India's Economic Slump Likely Over But Tariff Uncertainty And Market Volatility Loom: Goldman Sachs

The worst phase of India’s economic slowdown and earnings decline is likely over, according to a report by Goldman Sachs.

However, the global financial firm cautions that market volatility is set to continue, driven by high domestic investment in small and mid-cap stocks and global uncertainties, particularly from tariffs, ANI reported.

"The worst is likely behind us in terms of economic growth and earnings trajectory, and prices have corrected meaningfully," the report stated.

Despite this, Goldman Sachs has maintained a "Market Weight" stance on India within the emerging markets (EM) category, advising investors to focus on stocks with strong earnings visibility and quality growth.

The NIFTY 50 index has already corrected by 10 per cent from its peak in September 2024, mainly due to a slowdown in earnings growth caused by weaker macroeconomic conditions and a sharp reduction in valuation multiples across sectors.

Analysts have also cut earnings per share (EPS) expectations for FY26 by an average of 7 per cent across the market.

Goldman Sachs attributes the slowdown to cyclical factors rather than structural weaknesses.

The report explains, "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 notes that recent policy measures, such as income tax relief announced in the Union Budget and policy rate cuts by the RBI, could help the economy recover.

Goldman Sachs’ economists project that India’s real GDP growth could rise to 6.4 per cent in the second half of 2025.

Despite this optimism, the firm warns that external risks remain, particularly from potential US tariffs on Indian goods, which could impact trade and economic momentum.

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