The upward revision in Nifty’s year-end target by Goldman Sachs – its second upgrade since mid-November – was backed by improving external macro fundamentals and a resilient domestic economy that combined to raise expectations of a rate cut by RBI by the third quarter of 2024, a report by the financial major noted.
“The global macro environment has shifted more favourably in the past two months, with expectations of firm US economic growth, earlier (Federal Reserve) and Asia easing cycles and modest dollar depreciation,” the report noted. “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. We now expect the Nifty to reach 23,500 (points) by end-2024, led by mid-teen earnings.”
Goldman Sachs’s economists expect resilient 6.2% annual GDP growth for India, and a low current account deficit of 1.3% of GDP in 2024.
The report pointed out that the Nifty tends to rally 1-3 months after the first US Fed rate cut but returns fade thereafter. “Lower sensitivity to US rates than other cyclical Asian markets and a shallow RBI cutting cycle suggest limited equity impact.” The report also pointed out that India’s better macro fundamentals are partly priced in, given the 15% rally in the Nifty from October 2023’s lows.
Analysts at Goldman Sachs expect a 15% earnings growth for companies included in MSCI India index in the current year and a 14% growth in 2025. They said that retail inflows into the stock market through the MF SIP route have stayed strong and expect the same to “provide sticky demand for equities”.