Indian equities should be relatively insulated from the macro headwinds of a stronger dollar, shallower emerging markets easing cycles and likely higher US tariffs in China, Goldman Sachs said in a recent report.
Domestically, although India’s long-term structural growth outlook remains strong, the growth has been slowing in the short term and affecting profits, which prompted a downgrade on Indian equities to marketweight around a month ago.
Goldman Sachs forecasts MSCI India earnings growth at 12/13/16 per cent in CY 2024/25/25 compared to consensus estimates of 13/16/15 per cent, respectively.
Valuations have re-rated 8 per cent following the recent pullback, but still trade at around 23x forward.
Advertisement
The current PE for MSCI India, which is 1.4 standard deviations above its 10-year average and exceeds the fair value estimate of 21x, indicates the potential risk of further de-rating. The brokerage firm expects the market to remain range-bound over the next three months, with a Nifty 3-month target of 24,000 (+2 per cent) and a back-loaded recovery towards the 12-month target of 27,000, supported by underlying earnings growth.
Cyclical Speed Bump in a Structural Growth Story
India is likely to be a relatively insulated economy from global shocks emanating out of a potential trade war between the US and China in 2025. “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 international brokerage firm said.
Advertisement
The structural long-term growth story for India remains intact driven by favorable demographics and stable governance. It is also relatively more insulated against global shocks including tariffs from the new Trump administration as external balances remain resilient.
According to Goldman, the slowdown is cyclical, bringing India’s growth rate back towards its long-term trend, which we estimate to be around 6.5 per cent on average over the 2025-2030 period.
Marketweight on Indian Equities, Favours High-Visibility Sectors
“We remain tactically marketweight on Indian equities within our Asia/Emerging Markets 2025 allocations,” Goldman Sachs said.
On a sectoral basis, the brokerage firm remains ‘Overweight’ on select domestic sectors with higher earnings visibility like autos, telcos, insurance, realty, and internet.
“We upgrade exporters like Infotech to ‘Overweight” and Pharma to ‘Marketweight’ on stable/improving demand, EPS (earnings per share) tailwinds from weaker Rupee and defensive characteristics,” it added.
As per the report, quality factors have outperformed during past periods of growth slowdowns. It highlights four key flavours of quality including strong balance sheets, High earnings visibility, Positive EPS revisions, and Low beta stocks. The preferred medium-term themes include housing, agriculture, defense, tourism, and affluent India.
Just one email a week