Global Institutional Investor and Mover and shaker of the Indian Market, Goldman Sachs has upgraded India to OVERWEIGHT in a report released just a while ago. GS likes Indian equities on both a 3 and 12-month basis.
The increase in corporate tax surcharge in the Union Budget would potentially have muted impact on overall earnings. The 130 bp hike in corporate taxes would potentially lower aggregate EPS by only 2%. Earnings revisions and sentiment have been weak lately, but we expect the cycle to improve.
India currently trades at 13.4x forward 12-month P/E and 2.6x book value. Relative to the rest of region, India is also the 3rd least expensive market in Asia-Pacific ex-Japan.
FII Money and NIFTY Co-Relation
Last year, $25 billion of Foreign Institutional Investor (FII) inflow came into India, a number of equity investors had voiced concern that the inflows would grind to a halt in 2013, which would pose significant risk to the market. Nevertheless, FII flows have totaled a healthy $8.5 billion already, but the NIFTY is down 3% year-to-date. In short – the relationship of FII inflow and the equity market has broken down completely.
Goldman’s preferred stocks are the ones levered to the investment cycle that have sold off year-to-date, including Larsen & Toubro, Crompton Greaves, and ICICI Bank. Goldman Sachs has set a 12-month target of 7000 (’13 & ’14 EPS growth of 11% & 16%, target P/E of 14.3x).