Goldman Sachs has forecasted the Nifty50 index to reach 21,800 by 2024-end, translating into a 12 per cent return in rupee terms, driven by mid-teens earnings growth and a moderation in valuations.

The global investment bank raised India to overweight on its resilient fundamentals and strategic appeal.

In its ‘India 2024 Equity Outlook’ Goldman Sachs also said it expects corporate profits in India to rise 15 per cent in 2024 and another 14 per cent in 2025, with growth broad-based across sectors.

GS said it continues to favour domestic sectors and is overweight on banks, automobiles, cement, industrials, and utilities.

Market returns

Indian equities are likely to see back-loaded low teen returns driven by corporate earnings, said Goldman Sachs, adding that raising India to overweight was due to the country having the best structural growth prospects in the Asia Pacific region.

The Nifty50 index has risen 8.8 per cent so far this year and GS said that over the long-term Indian equities have delivered the best compounded annual growth of any regional index with “outsized alpha opportunities.”

The returns trajectory next year will depend a lot on the global macroeconomic environment, which includes interest rates in the US, the strength of the dollar, and geopolitical uncertainty. Domestic factors, such as the outcome of state elections this year and general elections next year, will also significantly impact.

GS said that it remained “tactically conservative over the next six months” and expected stronger market performance once the uncertainty over the elections faded.

The report also pointed out that the exposure of foreign portfolio investors in Indian equities was fairly low. They were net sellers last year and in the first quarter of 2023, and while they have been net investors this year, it hasn’t made up for the outflows of last year.

Sunil Koul, Asia Pacific Equity Strategist at GS said that FPIs were keen to raise exposure, but the relatively high valuations were holding them back. “Near-term inflows will be weak,” he said.

Market valuations

With corporate earnings seen as strong, India is still the most expensive market in Asia, but valuations have moderated from recent highs.

Forward price multiples are no longer running ahead of actual performance and the MSCI Index at 19.7x is not that overpriced.

Uncertainties over the outcome of the elections can however make the market volatile and play havoc with valuations, GS noted.

It said that most sectors have de-rated more than 15 per cent from their recent peak multiples.