Goldman Sachs is recommending an overweight position in Indian equities relative to Asian peers, betting that buoyant consumption demand and government spending will underpin profits
Indian stocks should offer returns in the low-teens in dollar terms based on expectations of 10-14 percent growth in earnings, Goldman Sachs analysts including Sunil Koul said in a research note.
"Even with subdued expectations, India stands out against the rest of its regional peers as we expect weak profits in most markets with overall earnings per share (EPS) growth of just 1 percent for the region and large currency weakness in most parts of the region," the Goldman analysts said, while lowering its earning forecasts for the country's Nifty index.
"We therefore reaffirm our overweight India stance in the regional context given its continued relative appeal."
That's not to say Indian stocks are cheap on an outright basis. They trade at a 30 percent premium to their regional peers, although this was as high as 50 percent a few months ago, the Goldman analysts said.
Goldman favors stocks in sectors including capital goods and cement sectors as the government spends more on railways and roads, and low-cost housing picks up.