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Informist, Thursday, Nov. 21, 2024

 

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--Goldman Sachs sees MSCI India earnings growth 12% in 2024, 13% in 2025 
--Goldman Sachs sees MSCI India earnings growth at 16% in 2026 
--CONTEXT: Goldman Sachs comments at event detailing India 2025 outlook 
--Goldman Sachs: 3-month Nifty 50 target at 24000 pts; 12-mo target at 27000 
--Goldman Sachs: Downgrade cycle still not over in terms of earnings 
--Goldman Sachs: MSCI India at 23 forward multiple, de-rating risk remains 
--Goldman Sachs says 'overweight' on India auto, telecom, realty stocks 
--Goldman Sachs says 'overweight' on India insurance, internet cos as well 
--Goldman Sachs: In India, housing, agri, defence are preferred themes 
--Goldman Sachs sees $10 bln inflows into India equity, bonds each in 2025 
--Goldman Sachs ups rtg on India IT to overweight, pharma to market weight 
 

 

MUMBAI – Goldman Sachs expects the Nifty 50 index to move in range for the next three months with its three-month target at 24000 points, which would mean a return of nearly 3% from Thursday's close. The brokerage retained its marketweight rating for the Indian equities and expects the Nifty 50 to reach 27000 points in the next 12 months, translating to a return of 13%.

 

Goldman Sachs said the current slowdown is only "cyclical" and considers Indian equities to be relatively insulated from headwinds such as the stronger dollar, shallower interest rate easing cycle, and likely higher US tariffs on China. "Domestically, while India's growth story remains intact, growth has been cyclically slowing and impacting profits, which led us to downgrade our view on India equities to marketweight about a month back," Goldman Sachs said detailing its market outlook for 2025 at an event in Mumbai.

 

The brokerage expects MSCI India's earnings to rise 12% in 2024, 13% in 2025, and 16% in 2026, compared with the consensus estimates of 13%, 16%, and 15% for 2024, 2025, and 2026, respectively, the brokerage said.

 

The brokerage acknowledged valuations have come down after the recent correction and said there is a risk of indices may fall more. It said valuations are still at nearly 23 times forward price-to-earnings for MSCI India, while they consider 21 times forward PE as a fair value. The Nifty 50 has fallen over 11% from its lifetime high of 26277.35 points on Sept. 27 to 23349.90 points on Thursday.

 

Goldman Sachs' Emerging Market Equity Strategist Sunil Koul said the poor earnings growth in Jul-Sept has led to the earnings downgrade recently. Moreover, he said the downgrade cycle is expected to continue considering the slowdown in earnings. "With soft management guidance and slowing growth next year, amid fiscal and macro-prudential retail credit tightening still in place, we think consensus earnings estimates could prove optimistic and thus expect the EPS downgrade cycle to persist over the next few quarters," the brokerage said.

 

The brokerage sees some near-term risks for Indian equities, including soft domestic fundamentals, measures announced by the Securities and Exchange Board of India to regulate index derivatives, outflows by foreign investors, and investors moving to China.

 

Goldman Sachs said it doesn't expect a significant impact on India from tariffs by Donald Trump. "While we don't expect India to be a direct target of Trump's tariff policies and a 10?ross-the-board tariff is not our base case, the increase in India's bilateral trade surplus with the US in recent years could bring some unwanted attention that the market isn't currently pricing," it said. "We note that MSCI India's Goods revenue exposure to the US is only 2% (Services revenue exposure is 4%, driven by IT) suggesting limited direct impact from tariffs."

 

The brokerage expects strong flows from domestic investors to provide support to Indian equites and limit the fall in indices. "...foreign flows are unlikely to reverse meaningfully in the near-term amid a stronger-for-longer dollar environment...," the brokerage said. The brokerage expects inflows of $10 bln each into Indian equity and bonds in 2025.

 

SECTORAL BETS

Goldman Sachs upgraded information technology to overweight on expectations that the sector may see improvement in demand if the US cuts taxes. Within the sectors dependent on exports, the brokerage upgraded pharmaceuticals to marketweight on stable earnings visibility in the next three-six months, while other sectors are witnessing earnings downgrades. It expects tailwinds from the US BioSecure Act in the contract research organisation and contract development and manufacturing organisation segments.

 

Among other sectors, the brokerage is overweight on the telecommunication sector as it expects consolidation in favour of top players, 4G or 5G capital expenditure spending to taper off and further tariff hikes. It is overweight on real estate on visibility on demand amid recent price corrections.

 

It also maintained its overweight stance on automobiles. "The (automobile) sector could continue to benefit from premiumisation towards SUVs (sports utility vehicles), and recovery in 2-wheeler demand supported by electrification and a pickup in exports," the brokerage said.

 

Apart from these, the brokerage is underweight on banks and non-banking financial services owing to rising cost of funds, slower loan growth, and stress in the unsecured segment. They are underweight on staples due to low visibility on volume recovery in the near term due to high food inflation and slower credit growth impacting urban mass consumption. Slowdown in urban consumption is also likely to affect the retail and service segments, where they have a neutral stance.

 

The brokerage is underweight on the chemicals and cement sectors due to high competition, low visibility on pickup in demand and the impact of higher merger and acquisition activity on profitability. Apart from the usual sectors, the brokerage said housing, agriculture, defence, tourism, and affluent India remain their preferred themes.  End

 

US$1 = INR 84.49

 

Reported by Anshul Choudhary

Edited by Saji George Titus

 

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