Indian stocks remain expensive as the corporate earnings potential and various macroeconomic factors do not justify the current level of the market, despite its recent downslide, according to Goldman Sachs.
?With valuations still elevated, notwithstanding recent market weakness and domestic investor sentiment bruised by poor performance of the high-profile Reliance Power IPO, we reiterate our underweight stance and expect the market to retrace further, or at best mark out a volatile trading range,? the global investment banking major said in its latest portfolio strategy report for Indian market.
Goldman Sachs analysts said that retail investors have been a key driver of the market?s strong rise between August 2007 and January this year, but their ?speculative enthusiasm? has been dampened.
Besides, foreign investors are not as influential on price formation as they have been or are perceived to be, they said, adding that further net selling was expected from overseas investors ?as more receive FII status and are able to trade around positions more freely?.
While pointing out that it continues to believe in the longer-term investment prospects of Indian market, Goldman Sachs said the earnings growth might not be sufficiently strong to allow the equity market to advance or hold its current level.
?Macro and earnings growth prospects remain good in absolute terms, but the mix of key macro variables is less favourable than it was in the latter part of 2007 when the market was in a bull trend. Moreover, the potential for earnings to positively surprise consensus expectations is low, in our view,? it said.
