Goldman Sachs maintains a bullish outlook on Indian equities for 2026, projecting mid-teen returns despite recent market weakness that saw the Nifty decline approximately 2% week-on-week. The investment bank's latest India Weekly Kickstart note reinforces its overweight stance on the market, citing multiple structural and cyclical factors that could drive performance in the coming year.

Market Performance and Valuation Assessment

Indian equities underperformed global markets during the recent week, with the broader indices facing continued pressure. However, Goldman Sachs views this weakness as potentially setting up stronger performance ahead. The brokerage noted mixed sector performance, with pharmaceuticals and IT stocks remaining largely flat while energy and infrastructure names lagged the broader market.

Goldman highlighted that India's valuation premium to Asia has compressed sharply to levels that have historically coincided with periods of moderate outperformance, suggesting potential for improved relative returns.

2026 Growth Projections and Key Drivers

The investment bank forecasts 14-15% returns for 2026, underpinned by an anticipated earnings recovery and relatively stable valuations. This optimistic outlook is supported by several key factors that Goldman expects to drive market performance.

Goldman anticipates profit growth will re-accelerate from low double digits in FY24-25 to mid-teens by FY26-27, helping reverse the underperformance experienced in recent periods. The brokerage expects the earnings downcycle to stabilize, creating conditions for sustained growth momentum.

Policy Support and Reform Initiatives

The investment bank identifies multiple policy tailwinds that could support market performance:

• Easier financial conditions creating a more supportive monetary environment
• Possible tax relief measures that could boost corporate and consumer spending
• Ongoing domestic reforms across labour frameworks
• Continued regulatory framework improvements

These policy initiatives are expected to create a more conducive environment for business growth and investment activity across sectors.

Sectoral Outlook and Investment Themes

Goldman has identified four primary thematic investment opportunities for 2026:

• Mass consumption revival: Expected recovery in consumer spending patterns
• Financials: Benefiting from improved credit conditions and economic growth
• Defence: Supported by government focus on security and self-reliance initiatives
• Energy security: Driven by infrastructure development and energy transition needs

For the December quarter, Goldman expects earnings growth to moderate to approximately 8% year-on-year, down from 13% in the previous quarter. The brokerage anticipates telecom, utilities, cement, and staples sectors to weigh on overall profits, while commodities and automotive sectors may experience slower revenue growth.

Foreign Investment Flows and Market Dynamics

Foreign investment flows remained challenging during the recent period, with foreign investors selling approximately ₹1 billion worth of Indian equities. This selling pressure has contributed to year-to-date outflows exceeding ₹4 billion. However, domestic institutional investors have continued providing market support through consistent buying activity.

Goldman expects foreign selling pressure to ease as earnings delivery improves and key catalysts come into focus. The brokerage specifically highlights the February Union Budget and a potential US-India trade agreement as important upcoming events that could influence investor sentiment and capital flows.

Goldman Sachs Group Inc. economists have issued a bullish forecast for the US economy in 2026, predicting robust growth driven by tax cuts, productivity gains, and rising wealth while inflation moderates. The bank's 2026 US Economic Outlook report, dated January 11, outlines expectations for continued economic outperformance compared to developed-world peers.

Economic Growth Projections

Goldman Sachs forecasts significantly stronger growth than the Bloomberg economist consensus. The bank's projections show:

David Mericle, Goldman's chief US economist, noted that "the composition of GDP growth will look different from last cycle in the years ahead." He emphasized that more growth will come from productivity improvements, which have rebounded and should receive a boost from artificial intelligence, while less will come from labor supply growth due to reduced immigration.

Federal Reserve Policy Expectations

The report anticipates the Federal Reserve will deliver two additional 25 basis-point interest rate cuts during 2026:

This monetary policy outlook reflects the bank's assessment of labor market uncertainty and the overall economic trajectory.

Inflation and Employment Outlook

Goldman Sachs projects inflation will continue moderating throughout 2026:

The economists acknowledge risks of a period of jobless growth as companies increasingly adopt artificial intelligence technologies to reduce labor costs, despite overall economic expansion.

Growth Drivers and Trade Policy

Business investment is expected to be the strongest component of GDP in 2026, benefiting from easier financial conditions, reduced policy uncertainty, and tax incentives. Consumer spending should grow steadily, supported by President Trump's tax cuts package and real wage gains.

Regarding trade policy, Goldman assumes the upcoming mid-term elections will see cost-of-living issues emerge as a major political theme, leading the administration to avoid significant further tariff increases. This assumption underpins the bank's optimistic growth projections and expectation of continued US economic outperformance relative to other developed nations.