Indian equities have been modestly up this year in USD terms (3%) in what has been one of the strongest years for EM (30%). This significant underperformance was the largest in the past two decades, according to the brokerage, and was triggered by a mix of peak starting valuations and cyclical growth and profit slowdown expectations.
“We raise India equities to Overweight within our EM and Asian allocation and expect the Nifty to reach 29,000 by end-2026,” Goldman Sachs said in its latest note. The firm believes India continues to stand out as one of the few large markets offering both growth and relative earnings stability.
For investors seeking to go beyond index-level returns, Goldman Sachs outlined four thematic ideas it believes could help generate alpha — domestic self-sufficiency, mass-consumption revival, new economy sectors, and high-growth pockets at reasonable valuations.
Domestic self-sufficiency
Goldman Sachs said heightened geopolitical risks have reinforced the global push for self-reliance, and India is no exception. Policymakers are expected to continue investing heavily in strategically important sectors such as power, energy security, and defence. The report notes that India’s goal of achieving energy independence by 2047 will keep spending elevated in areas like renewable energy, energy storage, and electric vehicles.
The foreign brokerage highlighted that defence indigenisation has accelerated significantly over the past two decades. “Foreign procurement by the armed forces has declined from 62% in FY02 to 12% in the first nine months of FY25,” Goldman said.
With this trend likely to continue, defence manufacturing, energy transition, and power infrastructure are seen as key medium-term beneficiaries.
Also read | Lenskart shares make muted D-St debut, list at 3% discount to IPO price
Mass-consumption revival
The second theme focuses on the return of mass consumption, which the brokerage believes will be a multi-year story. “We expect mass consumption recovery to continue through the fourth quarter of 2025 and into 2026,” Goldman said, adding that it will be aided by low food inflation, a strong agricultural cycle, and state elections in Tamil Nadu, West Bengal, Uttar Pradesh, and Gujarat through 2026–27.
The upcoming Eighth Pay Commission wage revisions, personal income tax cuts, and easier financial conditions are also expected to lift consumer spending. Goldman said the mass-consumption basket was one of the best-performing themes in the third quarter but has since underperformed the Nifty by about 7 percentage points since September, which it believes may offer a renewed entry opportunity.
New economy sectors
The third theme centres on India’s “new economy”, a broad category spanning internet-based consumption, quick commerce, online travel, high-performance computing services, and digital payments. Goldman Sachs said it remains constructive on these businesses due to the secular shift towards digitalisation and the rising share of technology in everyday life.
The government’s policy thrust on localising defence technology and promoting clean energy is also creating new investable spaces, such as aerospace components, radar systems, and electric mobility.
“Our screen of new economy stocks within the BSE 200 and GS coverage universe — exposed to internet consumption, defence technology and EVs — outperformed Nifty by over 200 percentage points between 2022 and 2024,” the note said. But amid a broader risk-off sentiment in 2025, the theme underperformed by around 5 percentage points, offering what Goldman calls a “reasonable entry point.”
High growth at reasonable valuation
Goldman’s fourth and final theme targets companies with strong earnings growth and profitability, but still trading at fair valuations. The brokerage expects India’s nominal GDP growth to rise to 11% by 2027, up from around 9% this year, supporting a rebound in corporate revenues. It forecasts MSCI India’s profit growth to accelerate from 10% this year to 14% in the next.
“As the earnings cycle recovers, growth will be back in focus,” Goldman noted.
It screened for 11 Buy-rated stocks with median earnings growth of 31% and return on equity of 24% next year. These stocks trade at a median PEG ratio of 1.5x, broadly in line with the overall market, suggesting room for re-rating as growth expectations strengthen.
These stocks include PTC Industries, Hitachi Energy, CE Info Systems, TBO Tek, MakeMyTrip, Suven Pharma, Bharti Airtel, Apollo Hospitals, Uno Minda, Data Patterns and KEI Industries.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times.)