Goldman Sachs has reaffirmed its overweight stance on India while setting a Nifty target of 29,300 by the end of 2026, demonstrating continued confidence in the Indian equity market despite recent challenges.

Market Performance and Challenges

The investment bank acknowledged that 2025 proved to be a particularly difficult year for Indian markets, representing the weakest performance in three decades. The challenging environment was attributed to multiple headwinds that created significant pressure on market performance.

Key Factors Behind Weak Performance

The firm identified three primary factors that contributed to the challenging market conditions. An earnings downcycle significantly impacted corporate performance across various sectors, while currency weakness added to investor concerns. Additionally, record levels of foreign selling created substantial outflow pressure on Indian equities.

Outlook and Recovery Expectations

Despite the recent difficulties, Goldman Sachs expects market conditions to improve significantly. The firm anticipates that the negative trends experienced in 2025 will reverse, creating a more favorable environment for Indian equities going forward.

Strategic Position

By maintaining its overweight recommendation on India, Goldman Sachs signals its belief in the country's fundamental strengths and long-term growth potential. The Nifty target of 29,300 by end-2026 reflects the firm's confidence in India's ability to overcome current challenges and deliver substantial returns to investors over the medium term.

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.