Goldman Sachs Predicts India to be Top Emerging Market in 2025
Goldman Sachs has forecast that India will be one of the best-performing emerging markets in 2025, driven by strong macroeconomic stability and favorable domestic factors. The global investment bank cites improving terms of trade, effective inflation targeting, and reliable domestic risk capital as key elements supporting India's growth outlook. Goldman Sachs expects India to experience an annual earnings growth of 18-20% over the next 4-5 years, fueled by an emerging private capital expenditure cycle, corporate balance sheet re-leveraging, and a structural rise in discretionary consumption.
India's reduced beta to other emerging markets, now at approximately 0.4, is a strong indicator of the country's premium valuation multiples, according to the report. This shift reflects a more stable and less volatile market environment. The investment bank's earnings estimates for India remain ahead of consensus expectations, highlighting the decreasing correlation of Indian equities with global markets. However, global factors such as policy actions in the US and China, alongside geopolitical events, will continue to influence India's stock market performance.
Goldman Sachs also projects that India's macroeconomic stability will be further supported by fiscal consolidation, increased private investment, and a positive real growth-real rates gap. The report assumes strong domestic growth, no recession in the US, modest oil price fluctuations, slight interest rate cuts, and a favorable liquidity environment. As a result, the Sensex earnings are projected to grow at 17.3% annually through FY27, outpacing consensus by 15%.
Regarding portfolio strategy, Goldman Sachs recommends a focus on cyclicals over defensives, as well as small and mid-cap stocks (SMID caps) over large caps. Sectors poised for growth include Financials, Consumer Discretionary, Industrials, and Technology.
In a related forecast, Goldman Sachs stated that India's economy will be relatively insulated from global shocks in the coming year, including potential trade tariffs under US President-elect Donald Trump's administration. While global uncertainties may cause some short-term challenges, India's long-term growth trajectory remains strong. Goldman Sachs’ economists predict India's GDP will grow at an average rate of 6.5% between 2025 and 2030, driven by favorable demographics and stable governance.
The bank also expects India’s inflation to average 4.2% year-on-year in 2025, with food inflation at 4.6%, significantly lower than 2024 estimates. The report attributes this favorable outlook to adequate rainfall and a healthy summer crop. However, food supply disruptions due to weather-related shocks continue to pose a risk to inflation forecasts. Despite volatile food prices, which have kept the Reserve Bank of India from easing monetary policy, Goldman Sachs remains optimistic about India's economic prospects.
