Goldman sees Nifty at 20,500 by end of 2023

Brokerage stays overweight on banks, insurers and cyclicals

Goldman Sachs expects the benchmark Nifty50 index to touch 20,500, implying a modest upside of 12 per cent from current levels. The brokerage says India’s 'superior' earnings growth appears to be priced in. It expects “modest” contraction in price-to-earnings multiples going ahead.

“We expect Nifty to reach 20,500 by end-2023, implying 12 per cent price return, led by midteen earnings growth and a modest P/E compression (as light foreign positioning and geopolitical factors could support India’s multiples). Returns are likely to be backloaded, as growth recovers in H2 (second half of 2022 calendar year or CY22) and equity flows pick up. We stay overweight on banks, insurers, and investment cyclicals (industrials, cement), funded by Infotech, NBFCS (non-banking financial corporations), durables and utilities,” said Goldman Sachs strategists led by Sunil Koul and Timothy Moe.

The Us-based brokerage noted that India has outperformed China for two years in a row and could underperform going ahead.

“As 2023 unfolds, we think Indian equities are less likely to outperform for the third successive year as China and other globally cyclical North Asian markets (notably South Korea) could perform better on China reopening catalysts and global recovery expectations in 2024,” it said.

Goldman Sachs said the Indian market has been a strong outperformer thanks to 'stronger domestic fundamentals' but valuations have turned expensive compared to global peers.

“Amid a challenging global macro environment, Indian equities have significantly outperformed the MSCI Asia ex-japan region by 18 per cent year-to-date, and more than 40 per cent in dollar terms since last year, due to stronger domestic fundamentals. Although fundamentals are likely to stay resilient next year, we believe growth will likely moderate in H1CY23 with a fading reopening boost. We expect a recovery in H2 with 5.9 per cent year-on-year full-year GDP growth and around 7 per cent year-on-year growth in domestic demand. We expect corporate profits in India to grow 15 per cent next year and in 2024, twice the 8 per cent compounded annual growth rate for the region. However, this superior earnings growth outlook appears priced in, as the market trades at 22 times forward P/E, 30 per cent above the long-term average and at an elevated P/E premium of about 80 per cent versus the region,” Goldman Sachs strategists added.