MUMBAI: Despite being the biggest laggard among emerging markets in 2025 so far, India's domestic equities have been upgraded to ‘overweight’ by Wall Street major Goldman Sachs, which reversed its October 2024 downgrade. It said Dalal Street is on course to re-emerge as one of the most resilient growth stories, with the Nifty expected to scale the 29,000-mark by December 2026.
Accordingly, it has placed India at the top of its Asian allocations, and has urged investors to align their portfolios with domestic-demand and policy-beneficiary themes.
The brokerage had downgraded the country last year, citing its “worst relative underperformance” in two decades. However, in a note on Monday, it expressed optimism on the country's direction based on renewed macroeconomic and corporate strength.
Goldman Sachs sees MSCI India profit growth of 14% in 2026, up from 10% this year, underpinned by nominal GDP growth of about 11%. All this has the company upping the Nifty target to 29,000 by December, implying a 14% upside from the current levels.
At 23 times forward earnings, domestic equities remain the most expensive in emerging markets, yet Goldman Sachs considers valuations defensible -- projecting only a 5% base-case de-rating over the next two years. Key risks include a slower-than-expected earnings recovery, external shocks, or renewed investor rotation into North Asia if AI-linked momentum strengthens.
Another reason for the upgrade is that the country’s valuation premium has narrowed sharply this year, foreign investors have sold $30 billion worth of equities, and mutual fund allocations are near two-decadal lows, it said. This has left the market under-owned, even as domestic institutions -- with inflows exceeding $70 billion so far this year -- absorbed record equity issuance.
With earnings stabilising and foreign flows showing early signs of returning, Goldman Sachs expects India to outperform regional peers over the next year.
Goldman Sachs’ latest report says India’s comeback rests on four pillars -- policy support, earnings revival, improved foreign positioning, and defensible valuations. The upgrade partly recognises the country’s catch-up potential after lagging behind other emerging-market peers by nearly 25 percentage points this year so far, highlighting the structural strengthening of the fundamentals that is underway.
Historically, similar compressions in valuation premium have been followed by moderate overperformance over 6-12 months, it added.
Earnings downgrades have stabilised, the economy is benefiting from the fastest monetary-easing cycle since the global financial crisis, and fiscal and regulatory policies have turned more supportive, it said.
Other enablers for a strong rally are the monetary easing and liquidity infusion: the Reserve Bank has already cut the repo rate by 100 bps in 2025, the fastest easing outside the pandemic years. This was complemented by a 1-percentage-point reduction in the cash-reserve ratio in a four-phased step, liquidity infusions equivalent to 1.1% of NDTL, and regulatory relaxations on bank credit -- measures that are expected to keep financial conditions easy through 2026-27.
On the fiscal side, GST and personal-income-tax cuts, slower fiscal consolidation, and continued public-sector capex are poised to reinforce mass-consumption recovery, says the report.
On the corporate side, the year-long earnings-downgrade phase has run its course, the report said, adding corporate results for September quarter are about 2% above expectations, led by financials and commodities. Profit growth is projected to accelerate across domestic cyclicals as inflation moderates, credit expands, and margins improve.