Goldman Sachs in its India 2025 Outlook note released in November had expected the Indian market to stay range-bound for three months and suggested a short-term target of 24,000. Thanks to the four-day selloff, the domestic benchmark Nifty has been trading around that level only, in a month post the prediction. The foreign brokerage had expected a back-loaded recovery and suggested a 12-month Nifty target of 27,000, driven by underlying earnings growth. That target at Friday’s trading level of 23,908.75 suggests a 13 per cent upside potential for the 50-pack index.
While the Nifty has jumped 2.58 per cent in the past one month, it has traded between 23,950-24,800 range for the period. There are concerns over a likely fewer Fed rate cuts in 2025, a weakening rupee and rising foreign outflows. Add to that, Q2 earnings had seen across-the-board EPS downgrades and the prevailing market valuations do not look reasonable.
“Sectorally, we remain OW on select domestic sectors with higher earnings visibility like autos, telcos, insurance, realty, and internet. We upgrade exporters like Infotech to OW and Pharma to MW on stable/improving demand, EPS tailwinds from weaker rupee and defensive characteristics,” Goldman Sachs said last month.
The brokerage expected Indian equities should be relatively insulated from the macro headwinds of a stronger dollar, shallower EM easing cycles and likely higher US tariffs on China, which are our baseline expectations for 2025.
Domestically, while India’s strong long-term structural growth story remains intact, growth has been cyclically slowing and impacting profits, which led us to downgrade in Goldman Sach’s view on India equities to marketweight about a month back.
“Our economists expect India’s GDP growth to decelerate to 6.3 per cent YoY, on continued fiscal drag and slower credit growth, which should continue to weigh on consensus EPS expectations,” the foreign brokerage said.
Goldman Sachs forecast MSCI India earnings growth at 12 per cent in 2024, 13 per cent in 2025 and 16 per cent in 2026 against consensus expectations of 13 per cent for 2024, 16 per cent for 2025 and 15 per cent for 2026.
“Valuations have de-rated 8 per cent after the recent pullback, but still trade at nearly 23 times forward PE for MSCI India, which is 1.4 s.d above its 10-year mean and above our ‘fair value’ estimate of 21 times, suggests further de-rating risk. History suggests muted near-term returns when starting valuations are high and earnings are seeing downgrades,” it said.
While Indian equities have seen large foreign selling over the past few months and the foreign flows are unlikely to reverse meaningfully in the near-term amid a stronger-for-longer dollar environment, domestic funds have remained strong buyers of equities, GS said.
“This could limit any further large ‘price’ correction in the markets,” it had added.
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