Indian equity markets have moved past the worst phase in terms of economic growth and corporate earnings, according to a recent report by Goldman Sachs. While the recovery is gaining traction, market volatility is expected to remain elevated due to global uncertainties, including reciprocal tariffs imposed by the US.
India’s gross domestic product (GDP) grew by 6.4% year-on-year in the fourth quarter of 2024, driven by a rebound in private consumption, the report highlighted.
Gradual Recovery Expected as GDP Growth Gains Momentum
Goldman Sachs economists believe that the Indian economy has reached its lowest point and is now set for a steady recovery. High-frequency data for January pointed to strong rural activity across various sectors. The brokerage expects India’s GDP to expand between 6.6% and 7% over the next four quarters, with full-year growth in 2025 projected at 6.4%.
The report also emphasized that the government’s fiscal consolidation efforts will no longer pose a significant drag on growth. The budgeted 40-basis-point fiscal tightening suggests that the most substantial impact of policy adjustments is now behind, allowing the economy to stabilize. “We expect earnings to stabilize in a couple of quarters,” Goldman Sachs noted.
Market Valuations Remain High Despite Positive Indicators
Despite the improving macroeconomic backdrop, Goldman Sachs cautioned that valuations for small and mid-cap stocks remain expensive. This could pose a challenge for investors seeking attractive entry points in these segments.
Meanwhile, a separate report by HSBC echoed optimism about India’s long-term economic trajectory. The investment cycle is expected to maintain a medium-term uptrend, driven by government infrastructure spending, a revival in private investments, and a recovery in the real estate sector.
Private Investments and Policy Easing to Support Growth
HSBC projects an increase in private investments in renewable energy, supply chain localization, and advanced technology manufacturing, positioning India as a more significant player in global supply chains. The country’s GDP growth improved to 6.2% year-on-year in Q3 FY25.
However, central government capital expenditure (capex) spending is anticipated to slow to 7% year-on-year in FY25 and 10% in FY26. The Reserve Bank of India (RBI) is also exploring policy rate easing to support economic momentum. “We believe the longer-term outlook remains strong,” the HSBC report stated.
India’s Economic Outlook: Cautious Optimism Amid Global Challenges
While challenges such as global trade uncertainties and market volatility persist, both reports indicate a broadly positive outlook for India’s economy. With fiscal consolidation efforts stabilizing and private investments expected to pick up, the country remains on track for steady growth in the coming years.
