Goldman Sachs expects the benchmark Nifty to climb to 13,000 by the end of next year. This implies a less-than-8 per cent upside from its current levels.
The index on Tuesday ended at 11,994. While the brokerage is forecasting corporate earnings to grow 16 per cent in 2020, below the consensus estimate of 20 per cent, the upside in stocks will be lower as the bulk of growth expectations have already been factored in.
“The performance in 2019 has been pretty good against the backdrop of soft profit growth. So we've kind of borrowed from the potential performance in 2020,” said Timothy Moe, chief Asia-Pacific regional equity strategist at Goldman Sachs.
India remains one of the biggest overweight in the emerging market (EM) Asia pack for Goldman Sachs, along with China (stocks listed in Hong Kong) and South Korea.
The brokerage expects a muted performance from the EM Asia pack and says the trend of US markets outperforming will continue.
So far this year, the MSCI Asia Pacific (excluding Japan) has gained 12 per cent. However, the US’ S&P 500 index has rallied 24 per cent.
“This year was actually quite a decent year. However, it pales compared to the performance of the global market led by the United States which is up 25 per cent. So over the past 10 years, EMs underperformed by about 30 per cent. We are getting a lot of questions on whether EMs will outperform next year? We're a little bit shy in that regard, actually, because the US still has a lot going forward,” said Moe.
While the outlook generally is positive for 2020, there are two key risks that could weigh on the performance.
According to Moe, the market is highly optimistic about a US-China deal, which if falls through could lead to a correction. Also, an adverse outcome in the presidential election could bring down the US stocks, along with other global markets, he says.
“History tells you, there's pretty much no chance of dodging a significant US air pocket,” said Moe, adding that if US markets fall the most, other global markets, too, will decline albeit with a lesser magnitude. “US election is one of the credible risks for next year”. In the domestic market, Goldman Sachs prefers private banks and domestic cyclicals (which include automobiles, consumer durables, and industrials) over exporters and defensives.
The brokerage believes India’s economic growth will better next year driven by five key factors. “We expect 2020 to be better than 2019 and FY21 to be better than FY20 on account of five reasons,” said Prachi Mishra, India chief economist, Goldman Sachs.
Mishra says the slowdown in global growth and flare-up in oil prices remain key downside risks.
“Global economy should improve moderately; domestic financial conditions have improved sustainably following the rate cuts; fiscal impulse is expected to be positive; uplifted sentiment as shown in the stock market performance and easing of supply bottleneck following series of reforms; and early signs of economic stabilisation.”