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Moody’s less gloomy on GDP, Goldman upbeat on equities

Moody’s expects the economy to shrink by 8.9% in the 2020 calendar year, softening its earlier forecast of a 9.6% contraction.bloomberg (MINT_PRINT)Premium
Moody’s expects the economy to shrink by 8.9% in the 2020 calendar year, softening its earlier forecast of a 9.6% contraction.bloomberg (MINT_PRINT)

The revision comes as the spread of novel coronavirus infections slows in India, and economic activity picks up after a 23.9% contraction in the June quarter, when consumer spending, private investments and exports collapsed

Moody’s Investors Service said on Thursday it expects the Indian economy to shrink at a slower 8.9% pace in 2020, while Goldman Sachs raised Indian stocks to overweight as consumer demand picked up during the festive season and the surge of new coronavirus infections appeared to be slowing.

The rating company upgraded its forecast for this year from a 9.6% contraction it estimated in September. The moves reflect hopes of a pickup in the economy, marked by an earnings recovery and the gradual reopening of businesses after a nationwide lockdown.

The revision comes as the spread of novel coronavirus infections slows in the world’s second-most populous country, and economic activity picks up after a 23.9% contraction in the June quarter, when consumer spending, private investments and exports collapsed.

“The steady decline in new and active (covid-19) cases since September, if maintained, should enable further easing of restrictions. We, therefore, forecast a gradual improvement in economic activity over the coming quarters," Moody’s said in a note.

Meanwhile, Goldman Sachs raised Indian equities to overweight on hopes of an earnings recovery.

Goldman Sachs had lowered India to ‘marketweight’ in April on concerns over the nationwide shutdown, rising covid cases and expectations of a significant contraction in domestic activity in the absence of fiscal space.

However, the investment bank thinks the investment case for India has now improved and upgraded Nifty to 14,100 by 2021-end, indicating an 11% upside from current levels.

Indian benchmark indices have rallied more than 60% from the lows hit in March, while notching up record highs this week.

“India has been a laggard this year, underperforming the region by 11 percentage points in US dollar terms. Indian equities are most positively sensitive to the improving prospects of a vaccine, and so we expect a ‘catch-up’ laggard rally, given the positive news flow on the vaccine front (which could spur faster than expected recovery)," it said in a note on Wednesday.

As the economy recovers from the pandemic-induced contraction, Goldman Sachs expects corporate profits to rebound 27% next year and a further 21% in 2022, after an expected decline of 11% year-on-year this year.

“While valuations remain extended and could see some pressure, we expect further market gains driven by earnings recovery," it said.

Sectorally, it expects cyclical sectors to perform better as the economic recovery continues to gather pace.


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