Goldman Sachs upgrades India to 'overweight', sets Nifty 50 target at 29,000

Brokerage firm Goldman Sachs has upgraded India to "overweight" on Monday, November 10, 13 months after downgrading its view to "neutral" back in October 2024.

The brokerage has set the Nifty 50 target at 29,000 by the end of December 2026, which implies a potential upside of 14% from Friday's closing levels.

Among the key themes to bet on, Goldman Sachs recommends financials, consumer staples, defence, and Oil Marketing Companies. It has cited earnings shortfall, external headwinds and investor concerns over the impact of AI as some of the key risks.

India's equity markets are up 3% in US Dollar terms, underperforming Emerging Markets, which have risen as much as 30% this year so far. Goldman Sachs attributed the underperformance to a mix of high valuations, cyclical growth and profit slowdown expectations. The underperformance, according to Goldman Sachs, was also the largest in the last two decades.

"As the year progressed and earnings cuts materialized, tariff headwinds soured sentiment further and led to large foreign de-risking. We now see a case for Indian equities to perform better over the coming year," the Goldman note authored by Sunil Koul stated.

The brokerage believes that the easing measures announced by the Reserve Bank of India, GST cuts, and slower fiscal consolidation should aid India's growth recovery over the next two years.

India's Earnings Per Share (EPS) downgrade cycle has lasted longer than the typical median cycle of 10 months and has stabilized over the last three months, Goldman Sachs stated, adding that the results for the quarter so far have been better compared to low expectations, leading to upgrades in select markets.

MSCI India's profits are likely to recover from 10% this year to 14% next year, aided by better nominal growth environment, the brokerage stated.

Foreign Investors have sold over $30 billion in equities over the past year, pushing foreign ownership and mutual fund allocations to the lowest in nearly two decades. "Recent reversals suggest improving foreign risk appetite and flows as earnings recover," Koul wrote, further stating that potential moderation in US trade tensions could act as an additional market catalyst.

At 23 times price-to-earnings, valuations for the Indian markets remain high, but Goldman Sachs sees limited downside or de-rating risk based on six different valuation approaches. More so, as India's relative premium to Asia has normalized to 45% from the peak between 85% to 90%.