Even after a firm rally in 2019, foreign brokerage firm Goldman Sachs thinks that the stock markets have more room for expansion. According to Goldman Sachs estimates, the Nifty is expected to touch 13,000 by the end of 2020. This indicates a 6.47% rise from the record high level of 12,158.8 that the 50-share index touched on 28 November this year.
“Indian equity valuations remain elevated relative to its historical range and at a 40% premium to the region. However, valuations have partly priced in the expected recovery; we expect the Nifty to reach 13,000 by end 2020," said Timothy Moe, Chief Asia-Pacific Strategist, Goldman Sachs while addressing media. Goldman Sachs is overweight on India driven by hopes of cyclical macro and earnings recovery.
It thinks that growth has likely bottomed out in India and expects cyclical macro recovery next year. Goldman Sachs expects India, Korea and Taiwan to deliver strongest earnings growth in 2020. It sees a 16% earnings growth for India in 2020 mainly due to reduction in corporate taxes.
“We forecast India earnings to pick up from 12% this year to 16% next year which will be the second-highest EPS growth forecast in the region after Korea. Earnings recovery is likely to be driven by financials and domestic cyclical sectors," said Goldman Sachs.
Meanwhile despite a slowing Indian economy, Goldman Sachs is confident that the slowdown is likely to end soon in response to better global growth, easier domestic financial conditions, a positive fiscal impulse, some uplift in sentiment and an easing of supply bottlenecks. It forecast India’s gross domestic product (GDP) growth at 5.3% and 6.6% in FY20 and FY21 respectively lower than what they had previously projected. “Confidence concerns in the domestic financial sector pose a key downside risk to our outlook," it said.
Growth in India GDP in September quarter slowed for the sixth consecutive time to 4.5%, the lowest since March 2013, as manufacturing output contracted, according to data released on Friday.
However, analysts at Goldman Sachs feel that in addition to funding challenges, the current slowdown in India is more likely result of global headwinds coupled with several domestic factors such as a sharp decline in consumer confidence and a negative central government fiscal impulse.
It expects an uplift in sentiment, as well as some easing of supply bottlenecks to contribute meaningfully to a sequential pick-up in growth, distributed across higher consumption, investment and exports. “Some confidence effects are already being observed in stock market performance during recent months," Goldman Sachs reiterated.
In November, the stock markets have touched record highs multiple times while the rally is not broad-based. Foreign institutional investors (FIIs) have started to buy Indian shares after massive sell-off in July-September period. In November, they bought Indian shares worth $3.15 billion while they are net buyers of $12.97 billion in this year so far.