Indian equities are primed for a drab few months, GS says
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INDIAN EQUITIES ARE PRIMED FOR A DRAB FEW MONTHS, GS SAYS
Indian stocks have had a rough few weeks recently, and though the outlook for emerging markets globally look cloudy, strategists at Goldman Sachs point to a few pockets that could weather the storm.
The brokerage forecasts economic growth to slow to 6.3% in the south Asian economy next year due to tighter fiscal spending and weak credit growth held back by a slow pace of monetary policy easing.
The result could be weak earnings for stocks on the MSCI Indian equities index .dMIIN00000PUS that are already sitting at high valuations. Stock returns are projected to be muted for the next three to six months.
Price to earnings valuation for the Sensex index .BSESN stands at 22.3x and is expected to be 21.83x over the next one year, according to LSEG data.
The brokerage expects the index to touch 24,000 over the next three months and hit 27,000 in case of a recovery by year-end - an about 15% upside from last close.
"Sectorally, we expect financials, telcos, autos, metals and IT to be the major contributors to the overall index earnings next year," GS strategists led by Sunil Koul said as they maintained a "neutral" rating on the country.
One silver lining could be that the brokerage sees India as comparatively insulated from possible tariffs that the upcoming Donald Trump administration in the U.S. could slap on trade partners, simply because only 2% of India's MSCI goods revenue and 4% of services revenue come from the U.S..
Against this backdrop, the brokerage upgrades exporters including infotech and pharma companies to "overweight" on the likelihood of export revenue to be aided by a weaker rupee INR=IN against the dollar.
Indian markets have faced foreign investor selling following signs of policy support out of China with the Nifty index marking a correction - a 10% decline from September's record highs when year-to-date gains touched around 20%.
In the near-term Goldman Sachs says market could experience support from consistent strong domestic buying which could thwart any steep price corrections even as foreign investors are unlikely to return in a strong dollar environment.
(Johann M Cherian)
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