Goldman Sachs Upgrades India's Macro Outlook: GDP Forecast Rises, But Growth Still Below Pre-War Levels

Goldman Sachs Upgrades India's Macro Outlook: GDP Forecast Rises, But Growth Still Below Pre-War Levels​

Goldman Sachs has issued a notably more positive assessment of India's macroeconomic landscape. The brokerage credits easing commodity prices, a stabilising rupee, and resilient domestic demand for the improved outlook. However, the firm cautioned that despite these gains, economic growth is still expected to remain below the levels anticipated before the West Asia conflict.

Revising GDP Growth and Inflation Projections​

The Goldman Sachs analysis involves significant revisions across key macroeconomic indicators. The brokerage has increased its 2026 real GDP growth forecast to 6.8 percent. This figure is an increase from the 5.9 percent estimate released immediately after the US-Iran conflict. Crucially, this revised target remains below the firm's original pre-war projection of 7.1 percent.

Furthermore, the outlook suggests a moderating trend in inflation. Average inflation is now expected to ease down to 4.4 percent from the previous post-war estimate of 4.6 percent. This indicates a stabilizing environment for consumers and industry alike, contingent on global commodity price moderation.

Easing Commodity Prices and Market Expectations​

The rationale for the improved outlook centers heavily on external factors such as input costs. Goldman Sachs cited lower commodity prices and a stabilised currency as significant supportive elements. The brokerage expects Brent crude to average $85 per barrel, which is a decrease from the earlier assumption of $95. This projection comes as Brent crude traded at $78 per barrel on Monday, compared to $72 per barrel last week.

The firm noted that healthy expectations regarding corporate earnings are also contributing positively. However, Goldman Sachs warned that the broader earnings downgrade cycle is not complete. Consensus earnings growth for MSCI India has already been cut to 12 percent for 2026 and is anticipated to moderate further towards Goldman Sachs' 10 percent estimate.

Navigating Investor Sentiment and Future Volatility​

The brokerage is closely monitoring foreign investor sentiment, noting that overseas investors remain significantly underweight on Indian equities following record outflows earlier this year. Goldman Sachs suggested that improving domestic fundamentals could encourage the return of foreign flows during the second half of the year.

Despite these improved underlying fundamentals, the firm maintained a cautionary stance regarding geopolitical risk. It explicitly warned that any renewed geopolitical tensions in West Asia possess the potential to trigger near-term market volatility. Nonetheless, Goldman Sachs maintains confidence in the long-term trajectory, expecting the Nifty index to recover towards its June 2027 target of 26,500.