Goldman Sachs, Wall Street brokerage has reportedly lowered India’s GDP forecast for the full year from 10.9% to 10.5% coupled with pegging down of the stock indices valuation and earnings. Thus, the firm has flagged concerns about the surging COVID-19 caseload that has been hitting new records daily, coupled with the rising partial lockdowns.
Sunil Koul led Goldman Sachs’ house economists, in a detailed note, presented on Tuesday, stated that a record number of pandemic cases and a host of key states announcing stricter lockdowns of late have fueled serious growth concerns. According to the report, it has left investors worried about the risks about macro and earnings recovery.
But it is to be remembered that though the growth projection was scaled down, it still remained above consensus. Additionally, the report also expects the June quarter growth to be impacted.
It is to be also noted that Goldman Sachs has lowered the 2021 earnings growth forecast from 27% to 24% and positively expects the recovery to resume from July as the restrictions normalize, vaccination pace accelerates and the global growth backdrop remains supportive. While these restrictions are likely to hit activity in June quarter, activity is likely to rebound sharply from July as containment policies normalize, it added.
Speaking of the impact of the lockdowns, it said while near-term risks remain if restrictions and shutdowns broaden, more downside risks can be contained if market sensitivity to lockdowns comes down.
As it had been reported, the crisis of confidence was unadorned in the equity markets, as the market recorded a huge slump on Monday, with PSU banking sector affected the worst. It has been reported that the index is down by 7 per cent from its year-to-date high.
The Goldman Sachs economists have additionally maintained that they still expect all these to have only moderate impact overall as the partial restrictions have targeted only specific sectors without broad spillovers so far. These specific services include food and beverages, leisure and recreation, and transport, but with limited spillovers into other sectors like construction and manufacturing.
Additionally the report has stated that it expects only low teen returns on the valuation compression this year and have pencilled in a 10 per cent PE compression. Goldman Sachs also expects Nifty to reach 16,300 by December, down from the earlier forecast that projected 16,500. This implies only about 14 per cent upside in rupee terms.
As it has been vehemently reported by the Indian media, India has been breaching its covid records daily. On average 1.68 lakh infections are being recorded daily, which has led major states including Maharashtra, Madhya Pradesh, Delhi, Tamil Nadu and Bihar to announce stricter lockdown restrictions, which are likely to be broadened out in coming weeks.
Yet, Goldman Sachs is overweight on India and favors targeted cyclical exposure, saying it remains constructive on domestic equities.