Coronavirus second wave: Goldman Sachs lowers growth forecast, Nifty target

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Wall Street 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 growth forecast for the total 12 months 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 document variety of pandemic circumstances and a bunch of key states saying stricter lockdowns of late have fuelled severe growth considerations, leaving traders fearful in regards to the dangers to macro and earnings restoration.

It revised down its 2021 actual GDP growth 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 growth to be impacted.

Accordingly, it has lowered the 2021 earnings growth 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 growth backdrop stays supportive.

The disaster of confidence was very clear within the fairness markets, which has come below large 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.

Lowering the Q2 (June quarter) growth forecast with out quantifying it although, the Goldman Sachs economists mentioned they nonetheless count on all these to have solely average influence general because the restrictions have been focused at particular sectors with out broad spillovers thus far.

On the valuation compression, they now count on solely low-teen returns this 12 months and have pencilled in a ten per cent PE compression.

Goldman Sachs expects Nifty to succeed in 16,300 by December, down from the sooner forecast of 16,500, which suggests solely about 14 per cent upside in rupee phrases.

After the document 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 corresponding to meals and drinks, leisure and recreation, and transport, however with restricted spillovers into different sectors like building and manufacturing.

While 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 influence of the lockdowns, it mentioned whereas near-term dangers stay if restrictions and shutdowns broaden, extra draw back dangers may be contained if market sensitivity to lockdowns comes down.

Yet, Goldman Sachs is obese on India and favours focused cyclical publicity, saying it stays constructive on home equities.

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