Goldman Sachs, CLSA too downgrade Indian stocks

K. S. Badri Narayanan | | Updated on: Nov 14, 2021

The Goldman Sachs company logo is on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 13, 2021. REUTERS/Brendan McDermid | Photo Credit: Brendan McDermid

CLSA gives 10 reasons to book profits

Two more global financial advisory firms have joined downgrade bandwagon of Indian equities. Goldman Sachs and CLSA are the latest to advise investors to turn away from Indian stocks and book profits on valuation concerns.

In the last few days, UBS, Nomura and Morgan Stanley had already downgraded Indian stocks.

Goldman Sachs, which lowered India to Marketweight, said, "After gaining nearly 31 per cent YTD and 44 per cent since our upgrade in November last year, and being the best-performing regional market in 2021, we believe the risk-reward for Indian equities is less favorable at current levels.”

Though GS expects strong cyclical and profit recovery next year and remain medium-term constructive amid increasing digitalisation in the index, it thinks the recovery is well priced at current peak valuations. "We, thus, take profits on our India Overweight and lower it to Marketweight within our regional allocations".

CLSA's analysts Alexander Redman in ‘Indian equites: on borrowed time’ said, "Our concerns range from elevated energy and broader input price pressures applying downward pressure to margins, the current account balance and thus currency outlook, the withdrawal of RBI stimulus, and a lack of upside implied by Indian equities’ typical macro drivers. Rich valuations, a high probability of earnings disappointment, and a potential lack of marginal buyers add to our motivation to book profits on India."

Besides, these seven factors CLSA cites pressure on rupee with an eroding external position, limited credit growth, which will cap potential GDP and thus EPS growth, and Inferior value creation provides a headwind for outperformance, as reasons for its downgrade.

Almost on similar concers, recently Morgan Stanley downgraded Indian equities to Equalweight from Overweight, Nomura to Neutral from Overweight and UBS to Underweight (from Neutral).

Published on November 14, 2021
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