Goldman Sachs Sees India's GDP Growth At 6.2% In FY24; 'Overweight' On Equities

India is less sensitive to external shocks of higher rates, stronger dollar and geopolitical uncertainty, says Goldman Sachs.

<div class="paragraphs"><p>Source: Unsplash</p></div>
Source: Unsplash

Goldman Sachs expects economic activity in India to remain resilient in 2024, even as elevated headline inflation will prevent the central bank from monetary easing before October next year.

"In FY24, we expect macro economic resilience to continue in India amidst a steady growth at 6.2% year-on-year," a note by Goldman Sachs stated.

The year will likely be a tale of two halves: pre-elections, government spending will likely be the growth driver, it said. Post elections, investment growth is expected to re-accelerate especially from the private side.

For FY25, GDP growth is estimated at 6.5%.

Repeated supply shocks are likely to keep headline inflation above the target at 5.1% year-on-year on an average in 2024. Government intervention is expected to keep a lid on food inflation, where possible, in an election year, the note stated. Core inflation is expected to only decline to 4.5% year-on-year on an average in 2024, from an estimated 5.1% in 2023, given the food and oil supply shocks and steady growth outlook.

Somewhat elevated inflation will limit the room for monetary easing, according to Goldman Sachs. "We forecast the RBI to stay on hold till Q4 2024 and then cut only 50 basis points cumulatively by early 2025," it stated.

Equity Outlook: 'Overweight' On Resilient Fundamentals

India has the best structural growth prospects in the region, the note said. While external macro backdrop of high-for-longer rates, persistent dollar strength, lower China growth and greater geopolitical uncertainty, could potentially lead to elevated market volatility in the region, India is less sensitive to these external shocks, it stated.

"We expect Nifty to reach 21,800 by end-2024," the note stated, implying 12% total returns in rupee terms. "Returns are likely to be back-loaded given the tough global backdrop and political uncertainty as the election approaches," the note said.

Corporate profits in India are expected to grow 15% in 2024 and another 14% in 2025, with growth appearing to be broad based across sectors.

Domestic sector preferences include banks, autos, cement, industrials and utilities.