Goldman Sachs Upgrades India As Economic Activity Gains Pace, Raises Nifty Target

Goldman Sachs turned bullish on India on hopes of a rebound in corporate earnings and economic growth picking up pace after the lockdown curbs were eased across the country.

“Our Asia strategy team upgraded India to ‘overweight’ and revised its Nifty target to 14,100 by end-2021,” the global investment bank said in a note. The revised target implies a potential upside of 13% from the current level.

Goldman Sachs had downgraded India to ‘marketweight’ in April expecting a significant contraction in economic activity after the coronavirus outbreak, and a delayed recovery compared to some of its North Asian peers. It had even cut the Nifty’s target to 9,600 by June 2021, down from 10,800. The Nifty, tracking its global counterparts, had tumbled more than 40% from its peak in January to its March-low. But since then the benchmark has seen a one-way rebound, wiping out all its pandemic-driven losses of the year to trade positive, and scale new highs. The Nifty 50 has gained more than 7% in the last one month, more than 1,000 points in the last eight trading sessions.

Goldman Sachs is bullish on banks, energy and the technology space, which it said will be key contributors to the overall index earnings rebound. “The Q2 FY21 earnings season currently underway has seen strong broad-based beats across sectors,” it said in the note. The investment bank expects corporate profits to rebound 27% in 2021 and another 21% in 2022.

Goldman Sachs also expects cyclicals to perform better as the economic recovery continues to gather pace. “Over the past month, MSCI India CY20 estimated EPS has been revised 2% higher post the sharp 30% cuts early this year,” the note said. The rebound in industrial activity, high frequency macro indicators and government capex spend has prompted the financial services provider to raise its EPS estimates across sectors by 6% on an average for FY21-23.

It even revised its volume forecasts for the auto sector. Goldman Sachs now expects two-wheelers and cars to grow 22% and 27% year-on-year, respectively, in FY22.

Goldman Sachs’ Top Stock Picks

The Asia strategy team has come up with a list of eight stocks that can outperform their sector, should the economic momentum sustain.

• HDFC Bank: Potential upside of 1% and bull case upside: 21%
• State Bank of India: Potential upside of 30% and bull case upside of 42%
• Larsen & Toubro: Potential upside of 16%
• Reliance Industries: Potential upside of 12%
• TVS Motor: Potential upside of 29%
• Avenue Supermarts: Potential upside of 15%
• Fortis Healthcare: Potential upside of 18%
• Apollo Hospitals: Potential upside of 9%

Goldman Sachs has even highlighted certain risks to the rally in the equity markets.

• Macro recovery gets stalled due to any further local lockdowns
• Virus surges higher in the coming months
• A weakening of demand momentum as pent-up demand fizzles out
• No major government stimulus
• Sharp rise in non-performing loan provisions restricting banks to go slow on credit supply