Goldman Sachs tactically downgrades Indian equities to 'neutral', lowers Nifty 12-month target to 27,000

Goldman Sachs still sees the structural story intact for India.

Investment firm Goldman Sachs has tactically downgraded Indian equities to 'neutral' from the previous 'overweight' in its Asia/Emerging Markets allocations in anticipation of a 'time correction' over the next three-six months.

The firm believes that while a 'price correction' is unlikely due to robust domestic flows, high valuations and a less supportive backdrop may limit upside potential. It further emphasised that although the structural appeal of Indian equities remains, economic growth and profits are slowing.

Analysts across the board also flagged concerns over a slowdown in earnings growth as companies faced challenges from a high base, faltering demand, and diminishing margin tailwinds. Prominent brokerages like Motilal Oswal Financial Services, Nuvama Institutional Equities, and Axis Securities predicted that Q2 earnings growth would drop to a post-COVID low, with profit growth projected to moderate sharply to around 2 percent for the July-September period. This will also likely mark the slowest earnings growth for Nifty companies in 17 quarters, as noted by MOFSL.

The sharp U-turn in earnings growth also comes after a four-year joyride of robust double-digit growth for India Inc which further suggests that the ride ahead might just get a lot bumpier.

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Taking these factors into account, Goldman Sachs has also lowered its 12-month Nifty target to 27,000, though implying a 9 percent upside, but down from the previous forecast of 27,500. For the short-term, Goldman Sachs sees the Nifty falling a percent to around 24,500 in the next three months and then claw back some ground to rise 3 percent to 25,500 in the upcoming six months.

In terms of sector outlook, Goldman Sachs remains overweight on automobiles, telecom, and insurance, while upgrading realty and internet sectors to 'overweight.'

Conversely, it downgraded cyclicals such as industrials, cement, chemicals, and financials. The brokerage advises investors to prioritise quality, earnings visibility, and targeted alpha themes to navigate the current volatility in Indian equities.

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