Goldman Sachs has also lowered its 12-month Nifty target from 27,500 to 27,000, implying a 10.5% upside from Tuesday’s close.
“While we believe the structural positive case for India remains intact, economic growth is cyclically slowing down across many pockets. Worsening earnings sentiment, an accelerating pace of earnings-per-share cuts and a weak start to the September-quarter results season indicate an impact on profits,” the report said.
The downgrade comes amid continuous selling by foreign portfolio investors (FPIs), who have offloaded Indian stocks for 17 consecutive days. So far this month, FPIs have sold shares worth ₹89,200 crore. The MSCI India index declined by 6.38% in October, compared to a 2.45% fall in the MSCI Emerging Market index and a 0.22% gain in the MSCI World index.
“A large ‘price correction’ is less likely given support from domestic flows, but markets could ‘time correct’ over the next three to six months,” said the report.
Domestic institutional investors have pumped in more than ₹89,300 crore so far this month and a record ₹4.3 lakh crore in stocks during the calendar year.The benchmark Nifty currently trades at 20 times its 12-month forward earnings, above its five-year average of 19.4 times, according to Bloomberg.According to Goldman Sachs, Nifty is likely to correct to around 24,500 in three months and then gain 3% to 25,500 in the following six months.
The financial services giant remains overweight on automobiles, telecom, and insurance and has upgraded the realty and internet sectors to ‘overweight’. The brokerage has downgraded cyclicals such as industrials, cement, chemicals, and financials.
In November last year, Goldman Sachs upgraded Indian shares to ‘overweight’ from ‘market weight’, citing strong economic growth prospects, steady domestic mutual fund inflows and a potential supply chain shift from China.
The firm then said that Indian markets would continue to gain in 2024, supported by steady earnings growth and macroeconomic stability in what would otherwise be a “tricky” period in the Asia Pacific region.
Last month global research firm CLSA said India is the most expensive market in the world on absolute valuation plus relative to history on price-to-earnings multiples.