Goldman downgrades Indian equities to 'market weight' from 'overweight'

Mumbai: Goldman Sachs has downgraded Indian equities to 'market weight' from 'overweight' citing slower earnings growth and concerns over the impact of crude prices.

The brokerage cut its Nifty 12-month target to 25,900 from 29,300 previously, implying an upside of 11% over Wednesday's close of 23,306.45. Financial markets were shut on Thursday for Shri Ram Navami.

"We see risks tilted to the downside in the next 3 to 6 months as we think the market may not be pricing in the full extent of earnings cuts," the firm said in a note to clients.

On Wednesday, India's headline equity indices extended gains to the second straight day, recouping in two sessions nearly a third of the losses made since the start of the West Asia conflict. Over the last two sessions, the two indices have risen nearly 3.5% each. Both had fallen almost 10.6% each from the start of the conflict until Monday.

Goldman is overweight onbanks, consumer staples, telecom companies, defence and energy. It downgraded cyclicals and downstream sectors like consumer durables, auto, NBFCs and oil marketing companies.

Weak foreign flows, potential rate hikes domestically, and likely softer risk appetite globally point to lower valuations in the near-term, according to the brokerage.

"Forthcoming earnings cuts, on top of the ongoing investor concerns over the potential adverse impact of AI, will likely impede foreign re-buying after persistent net selling," said Goldman.

The brokerage said earlier-than-assumed resumption of oil flows, and a clear recovery in India's earnings cycle are potential upside catalysts.