Today’s News
Goldman Sachs Group Inc. has downgraded Indian equities to neutral from overweight, citing a slowdown in economic growth that is expected to affect corporate earnings.
Image Source: The Brand Hopper
In a note issued on Tuesday, strategists including Sunil Koul explained that while the long-term structural outlook for India remains positive, economic growth is decelerating in various sectors.
This has led to a deterioration in earnings sentiment, with an accelerating pace of earnings-per-share cuts and a weak start to the September-quarter results season, all of which are negatively impacting profits.
Goldman Sachs also highlighted high valuations and a less supportive economic environment as factors that could limit the near-term upside for Indian stocks. The cautious outlook reflects growing concerns over the sustainability of corporate earnings as consumer spending weakens and commodity prices rise.
India’s stock market, which recently reached record highs, is already showing signs of strain. The benchmark NSE Nifty 50 Index has fallen more than 5% in October, setting it on course for its worst month in over four years.
Image Source: Bloomberg, edited by Doo Prime
“A large price correction is less likely due to support from domestic inflows, but markets could experience a ‘time correction’ over the next three to six months,” the strategists said. Goldman Sachs has also revised its 12-month target for the NSE Nifty 50 Index down to 27,000 from the previous 27,500, implying a 10% upside from Tuesday’s closing level.
The Nifty index is currently trading at 20 times its 12-month forward earnings, above its five-year average of 19.4 times. Foreign investors have sold $7.8 billion worth of Indian equities this month through Monday, marking the largest outflow since March 2020, according to Bloomberg data.
Goldman had initially raised Indian stocks to overweight late last year, citing strong earnings growth over two years despite global macroeconomic challenges.
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