Nifty to reach 20,500 by end-2023, implying 12% price return: Goldman Sachs

Says India's 'superior' earnings growth appears to be priced in, sees 'modest' contraction in P/E multiples going ahead; stay overweight on banks, insurers, and investment cyclicals

Goldman Sachs expects the benchmark Nifty 50 index to touch 20,500, implying a modest upside of 12 per cent from current levels. The brokerage says India’s 'superior' earnings growth appears to be priced in. It expects “modest” contraction in price-to-earnings multiples going ahead.

“We expect Nifty to reach 20,500 by end-2023, implying 12 per cent price return, led by mid-teen earnings growth and a modest P/E compression (as light foreign positioning and geopolitical factors could support India’s multiples). Returns are likely to be backloaded, as growth recovers in 2H and equity flows pick up. We stay overweight on banks, insurers, and investment cyclicals (industrials, cement), funded by Infotech, NBFCs, durables and utilities,” said Goldman Sachs strategists led by Sunil Koul and Timothy Moe.

The US-based brokerage noted that India has outperformed China for two years in a row and could underperform going ahead.

“As 2023 unfolds, we think Indian equities are less likely to outperform for the third successive year as China and other globally cyclical North Asian markets (notably Korea) could perform better on China reopening catalysts and global recovery expectations in 2024,” it said.

Goldman Sachs said the Indian market has been a strong outperformer thanks to 'stronger domestic fundamentals' but valuations have turned expensive compared to global peers.

“Amid a challenging global macro environment, Indian equities have significantly outperformed the MSCI Asia ex-Japan region by 18 per cent year-to-date, and more than 40 per cent in USD terms since last year, due to stronger domestic fundamentals. Although fundamentals are likely to stay resilient next year, we believe growth will likely moderate in 1H23 with a fading reopening boost. We expect a recovery in 2H with 5.9 per cent year-on-year full-year GDP growth and around 7 per cent year-on-year growth in domestic demand. We expect corporate profits in India to grow 15 per cent next year and in 2024, twice the 8 per cent CAGR for the region. However, this superior earnings growth outlook appears priced in, as the market trades at 22 times forward P/E, 30 per cent above the long-term average and at an elevated P/E premium of about 80 per cent versus the region,” Goldman Sachs strategists added.

Markets End Slightly Higher

Equity benchmarks ended higher on Wednesday amid buying in banking counters and a firm trend in global markets. Continuing its previous day rally, the 30-share BSE Sensex climbed 91.62 points or 0.15 per cent to settle at 61,510.58. During the day, it jumped 361.94 points or 0.58 per cent to 61,780.90.

The broader NSE Nifty50 gained 23.05 points or 0.13 per cent to end at 18,267.25. From the Sensex pack, State Bank of India, Bajaj Finance, Dr Reddy's, Kotak Mahindra Bank, Sun Pharma, NTPC, Axis Bank and ICICI Bank were the major winners. Power Grid, Tech Mahindra, Titan, Bharti Airtel and Bajaj Finserv were among the laggards. PTI