Goldman Sachs stays overweight India; sees Nifty at 11,600 at end 2018
Mumbai: Goldman Sachs said on Monday it stays overweight on Indian equities, and expects the National Stock Exchaneg (NSE) benchmark Nifty to rise to 11,600 points by the end of 2018 on robust corporate earnings growth.
On Monday, the 50-share Nifty edged up 0.1% to close at 10,399.55 points. It has added 27.04% for the year to date.
Goldman Sachs projects real GDP growth of 8% for India in fiscal year 2019, compared with an expected 6.4% in fiscal year 2018, as the negative impact of disruptive events such as the introduction of the goods and services tax (GST) eases and the bank recapitalisation programme leads to credit and private investment growth.
Timothy Moe, chief Asia Pacific regional equity strategist, said Goldman Sachs was overweight equity vs government bonds, and in equities, was overweight China and Korea as well, apart from India, in the Asia Pacific region.
“These three markets—we have strongest confidence in earnings growth being delivered, for not only 2018 but also 2019. Earnings growth is what is going to be the key for performance for these markets for the year ahead,” Moe said at a press conference.
He expects MSCI India index’s earnings to grow by 18% in 2018, backed by improving GDP growth and the waning impact of GST and demonetisation of high-value banknotes in November 2016.
“We expect the negative impact from GST to gradually fade over the coming year, while delivering several medium-term benefits including improved efficiency, formalization of activities and price transparency,” Goldman Sachs said in a note.
“The bank recapitalisation program has the potential to be a significant positive for growth if implemented appropriately, as it clears one of the key obstacles of weak banking sector balance sheets that India’s growth has faced.” the note said.
That said, lack of such growth coming by could be one of the main risks to the market, he added.
“Equity market specific risks—I would say risk no.1 would be a lack of delivery of earnings. I mean markets have gone up a bunch this year, and that’s because of the delivery of earnings, and they obviously have priced in some expectations of a further strong corporate earnings growth next year,” said Moe.