With macro headwinds gathering speed and the rupee remaining weak, the Sensex on Monday plunged 505.13 points even as Goldman Sachs downgraded India to market weight from overweight.
“We believe the risk/reward for Indian equities is less favourable at current levels and we lower our investment view from overweight to market weight,” the investment banking firm wrote.
The investment bank noted that while earnings seem to be improving, it sees multiple macro headwinds for the market in the near term given moderating sequential growth, tighter financial conditions, rising oil prices, worsening current account deficit and a volatile rupee. It believes valuations are stretched and that there is the event risk of elections. Further, domestic inflows have slowed for four consecutive months. “Funds could potentially see lower equity inflows as the yield gap between equities/bonds has fallen to 10-year lows,” it wrote.
While the benchmarks been holding up, more-than-half of the companies with a market capitalisation of Rs 1,000 crore (789 companies) have lost over 10 per cent of their value since January 1. While 305 have lost more than 20 per cent of their value, about a third of the companies have lost more than 25 per cent.
Goldman Sachs expects markets to consolidate heading into the elections and the Nifty to reach its 12-month target of 12,000 points, as political uncertainty wanes and earnings accrue. —FE