows showing early signs of returning, Goldman expects India to outperform regional peers over the next year.

Policy tailwinds already in motion

The Reserve Bank of India has already cut the repo rate by 100 basis points in 2025, the fastest easing outside the pandemic years. This was complemented by a 1-percentage-point reduction in the cash-reserve ratio, liquidity infusions equivalent to 1.1 percent of NDTL, and regulatory relaxations on bank credit -- measures that are expected to keep financial conditions easy through 2026-27.

On the fiscal side, GST and personal-income-tax cuts, slower fiscal consolidation, and continued public-sector capex are poised to reinforce mass-consumption recovery.

Earnings cycle has bottomed

The year-long earnings-downgrade phase has run its course. Corporate results for Q3 CY25 (July-September) were about 2 percent above expectations, led by financials and commodities. Profit growth is projected to accelerate across domestic cyclicals as inflation moderates, credit expands, and margins improve. Historically, similar compressions in India’s valuation premium have been followed by moderate outperformance over 6-12 months.

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Investor strategy | How to play the upgrade: Favoured sectors driving optimism

Goldman Sachs has placed India at the top of its Asian allocations, urging investors to align portfolios with domestic-demand and policy-beneficiary themes.

Favoured sectors and themes:

• Financials:poised for loan-growth recovery as credit conditions ease; deregulation and stable asset quality support a projected 15 percent rise in CY26 profits.
• Consumer sectors (staples, autos, durables):upgraded to overweight; demand expected to strengthen through tax cuts, rural revival, and pre-election spending.
• Defence:raised to overweight on robust order visibility and the government’s push for indigenisation and self-sufficiency.
• Oil marketing companies and telecom/internet:remain overweight amid healthy margins and expanding digital penetration.
• Mass-consumption revival:GST and income-tax relief, combined with easier credit, should drive a broad-based consumption uplift.
• New-economy opportunities:include digital platforms, electric mobility, and defence technology -- areas where policy incentives and private investment are converging.
• Self-sufficiency and energy security:continued government focus on renewables, power, and defence manufacturing offers multi-year potential.

Underweights: Exporters such as IT services, pharmaceuticals, industrials, and chemicals, where visibility is limited and valuations remain elevated.

Together, these themes position investors to capture India’s next phase of growth through domestic and structural drivers rather than short-term cyclicality.

Valuations and risks

At 23 times forward earnings, Indian equities remain the most expensive in emerging markets, yet Goldman considers valuations defensible -- projecting only a 5 percent base-case de-rating over the next two years. Key risks include a slower-than-expected earnings recovery, external shocks, or renewed investor rotation into North Asia if AI-linked momentum strengthens.

Goldman Sachs’ move from ‘Neutral’ back to ‘Overweight’ delivers a twin message: India’s fundamentals are strengthening even as it remains under-owned. The call shows renewed conviction that policy easing, fiscal support, and a broad-based earnings revival can restore India’s leadership within emerging-market equities.

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