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Goldman Sachs sees India as better growth story among EMs, pegs Nifty target at 13,000

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Goldman Sachs sees India as better growth story among EMs, pegs Nifty target at 13,000


Goldman Sachs' Caesar Maasry believes growth-oriented investors would look at a cut in corporate and income taxes as quite favourably.

There is risk aversion towards global equities due to coronavirus in China, with Asian equities falling between 5 percent and 10 percent, but the Latin America and other emerging markets are defensive, said Caesar Maasry, head of emerging markets-cross asset research and managing director, at Goldman Sachs. "When you have a significant shock like this, the EM as an asset class trades lower, together," he said.
In such a scenario, there is a possible shift in fund flows, said Maasry, adding that this may not be beneficial in an absolute sense to any emerging market but there could be relative allocations.
"With regards to India, I do think it remains a relatively defensive equity market for a number of reasons and also it is worth pointing out that coming into this year, institutional managers are at their lowest weighting of Indian equities in several years," he said.
"I think there is certainly scope for some overweight flows moving into India this year,” Maasry noted.
Budget and economy
India's fiscal slippage at 3.8 percent was higher than expected and remained elevated for the next fiscal at 3.5 percent, said Maasry. He also pointed out that the fiscal picture in a number of emerging markets like South Africa and Brazil has been deteriorating for some time.
"I don’t think it is fair to point at India and say there is a particularly weak or problematic fiscal story. In fact, it might be relatively better than a number of other emerging markets," Maasry said.
Maasry believes growth-oriented investors would look at a cut in corporate and income taxes as quite favourably.
"If you look the high-frequency data and purchasing managers’ index (PMI) data, it has been relatively weak across the board for a number of EMs but the latest print in India has been fairly positive," he said.
"We think India is one of the better growth stories for this year and that probably matters most when looking at the markets,” noted Maasry.
EM performance
Maasry expects the MSCI Emerging Markets to rise to around 1,130, up 8-9 percent from current levels, and the nifty target to hit 13,000. Compared to the broad EM context, India is an overweight market, he said.
"With India, as we mentioned, growth is returning. We have had fairly robust earnings estimate for this year. We think in the order of about 16 percent growth for the calendar year 2020 and maybe 13 percent for calendar year 2021," he added.
Maasry sees expensive valuation as one issue or pushback on Indian equities "We are looking at 18 times forward earnings on MSCI India. That is about 50 percent premium to the rest of the emerging markets average. So it is really going to come down to that earnings growth to justify higher prices in Indian equities and not higher valuations probably,” he said.
Favourable on banks
When asked his preferences between consumption and infrastructure within India, he said, “I think privatisation was one of the bigger issues brought up in the last few days. In general, the global investors look to India for domestic growth and there is number of ways one can access that, through infrastructure and consumption."
Setting aside the NPA issue in 2019, banks have always been in favour as a liquid way to play the domestic growth story, Maasry said. "We have still been very favourable on that."
"In general, globally, there has been a dovish sort of regime. Rates are still quite low across the board. We don’t think the Reserve Bank of India (RBI) will cut later this week but there is still quite a deal of rate cushion between India and the rest of the world," he said.
"In general when that cushion comes down a little bit perhaps, the banks start to actually perform quite well so I would focus on that area.”
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