Global growth to stay strong in 2026; India among fastest-growing major economies: Goldman Sachs

Goldman Sachs' Global Economics team projects robust global growth for 2026 in its Macro Outlook 2026, highlighting India as one of the fastest-growing major economies. The report anticipates emerging markets, led by strong domestic demand and favourable structural trends, will outperform developed markets, implying potential relative strength for EM assets and domestic-demand-sensitive sectors. Managers should consider the report's implications for regional allocation and thematic exposure to consumer-demand driven growth in key emerging markets.

Analysis

Market structure: Goldman’s view that India and EM will outgrow developed markets mechanically benefits India-focused equities (INDA), domestic banks (HDB, IBN) and local cyclicals (L&T-type capex plays) while moderately penalising USD-revenue IT exporters (INFY, TCS) if domestic demand outpaces export-led growth. Strong domestic demand implies upward pressure on commodity imports (copper, crude) and intermediate goods, lifting producer pricing power for miners and energy suppliers but compressing margins for import-reliant manufacturers over 6–12 months.

Competitive dynamics & supply/demand: Faster Indian growth shifts share toward domestic-facing sectors (retail, housing, construction) and financial intermediation, increasing loan growth and NIM upside vs. export-oriented services; expect 6–12 month re-rating where domestic cyclicals can outperform IT by 8–15% if growth persistence is confirmed. Supply constraints (logistics, skilled labor, power) create bottlenecks that could cause inflation spikes; watch CPI >6% as a trigger for monetary tightening.

Cross-asset & risk assessment: EM FX (INR) is likely to appreciate gradually—threshold >3% appreciation in 3 months would signal capital inflows—supporting local-currency EM debt but creating headwinds for USD-earnings names. Tail risks: a USD shock or China slowdown could cause >8% drawdowns in EEM/INDA in weeks; policy mistakes (RBI hiking >100bps unexpectedly) or commodity shocks are low-prob/high-impact scenarios within 0–12 months.

Trade catalysts & contrarian angles: Key near-term catalysts are India PMI (monthly), RBI policy decisions (bi-monthly) and Feb 2026 budget — positive surprises should accelerate allocations. Consensus underestimates fiscal pass-through and capacity constraints; if valuations price in persistent outperformance (INDA premium vs EM >500–1000bp), a disciplined scale-in on 5–8% pullbacks or on confirmed macro beats is preferable to full conviction buys.

Key Decisions for Investors

• Establish a 2–3% portfolio long in INDA (iShares MSCI India) within 30 days, target +15–25% total return over 6–12 months; add another 1% on pullbacks >8% or after two consecutive PMI prints >55.
• Initiate a 1.5–2% long in HDB (HDFC Bank ADR) and 1% short in INFY to play domestic-credit-led outperformance vs USD-export IT over 6–12 months; trim both positions if INR moves >+3% in 3 months or if RBI hikes cumulatively >75bps.
• Buy a 3–6 month call spread on INDA (buy 7–10% OTM call, sell 15% OTM call) sizing to 0.5–1% portfolio risk to express asymmetric upside while limiting premium outlay; roll if macro prints remain strong.
• Reduce long-duration US Treasury exposure by 2–4% (short TLT or buy 2–3% notional 10y put protection) to hedge against higher global yields if EM-driven reflation pressures emerge within 3–9 months.
• Monitor three quantitative triggers over next 60 days before scaling: India CPI (threshold >6%), INR vs USD (threshold >+3% appreciation), and two consecutive PMI prints >55—execute add/sell rules above when thresholds are hit.