Wall Street brokerage Goldman Sachs on Wednesday said the Indian economy is projected to grow 5.9 per cent in 2023, lower than 6.9 per cent growth estimated this year. Holding a market weight stance for the equities on the back of two successive years of massive rally, Goldman Sachs also said that it expects the benchmark Nifty to reach 20,500 level by December 2023. This will imply a 12 per cent price return, led by mid-teen earnings growth and a modest P/E (Price to Earnings) compression.
The brokerage does not have target for the benchmark Sensex. For 2023, it has pegged the GDP growth at 5.9 per cent compared to projected expansion of 6.9 per cent in 2022. According to the brokerage, growth is expected to be a tale of two halves, with a slower first half in 2023 as the reopening boost fades and monetary tightening weighs on domestic demand.
In the second half, growth is likely to re-accelerate as global growth recovers, drag from net exports diminishes, and investment cycle picks up. While stating that underlying inflation is sticky, the brokerage has forecast the headline CPI to decrease to 6.1 per cent in 2023 from 6.8 per cent in 2022 as active government intervention is likely to cap food inflation.
Given the negative real rates in the country, the brokerage said the Reserve Bank of India (RBI) is expected to hike the repo rate by 50 basis points in the December policy and by another 35 basis points in February 2023 policy meetings. These actions would take the repo rate to 6.75 per cent by February next year.
Noting that the domestic market has been a strong outperformer with stronger fundamentals but at a premium price for the past two years, Goldman Sachs said it is unlikely that the markets will repeat the show for the third year in a trot. Therefore, it has only a market-weight stance on the domestic market.
Indian equities are less likely to outperform for the third successive year as China and other globally cyclical North Asian markets (notably Korea) could perform better on China reopening and global recovery expectations in 2024, it added. Also, it expects the Asian markets, led by Korea, to do better as China and other globally cyclical North Asian markets may perform better on China reopening catalysts and global recovery expectations in 2024.