Goldman Sachs loads up on Indian markets: Upgrades to 'overweight'

Brokerage cites strong economic growth prospects, steady domestic mutual fund inflows, and a potential supply-chain shift from China

Goldman Sachs has become the latest foreign brokerage to upgrade the Indian markets. The US-based brokerage has recommended an ‘overweight’ (OW) stance on domestic equities, citing high earnings growth.

“We believe India has the best structural growth prospects in the region and offers mid-teens earnings growth over the next two years. The market has delivered the best long-term return compound annual growth rate of any regional index and offers a wide array of alpha-generating themes, including Make-in-India, largecap compounders, and midcap multibaggers,” Goldman Sachs has said in a note.

Thailand is the other market Goldman Sachs has upgraded to OW. Meanwhile, it has lowered its stance on China (Hong Kong-listed shares) to ‘middleweight’ and Hong Kong to ‘underweight’. Japan, South Korea, and China (locally listed shares) continue to remain OW in its portfolio.

Goldman Sachs says India’s valuations have moderated as corporate earnings growth has been higher than the gains made by the benchmark indices this year.

“The market has rerated to elevated valuation levels, but valuations are now less extended after the moderate 4 per cent year-to-date return while earnings have grown 17 per cent. We upgrade to ‘overweight’ to emphasise the market’s strategic appeal, particularly given its largely domestically driven growth,” said the brokerage in a note.

“Near-term, uncertainty around state and general elections (in second quarter of 2024) may increase volatility, but this can be hedged inexpensively,” the note added.

Goldman Sachs has also underscored the strong domestic flows offsetting overseas selloff.

“In India, domestic buying has offset periods of concentrated foreign selling, with nearly $2 billion monthly mutual fund inflows into systematic investment plans, a noteworthy source of added demand,” the note said.

On software exporters, the brokerage says the outlook “remains weak with low visibility of recovery next year”.

Over the past four to six weeks, global brokerages such as JPMorgan, Morgan Stanley, CLSA, and Nomura have recommended higher exposure to domestic equities.