Mumbai: Goldman Sachs Group Inc. lowered its investment viewon Indian equities from overweight to market-weight saying that risk/reward is less favourable at current levels, given the elevated valuations and recent strong performance. “We have been strategically overweight India since March 2014 as we expected pro-growth government policies and structural reforms to drive a pick-up in economic growth and a recovery in corporate profits,” Goldman Sachs analysts said in a note on Sunday.
Goldman Sachs downgrades Indian shares to market-weight from overweight
While earnings have improved, Indian equities have almost doubled over the past five years and outperformed the Asian region by 60 percentage points in US dollar terms, said the investment bank in the note. “At current levels, we believe the risk reward for Indian equities is less favourable and we lower our investment view from overweight to market-weight,” they said.
“The key reasons for our less optimistic view include, among others, stretched valuations, multiple macro headwinds in the near term and election event risk,” they said. Goldman Sachs expects markets to consolidate heading into 2019 Lok Sabha elections and Nifty to reach a 12-month target of 12,000 as political uncertainty wanes and earnings accrue.
In afternoon trade today, Nifty was down nearly 1% at 11,402.65 points.
Sectorally, Goldman Sachs upgraded defensives and exporters, and said they are overweight private banks, technology and metals.
While the key downside risk was a less stable government, while key upside risk were upside profit surprises, stronger flows from foreign institutional investors (FIIs).
Goldman Sachs analysts expect market volatility to rise heading into the elections and foreign investors to stay on the sidelines until the political uncertainty is over.
“In the event of a less stable government (hung-assembly or a lower majority for winning party), we think the ensuing higher political uncertainty would translate into a higher risk premium for the market,” the investment bank said.