Goldman Sachs, the largest equity research house in the US, is of the view that India’s stock markets are the most expensive in Asia and emerging markets currently. They say the stock markets here are factoring in the “superior corporate earnings growth” of the next two years in their valuations.

However, Goldman believes there is a 12 per cent upside to Nifty from current levels, and the benchmark index would touch 20,500 by the end of 2023.

Market outlook

In its market outlook report, Goldman has predicted that foreign portfolio investor (FPI) flows will remain weak for India and instead shift to China, given that its economy will fully reopen by next year post-Covid.

In its view, FPI flows for India could pick up in the second half of 2023 as domestic growth recovers, the US dollar reverses, and the global macroeconomic environment improves.

“MSCI India valuations are currently trading at 19 times, which is at the 90th percentile over the past decade. Despite this, India appears less appealing to China and North Asian markets on a PEG (price earnings to growth) ratio, suggesting superior earnings’ recovery over 2023–24 is largely priced in,” the report said.

FPI outflows

FPI selling in India at $35 billion between September 2021 and July 2022 was most brutal, since it was more than double that of the $15 billion outflows seen during the 2008 global financial crisis. But between August and now, FPIs have again pumped in $11 billion back into India, leaving a net of $19 billion in FPI selling year to date. But Goldman noted that FPI ownership in BSE 200 companies stood at a 9-year low of 21 per cent and was 18 per cent of India’s overall listed exchange market cap.

“Dedicated EM and Asian funds hold about 17 per cent of their portfolios in India on average, their largest exposure historically (partly because of India’s significant outperformance), they remain about 115bp OW, below long-term average (160bp OW since 2004) and significantly lower than the 570bp peak in 2015. More importantly, global funds (including ex-US mandates) haven’t kept pace with the recent rise in India’s weight and have become more underweight vs. benchmark (currently at record 160bp UW).”