Profit recovery is the key to foreign inflows
Goldman Sachs expects earnings growth of around 15% for the MSCI India index through 2026, a level that Moe believes could make India a moderate outperformer within emerging markets.”India trades at around 22 times forward earnings, which is expensive but broadly defensible given its long-term growth prospects. From here on out, returns are likely to be driven by earnings numbers rather than further valuation expansion,” Moe said.
He added that India’s recovery may be delayed as investors demand proof of gains made and as attention currently remains focused on North Asian markets benefiting from the AI-led rally.
Sector bets support earnings prospects
Moe said Goldman Sachs is bullish on several domestic themes that could support earnings growth, including:
- The financial sector, led by a recovery of the private credit cycle
- Cars and mass consumption
- Basic, defense and consumer durables
- Select oil marketing companies
These bottom-up industry assumptions support the company’s confidence in achieving its 15% earnings growth target.
Why FIIs stayed away
Foreign investors have reduced their exposure after Indian valuations rose sharply and earnings growth disappointed amid a mid-cycle economic slowdown. Moe noted that India, once heavily overweight in emerging market portfolios, is now underweight for many global investors. This has been offset by strong domestic participation, especially through systematic investment plans (SIPs), which reflect the increasing financialization 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 revive interest from foreign investors:
- Consistent revenue returns by Indian companies
- Progress on a US-India trade deal, which could improve sentiment even if the immediate economic impact is modest
- A supportive Union budget that maintains fiscal discipline while supporting growth
He said India should still be able to grow comfortably above 6%, closer to 7%, this year.
Rupee and external sectors
Goldman Sachs expects the rupee to remain broadly stable around 90 per US dollar, removing both the drag from sharp appreciation and tailwinds from depreciation on export-oriented sectors.
On IT services, Moe said concerns about artificial intelligence distorted sentiment in 2025, making software the worst-performing sector in Asia even as hardware and semiconductor stocks rose sharply in North Asia.
However, he believes that Indian IT companies have a long history of adapting to technological shifts, and evidence of successful AI integration could gradually ease foreign investors’ concerns.
India versus China is not a zero-sum game
Moe rejected the idea that stronger performance in China should come at the expense of India.
“Global capital is not just limited by Asia or emerging benchmarks. Large pools of global money may have overweight both India and China if fundamentals warrant it,” he said, adding that India’s domestic savings provide an independent and strong support base for equities.
Valuations are trending upward, but risks remain
With Indian stocks trading in the low 20s, Moe warned that the upward trend will depend almost entirely on earnings growth.
Key risks to his call for India include:
- The expected profit recovery does not materialize
- Continued diversion of global capital into 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 up and should play out over the course of 2026,” Moe said.
#India #set #profitdriven #comeback #foreign #flows #return #Timothy #Moe #Goldman #Sachs