The Indian stock market does not present attractive prospects for investors in the near term, amid sluggish domestic and global economic growth outlook, according to Goldman Sachs.
The global investment banking major Goldman Sachs in its report said a sluggish domestic and global growth outlook would have a bearing on Indian equities in the coming months.
“We find the Indian stock market does not present an attractive risk/reward entry point currently, as macro headwinds are likely to persist in the near-term,” it said.
The report titled ‘India: Fade short-lived rally, not too late to underweight Portfolio’ focuses on the performance and future outlook for the National Stock Exchange's 50-share benchmark Nifty index. Goldman Sachs said continued weak domestic growth in the next three to six months, as well as a poor global growth environment, would weigh on the Nifty, which has been seeing bearish trends in recent months.
This index, according to Goldman Sachs, is the "most exposed market in Asia to a 'muddle-through' environment through liquidity and foreign corporate debt linkages". "Poor Nifty performance has been attributable in part to a gridlocked political landscape, plagued by project delays and lack of reforms.
"While we agree that the political headlines have created uncertainty in the market, the main impact to the market is through the investment channel in our view," the report said. Goldman Sachs noted that an important component of "our underweight view on India" stems from risk of significant capital flight.
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It said while the impact of RBI rate cuts is months away, a potentially poor monsoon season poses risks of sticky inflation which in turn might dampen policy flexibility in case growth continues to slide. Pointing out that India relies on foreign funding, Goldman Sachs said, "lowered growth expectations for India have impacted investment appetite already, and we are wary of policies that could further curb capital flows into the country or beget foreigner equity selling, which has not yet occurred in size."
Concerns are on the rise that Indian economy is losing momentum, mainly after it touched a nine-year low of 6.5 per cent in 2011-12. Also, industrial production rose just 0.1 per cent in April as against 5.3 per cent in the year-ago period. Indian economy expanded 8.4 per cent for two straight years -- 2009-10 and 2010-11 -- even as many developed nations reeled under the impact of 2008 financial meltdown.