January 10, 2024
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Goldman Sachs raised Nifty 2024 target to 23500
In less than two months, American investment bank Goldman Sachs has raised the 2024-end target for benchmark Nifty50 to 23,500 from 21,800 in the backdrop of an improved outlook for both growth and rate trajectory.
The revised price target implies an upside potential of more than 8% for the index from the current levels.
Over the past two months, the global macroeconomic environment has seen a favourable shift, with expectations of relatively firm growth in the US, earlier-than-anticipated cuts in interest rates both in the US and Asian continents, and an expected moderate depreciation in the dollar this year.
“While markets have partly priced this, a better growth/rate mix recently led us to raise our Nifty index target, incorporating a higher ‘target’ valuation multiple,” the brokerage said.
Conducive Macro Factors
Historical evidence shows that Nifty tends to rally 1-3 months after the first Fed rate cut, but returns fade thereafter.
However, a lower sensitivity to US rates/Fed cuts compared to other cyclical Asian markets, and a shallow rate-cutting cycle in India suggests a limited impact on the domestic equity market, the investment bank said.
The favourable macroeconomic factors have partly been priced into the 15% rally that Nifty50 saw from the October 2023 lows, it said.
Earnings Resilience
Besides favourable macroeconomic factors, resilient earnings growth will also drive market returns this year, according to the investment bank.
“With economic growth still resilient in India, we continue to expect strong mid-teen corporate profit growth in India,” Goldman Sachs said.
After an expected 20% earnings growth in 2023, the bank expects MSCI India profits to grow 15% in 2024, and another 14% in 2025, with growth likely to be broad-based across sectors.
After a decade-long EPS downgrade cycle, earnings revisions have stabilised, and Goldman expects a turnaround in the earnings cycle, which should primarily drive index returns over the coming years.
Flow Show picked up in last two months
While the overall foreign capital flows into Indian equities remained buoyant in 2023, they picked up considerably in the last two months, and Goldman Sachs thinks that the overall foreign positioning remains conservative.
“We think foreign inflows could persist given the supportive global risk appetite and strong domestic fundamentals.”
Additionally, domestic retail flows through the SIP route remain sticky amid the rapid financialization of household savings, and are likely to remain a key source of equity demand, Goldman said.
Valuation above long term average
All said and done, but high valuation remains the primary restraining factor for India.
MSCI India is currently trading at nearly 22 times its 1-year forward P/E, which is above its long-term average. India’s relative P/E premium at about 76% also looks expensive versus the last 5-year average of 50%, Goldman Sachs pointed out.
“While we expect valuations to moderate over the course of the year, as underlying earnings catch up, we believe the shifts in macro environment, notably sooner than expected Fed easing cycle and better global risk appetite warrants a higher ‘target’ multiple versus our previous expectations,” it said.
Quicklinks
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