Business
India set for earnings-led comeback in 2026, foreign flows may return, says Timothy Moe of Goldman Sachs
Speaking to ET Now, Moe said India was among the most disappointing markets in Asia and emerging markets in 2025, marking its steepest underperformance versus the broader EM index in nearly three decades.
Earnings recovery key to foreign inflows
Goldman Sachs expects earnings growth of around 15% for the MSCI India index in 2026, a level Moe believes could make India a moderate outperformer within emerging markets.
“India is trading at about 22 times forward earnings, which is expensive but broadly defensible given its long-term growth prospects. From here, returns are likely to be driven by earnings delivery rather than further valuation expansion,” Moe said.
He added that India’s recovery may be back-loaded, as investors demand proof of earnings delivery and as attention currently remains focused on North Asian markets benefiting from the AI-led rally.
Sector bets supporting earnings outlook
Moe said Goldman Sachs is optimistic about several domestic-facing themes that could support earnings growth, including:
- Financials, led by a recovery in the private credit cycle
- Autos and mass consumption
- Staples, defence and consumer durables
- Select oil marketing companies
These bottom-up sector assumptions underpin the firm’s confidence in achieving the 15% earnings growth target.
Why FIIs stayed away
Foreign investors reduced their exposure after India’s valuations rose sharply and earnings growth disappointed during a mid-cycle economic slowdown. Moe noted that India, once heavily overweight in EM portfolios, is now underweight for many global investors.This has been offset by strong domestic participation, particularly through systematic investment plans (SIPs), reflecting the growing financialisation of household savings in India.
“Domestic flows have provided remarkable resilience, even as foreign investors sold nearly $19 billion in 2025 and another $2–3 billion so far in 2026,” Moe said.
Potential catalysts in 2026
According to Moe, three factors could help revive foreign investor interest:
- Consistent earnings delivery by Indian corporates
- Progress on a US–India trade deal, which could improve sentiment even if the direct economic impact is modest
- A supportive Union Budget, maintaining fiscal discipline while backing growth
He said India should still be able to grow comfortably above 6%, closer to 7%, in the current year.
Rupee and external sectors
Goldman Sachs expects the rupee to remain broadly stable around 90 per US dollar, removing both the drag of sharp appreciation and the tailwind of depreciation for export-oriented sectors.
On IT services, Moe said concerns around artificial intelligence disrupted sentiment in 2025, making software the worst-performing sector in Asia, even as hardware and semiconductor stocks surged in North Asia.
However, he believes Indian IT companies have a long history of adapting to technological shifts, and evidence of successful AI integration could gradually ease foreign investor concerns.
India vs China not a zero-sum game
Moe rejected the notion that stronger performance in China must come at India’s expense.
“Global capital is not bounded by Asia or EM benchmarks alone. Large pools of global money can be overweight both India and China if the fundamentals justify it,” he said, adding that domestic savings in India provide an independent and powerful support base for equities.
Valuations cap upside, risks remain
With Indian equities trading in the low-20s PE range, Moe cautioned that upside will depend almost entirely on earnings growth.
Key risks to his India call include:
- Failure of expected earnings recovery to materialise
- Continued diversion of global capital toward AI-driven markets such as Korea and Taiwan
“India may be a slower-burning fuse, with performance picking up later in the year. But we believe the investment case holds and should play out over the course of 2026,” Moe said.
