Wall Road brokerage Goldman Sachs has flagged a slew of considerations on the surging COVID-19 caseload that has been hitting new information on a regular basis, coupled with the rising lockdowns, forcing it to downgrade India’s GDP development forecast for the total yr to 10.5 per cent from 10.9 per cent, other than pegging down inventory indices valuation and earnings. In an in depth word on Tuesday, Goldman Sachs’ home economists led by Sunil Koul mentioned these report variety of pandemic instances and a bunch of key states saying stricter lockdowns of late have fuelled severe development considerations, leaving traders frightened concerning the dangers to macro and earnings restoration. It revised down its 2021 actual GDP development forecast to 10.5 per cent, from 10.9 per cent beforehand, but it surely nonetheless remained above consensus.
It additionally expects the June quarter development to be impacted. Accordingly, it has lowered the 2021 earnings development forecast to 24 per cent from 27 per cent beforehand and expects the restoration to renew from July as restrictions normalise, vaccination tempo accelerates and the worldwide development backdrop stays supportive. The disaster of confidence was very clear within the fairness markets, which has come beneath super stress and Nifty promoting off 3.5 per cent on Monday alone. The index is down 7 per cent from its year-to-date excessive. Reducing the Q2 (June quarter) development forecast with out quantifying it although, the Goldman Sachs economists mentioned they nonetheless count on all these to have solely average affect general because the restrictions have been focused at particular sectors with out broad spillovers up to now. On the valuation compression, they now count on solely low-teen returns this yr and have pencilled in a ten per cent PE compression.
Goldman Sachs expects Nifty to achieve 16,300 by December, down from the sooner forecast of16,500, which means solely about 14 per cent upside in rupee phrases. After the report spike in infections to over 1.68 lakh a day, main states together with Maharashtra, Madhya Pradesh, Delhi, Tamil Nadu and Bihar have introduced stricter lockdown restrictions, that are prone to broaden out in coming weeks.
The brokerage mentioned the containment restrictions are prone to be extra focused with hits to particular companies reminiscent of meals and drinks, leisure and recreation, and transport, however with restricted spillovers into different sectors like development and manufacturing. Whereas these restrictions are prone to hit exercise in June quarter, exercise is prone to rebound sharply from July as containment insurance policies normalise, it added. On the affect of the lockdowns, it mentioned whereas near-term dangers stay if restrictions and shutdowns broaden, extra draw back dangers will be contained if market sensitivity to lockdowns comes down. But, Goldman Sachs is chubby on India and favours focused cyclical publicity, saying it stays constructive on home equities.