Goldman Sachs expects India's consumption recovery to gain momentum in the second half of FY27, despite ongoing concerns about the current financial year's slowdown. Santanu Sengupta, Chief India Economist at Goldman Sachs, believes the foundational elements for a turnaround are already established and will become more apparent over the coming months.

Policy Support Framework

The Reserve Bank of India has implemented significant monetary policy measures to support economic recovery. The central bank has reduced interest rates by 125 basis points and injected liquidity worth approximately 3% of GDP. While the impact of these measures has been gradual, Sengupta anticipates more visible effects over the next year.

Consumer Segment Recovery Outlook

Sengupta expressed optimism about consumer demand, particularly for lower-income households. "We feel pretty good about consumer, especially at the bottom end of the pyramid going into the next year," he stated. The recovery is expected to be supported by multiple factors working in conjunction:

• Easier credit access
• Goods and services tax rate reductions
• Increased fiscal transfers from state governments, especially during election periods

These combined measures are anticipated to provide sustained demand growth as FY27 progresses.

Urban Market Dynamics

Recent data continues to show weakness in urban and high-end segments, including housing. Sengupta attributes this to higher-income consumers' existing debt burden. When income tax and interest rate cuts were implemented, these households primarily used the benefits to reduce their loan obligations rather than increase spending.

The housing loan sector exemplifies this trend, where rate cuts often resulted in reduced loan tenures rather than lower monthly EMIs. This behavior reflects households' focus on balance sheet improvement rather than consumption expansion.

Credit Growth and Deleveraging Phase

Early indicators of recovery are emerging in urban credit growth, supported by RBI's regulatory easing measures. Sengupta views the current deleveraging phase as beneficial for long-term economic health, as it positions households for future borrowing and spending activities.

Investment and Sectoral Outlook

Regarding investment trends, Sengupta does not anticipate a broad-based private capital expenditure revival. Instead, he identifies specific sector opportunities in power (renewable and conventional), electronics, and defence. Public capital expenditure growth is expected to moderate after recent front-loading, though fiscal consolidation may be less aggressive, reducing growth constraints.

Despite rate cuts, long-term bond yields remain elevated due to increased state government bond supply and reduced demand from insurance and pension funds, which are allocating more resources to equities. Sengupta expects some easing in yield curve steepness over the next year, though significant further declines may be limited as the RBI approaches the end of its rate-cutting cycle.

Economic Growth Projections

Sengupta anticipates India will achieve growth rates in the late 6% range during FY27, supported by policy measures and improved economic fundamentals. The recent rupee depreciation is viewed as a necessary adjustment following earlier overvaluation, with more attractive valuations expected to enhance capital flows and prevent a third consecutive year of balance-of-payments deficit.

Goldman Sachs has issued a forecast predicting earnings-driven gains for Chinese stocks in 2026, signaling the investment bank's optimistic outlook on the Chinese equity market's recovery potential. The forecast suggests that fundamental earnings improvements will serve as the primary catalyst for market gains.

Market Outlook and Earnings Focus

The Goldman Sachs forecast centers on earnings-driven growth as the key factor for Chinese stock performance in 2026. This approach emphasizes the importance of corporate fundamentals rather than external market factors in driving equity valuations.

Investment Bank's Assessment

Goldman Sachs' projection reflects the firm's analysis of Chinese market conditions and corporate earnings potential. The forecast indicates the investment bank's confidence in the underlying strength of Chinese companies and their ability to generate improved financial performance.

The earnings-focused approach to the 2026 forecast suggests that Goldman Sachs expects Chinese corporations to demonstrate stronger operational results, which would translate into stock price appreciation. This fundamental-based outlook provides insight into the investment bank's assessment methodology for the Chinese equity market.