Brokerage house Goldman Sachs raised its 12-month target for the NSE Nifty 50 Index to 10,400 from its previous target of 10,000. The upward revision was driven by improving earnings trends and waning impact of demonetisation, it said in a report.
The firm retained its ‘overweight' stance on industrials owing to continued pick-up in government-driven infrastructure capital expenditure and positive management commentary during the January-March period.
Banking and automotive sectors have been upgraded to 'overweight,' while information technology stocks have been downgraded to 'underweight' due to slowing demand, and the global shift towards protectionism. Pharmaceuticals was downgraded to 'underweight' due to persistent pricing pressure and an appreciating rupee that will act as headwinds for the sector.
Improving credit growth, lower rate of formation of new non-performing loans (NPLs) and a potential pick-up in investment activity keeps Goldman Sachs bullish on private banks. It remains ‘neutral' on public sector banks as the trend of moving towards private banks is likely to continue going ahead, the report said.
Stocks like TVS Motors Ltd., HDFC Bank Ltd. and ICICI Bank Ltd., form Goldman's ‘conviction buy' list.
Risk Reward Less For Oil & Gas
Goldman Sachs finds near-term risk reward for the energy sector look 'less compelling' as a result of which it has downgraded the sector to ‘Mediumweight' from ‘Overweight'.
Recent weakness in oil prices and a strong out-performance over the past year were some of the key reasons behind the downgrade.
Although, Goldman is positive of the sector benefitting over the longer-term due to rising oil demand from the country and also sees potential for expansions in marketing margins and multiple re-ratings, it does not see large benefits for it over the short-term.
Other Sectoral Views
Information Technology
- Rating: Downgraded to 'Underweight'
- Slowing tech demand catalysed by structural shift towards cloud computing
- Protectionism rhetoric, incremental wallet share gains from GICs in India and continued price erosion to weigh on performance
- Expect EPS growth CAGR of 4 percent over the next two-year period
Pharmaceuticals
- Rating: Downgraded to 'Underweight'
- Had upgraded sector to 'overweight' post demonetisation
- Pricing pressure likely to persist post Q4 result
- Potential to see further de-rating in multiple
- Rupee appreciation and compliance issues may act as further headwinds
Consumer Staples
- Rating: Retains 'Underweight'
- Remain concerned on high valuations
- Volume growth recovery remains nascent
- Could see some near-term disruption from implementation of GST
- Retained ‘medium-weight' rating on utilities owing to higher T&D spends and reforms in the power sector
- Larger telecom players could benefit from peaking competitive intensity and stabilization of ARPUs at current levels
- Retained 'mediumweight' on Cement sector given high valuations and demand recovery expected to be more gradual.
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