Indian equity markets will continue to rally in 2018 and the benchmark Nifty 50 index will reach 11,600 levels by the end of the next calendar year, according to a Goldman Sachs Economic and Strategy Report 2018.
The US-based brokerage firm expects the Indian benchmark index Nifty to gain around 12 percent in the next calendar year. Nifty gained around 28 percent in 2017.
"We expect solid earnings growth delivery in the next year and the following year. We see that as a credible backdrop for India to continue to perform," said Timothy Moe, chief Asia Pacific equity strategist for Goldman Sachs.
Goldman Sachs expects global economic growth to accelerate to four percent in 2018, supported by fiscal stance of global central banks.
"Indian investors are much more in control of their destiny, the domestic money is what is really setting the price now, Moe added.
The brokerage house said in the report that currently India is among the three overweight markets along with South Korea and China for the firm in the Asia Pacific (ex-Japan) region.
"The underlying theme behind our overweight stance in these three markets is that we have strongest confidence in earnings being delivered for not only 2018, but also 2019," Moe explained.
In the case of India the brokerage firm estimates earnings growth of 18 percent and 17 percent in calendar years 2018 and 2019, respectively.
Goldman Sachs said it forecasts real GDP growth to accelerate to 8 percent in financial year 2019 from a projected 6.4 percent in financial year 2018, as the drag from shocks of demonetization and GST implementation fade.
It expects the positive effects of public sector bank recapitalisation to show up in the latter part of the next year. The report further said that it has upgraded its views on public sector. "The logjam of balance sheet problems has now been addressed, maybe not entirely, but to a very substantial degree," Moe said.
The report added that bank recapitalisation could also lower borrowing costs further, on the back of increased competition among banks as they look to push lending growth with healthier balance sheets.
Moe said there was room for higher capital inflows into India and other regional markets. Overseas investors have turned bullish on Indian equities after the government announced the bank recapitalisation programme. So far this month, overseas investors have bought shares worth nearly $3 billion, he added.