Diwali cheer: Goldman Sachs upgrades India stocks

Stocks Rating: In a Diwali gift to India, Goldman Sachs Group has upgraded its stocks, citing the market's strategic appeal. Meanwhile, the group has downgraded the Hong-Kong traded China stocks due to low earnings growth and a potential consensus downgrade.

India's Strategic Appeal

The bank expects India to see “the best structural growth prospects in the region” with mid-teens earnings growth over the next two years. As per Goldman, the domestically driven growth of India and the market's strategic appeal offers Investors a wide array of alpha-generating themes, including make-in-India, large cap compounders and mid-cap multibaggers.

Also Read: JPMorgan upgrades India to 'overweight', says the country offers the strongest emerging market

China's Fall

Goldman Sachs has downgraded Hong Kong-listed Chinese companies to market-weight and Hong Kong firms to underweight. Amid the ongoing pessimism regarding the stock market, the bank has downgraded its views on China equities several times this year.

As per Economic Times, in August, it cut the full-year earnings-per-share growth estimate for the MSCI China Index to 11% from 14%, and reduced the 12-month index target to 67 from 70. The gauge has lost nearly 3% since then.

However, the onshore China shares are still on Overweight category. The investment bank also mentioned sectors like Artificial Intelligence and Infrastructure migh have a good run. This as the sectors are closely related to China’s rebalancing toward areas of higher productivity and greater self-sufficiency.

“These ‘alpha’ opportunities, which are more widely present in the onshore market, counterbalance the structural challenges of slowing growth stemming from the housing sector downturn, high debt levels, and adverse demographics,” the strategists wrote

Meanwhile, referring to Asia Markets, the bank wrote the earnings are to be the main driver of returns as the valuations are generally are at fair levels.

“With valuations generally at fair levels relative to the macro backdrop, we expect earnings to be the main driver of returns,” strategists including Timothy Moe wrote in a note