Goldman Sachs turns cautious on Indian stocks, downgrades to ’Neutral’ on growth concerns

Indian stocks, which have been experiencing intense selling pressure in recent sessions, are set to face more challenges as Goldman Sachs Group downgraded Indian equities to 'neutral' from 'overweight,' citing slowing economic growth that is impacting the outlook for corporate earnings, Bloomberg reported. 

The group had previously raised Indian stocks to 'overweight' late last year, highlighting earnings growth over two years despite global macroeconomic headwinds. However, the weak earnings reported by companies so far for the September quarter have made them more cautious about Indian stocks.

"While we believe the structural positive case for India remains intact, economic growth is cyclically slowing down across many pockets," strategists, including Sunil Koul, wrote in a note on Tuesday. Worsening earnings sentiment, an accelerating pace of earnings-per-share cuts, and a weak start to the September quarter results season indicate an impact on profits, Goldman Sachs said, as quoted by Bloomberg.

The analysts expressed concerns about high valuations and noted that a less supportive backdrop could limit the near-term upside for local shares.

The cautious stance underscores growing concerns over the sustainability of corporate earnings amid weakening consumer spending and rising commodity prices. India’s record stock rally is already showing signs of fatigue, with the benchmark NSE Nifty 50 Index sliding more than 5% in October, putting it on track for its worst month in over four years, the report added.

Goldman Sachs analysts also lowered their 12-month target for the Nifty 50 Index to 27,000 from 27,500 previously, implying a 10% upside from Tuesday’s close.

Earlier in October, Bernstein Societe Generale Group’s Asia quant strategists also downgraded Indian stocks, citing high valuations and predicting further upside for Chinese equities driven by a potential policy boost. The strategists shifted their call on India to 'underweight' from 'neutral,' highlighting concerns over continued foreign outflows and weak earnings expectations.

This downgrade from Bernstein aligns with Goldman Sachs' recent stance, further signaling increasing caution among global analysts towards Indian equities amid weakening economic and corporate earnings growth.

Nifty 50 falls over 5% in October

Due to significant selling pressure from foreign portfolio investors (FPIs), Indian equities have faced a sharp downturn, causing major indices to decline. The Nifty 50, representing the country’s top 50 blue-chip companies across various sectors, has dropped by 5.19% in October so far, marking its biggest monthly decline since March 2020.

This sell-off has led to 32 stocks within the index losing between 10% and 30% from their recent one-year highs.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.