The worst phase of India's economic slowdown appears to have passed, yet market volatility is likely to persist, according to a recent assessment by global financial firm Goldman Sachs.
In its latest report, the investment bank stated that the sharp downturn in economic growth and earnings decline had largely played out. However, uncertainty remains due to heightened domestic investment in small- and mid-cap stocks and global economic factors, particularly concerns surrounding tariffs.
Goldman Sachs remarked, “The worst is likely behind us in terms of economic growth and earnings trajectory, and prices have corrected meaningfully.” The firm has maintained a ‘Market Weight’ rating on India within the emerging markets category, advising investors to focus on equities with strong earnings visibility and sustainable growth.
The report noted that the NIFTY 50 index has witnessed a 10 per cent correction from its peak in September 2024.
This decline has been attributed to slowing earnings growth, a reflection of macroeconomic headwinds, and a broad revaluation of stock prices across multiple sectors.
Analysts observed that earnings per share (EPS) projections for FY26 have been reduced by an average of seven per cent across the market.
Also read: India’s GDP doubled to $4.2 trillion in a decade: IMF
While some experts have debated whether the slowdown signals deeper structural weaknesses, Goldman Sachs asserted that the slump was primarily cyclical.
It attributed the downturn to policy measures introduced in late 2023, including stricter credit regulations, cautious monetary policy, liquidity constraints driven by foreign exchange outflows, and fiscal tightening.
“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,” the report stated.
Despite the headwinds, recent policy adjustments are expected to support recovery. Among the measures highlighted were income tax relief announced in the Union Budget and a reduction in policy rates by the Reserve Bank of India (RBI).
Goldman Sachs economists predict that India's real GDP growth could accelerate to 6.4 per cent in the second half of 2025.
However, risks remain. The report particularly cautioned about potential U.S. tariffs on Indian exports, which could weigh on trade and overall economic performance.
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