Goldman Sachs Group Inc. has downgraded its outlook on Indian equities from overweight to neutral, citing a slowdown in economic growth that is affecting corporate earnings projections. In a note released on Tuesday, strategists including Sunil Koul emphasized that while the long-term bullish case for India remains intact, many sectors are experiencing a cyclical slowdown.
The report highlights deteriorating earnings sentiment, a rapid increase in earnings-per-share reductions, and a weak beginning to the September-quarter earnings season as indicators of a potential impact on profits. The strategists noted that high valuations and a less favorable economic backdrop could limit the near-term upside for local stocks.
This cautious outlook reflects increasing worries about the sustainability of corporate earnings amid declining consumer spending and rising commodity prices. India’s remarkable stock market rally is already showing signs of waning, with the benchmark NSE Nifty 50 Index down more than 5% in October, positioning it for its worst monthly performance in over four years.
Goldman Sachs analysts remarked, “A significant price correction is less likely due to strong domestic inflows, but markets could experience a ‘time correction’ over the next three to six months.” They have also adjusted their 12-month target for the NSE Nifty 50 Index to 27,000, down from 27,500, indicating a 10% upside from the index’s close on Tuesday. Currently, the Nifty trades at 20 times its 12-month forward earnings, above its five-year average of 19.4 times. Additionally, foreign investors have withdrawn a net $7.8 billion from Indian equities this month through Monday, marking the largest outflow since March 2020, according to Bloomberg data.
Goldman Sachs had previously upgraded Indian stocks to overweight late last year, citing anticipated earnings growth despite global macroeconomic challenges.
However, not all analysts share a pessimistic view on Indian equities. UBS Global Wealth Management advocates for “buying the dip” in Indian stocks, asserting that the current softness in growth and earnings is likely to be temporary. Tan Min Lan, Asia-Pacific head of UBS’s Chief Investment Office, stated in a Bloomberg TV interview that investors should continue to increase their foundational or strategic asset allocations in the market, as the slowdown is attributed to one-off factors and economic growth is expected to rebound.
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