Goldman Sachs, a multinational investment bank, on Monday decided to lower its Indian equities, the move comes for the first time since 2014. As per the company, current trends do not favor risk or rewards.
“Given the elevated valuations and the recent strong performance, We believe the risk/reward for Indian equities is less favourable at current levels and we lower our investment view from overweight to market weight,” said Sunil Koul from Goldman Sachs
The company expects Nifty to attain its target of 12,000 from 11,900 owing to upcoming elections and earnings accrue.
Goldman Sachs’s five reasons to downgrade Indian equity:
1. Stretched Valuation owing to expensive Indian equities in Asia
Indian equities are considered to be trading at a premium price in the Asian region. The Goldman equities have labelled these equities as ‘the most expensive’.
2.Macro tailwinds
Analysts at Goldman Sachs believe that the economic growth will witness a moderate trend because of weak activity data, peaking oil prices and tighter financial conditions. The crude oil prices for coming three months are likely to rise at $80 per barrel. Further, the analysts estimated current account deficit to be at 2.6% of GDP
3.Slow domestic flows
The investment bank hopes to witness lower equity inflows despite slower domestic flows for the last four months.
4.Event risk
The analysts expect ‘event risk’ to rise owing to rising fiscal deficit because of elections. This may lead to unstable government disrupting the market situation in the near future.
5.Growth in corporate earning priced in
Macro headwinds did not change the mindset of Goldman Sachs about already priced in the growth of corporate earnings at current levels. As reported by Business Standard “Nifty has compounded at 14 per cent over the past five years while earnings grew at 5 per cent. While profit recovery is underway, this micro ‘catch up’ doesn’t warrant a further upside. Indian equities are pricing in a 17 per cent 10-year earnings growth on a compounded basis (CAGR) – the highest in the region,” the Goldman report says.