Why Indian Equities Are Poised To Perform Better Next Year? - Goldman Sachs Report

After India Inc witnessed the year-long earnings downgrade cycle stabilizing in the past few months and showing signs of recovery, investment banking major Goldman Sachs expected Indian equities to perform better over the coming year.

Key Factors Why Indian Equities Will Perform Better Next Year

Regulatory easing measures: RBI has delivered 100 bp rate cuts in 2025 – the fastest repo rate easing cycle (apart from the pandemic) since GFC, improved banking system liquidity conditions, and a sequence of regulatory relaxations since the start of this year. On the fiscal front, the central government's targeted consolidation over the next two years is less pronounced than in the past few years, suggesting peak fiscal drag is not expected in the upcoming period, according to the Goldman Sachs report.

"On the investment front, while elevated trade uncertainty has dampened corporate capex ordering activity this year, we expect US-India tariffs to ultimately settle at lower levels, which should foster a recovery," it said.

Earnings recovery: The New-York headquartered investment banking firm said, "We think the year-long earnings downgrade cycle, which was a primary reason for lowering our Indian equity market view last year, has bottomed out and will see recovery as we head into next year. "

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"MSCI India 3QCY25 profits are tracking a bit better-than-expected (+10% yoy), and an average earnings surprise of +2% led by commodities and Financials," it said.

Liquidity remains supportive: On the domestic front, liquidity remains supportive. While foreigners have continued to de-risk for most part of the past year, domestic institutions, supported by ongoing retail/SIP flows, have continued to be record buyers (US$70bn+ ytd) and have helped absorb the record supply of equity issuances (IPOs, QIPs, block deals) in the market.

Defensible valuations: "While India’s high valuation has been the most common investor concern and at c. 23x 12-month forward valuations, India remains the most expensive market in EM, we expect moderate de-rating of 5% in our base case and 9% in our bear-case scenario over the next two years, based on various valuation approaches," as per a Goldman Sachs research report.