Goldman Sachs downgrades cement; overweight on these sectors

Goldman Sachs has downgraded the cement sector to neutral from from overweight. Sunil Koul, Equity Strategist-APAC said the global investment bank expects muted sales volumes for the upcoming quarters, and limited upside potential in cement stocks after the near 15% rally recently.

However, Goldman likes the sector for the longer-term, as "it plays into both the real estate recovery cycle as well as the infrastructure."

Koul remains overweight on the industrials sector. While some spaces within industrials such as infrastructure could face muted order book because of the election cycle, there are micro-stories benefiting other segments and individual stocks within the space such as logistics, electronics manufacturing (EMS), etc. that will benefit from the production linked incentive scheme or shift from unorganised to organised sector. Staying invested in the sector with a bottom-up approach makes sense, he notes.

Koul is overweight on India, as it is structurally and fundamentally strong even though significant macro shifts over the last couple of months led to a slow start to the year. He expects foreign money to continue flowing into the market, especially post-elections.

He explained that while Indian equities saw a 20% return last year, 18% of this was led by earnings growth. So there was little change in market multiples. This suggests that the rally was fundamentally driven.

This year, Goldman predicts that the Nifty 50 could reach 23,500, a 9% increase from current levels, based on an expected 15% growth in earnings, and factoring in potential derating or compression in market multiples.

Koul expects large-cap stocks to outperform small-caps and advises picking large-caps with solid fundamentals that may have lagged behind the broader market.

Apart from Industrials, Goldman Sachs is overweight on banks, autos, and utilities. Koul explained banks were a laggard last year and have the potential to do well this year.