Goldman Sachs sees the Nifty50 hitting 20,500 by the end of 2023, which is a 12 percent price return led by earnings growth. Going into 2023, the brokerage firm is of the view that Indian equities are less likely to outperform for the third successive year. That’s thanks to expensive valuations and lingering cyclical issues like slowing growth in the first half, sticky core inflation, RBI policy hikes, and a weak rupee.
China and other globally cyclical North Asian markets, notably Korea, could perform better on China reopening catalysts and global recovery expectations in 2024, which is another reason, according to Goldman Sachs.
The foreign brokerage firm believes the shift towards China or North Asia could lead to weak foreign ﬂows to India to start the year.
It believes growth will recover in the second half of 2023 along with a pick-up in equity flow.
While the Indian market has been resilient year-to-date (YTD) overall, it has been a signiﬁcant outperformer compared to its Asian peers due to its stronger domestic fundamentals.
Although fundamentals are likely to stay resilient next year as well, the brokerage firm believes growth will likely moderate in the first half of 2023 with a fading reopening boost.
It expects a recovery in the second half with 5.9 percent YoY full-year GDP growth and around 7 percent YoY growth in domestic demand. It also expects corporate proﬁts in India to grow 15 percent next year and in 2024. “However, this superior earnings growth outlook appears priced in, as the market trades at 22 times forward PE, 30 percent above the l/t (long-term) average, and at an elevated P/E premium of around 80 percent vs. the region,” it said.
As the year progresses, it sees global macro backdrop improving as the US Federal Reserve goes on hold, the dollar peaks, and markets begin to anticipate improving growth in 2024.
It added, “We, therefore, retain India at marketweight to start the year, as the attractive medium-to-longer term growth opportunity is offset by these near-term cyclical considerations.”
However, Goldman Sachs believes that India is still a compelling medium-term growth story. Over the medium term, it expects India’s earnings to grow fastest in the Asia-Pacific region, with earnings growth of 14 percent in the next five years against 10 percent compounded annual growth for the region.The global brokerage firm continues to be overweight on banks, insurers, and investment cyclicals, such as industrials and cement.