Goldman Sachs’ Sunil Koul has upgraded his view on India from Neutral to Overweight, citing several key factors that are expected to drive growth and earnings in the country. According to Koul, the Indian economy is poised for a recovery due to the government’s growth-supportive policies, improving earnings, and significant under-positioning of foreign investors.

Firstly, Koul notes that the Reserve Bank of India (RBI) has eased monetary policy through rate cuts, improved liquidity, and bank deregulation, which should help stimulate economic growth over the next two years. Additionally, the Goods and Services Tax (GST) cuts and slower fiscal consolidation ahead are expected to boost growth.

Secondly, Koul highlights that the year-long earnings downgrade cycle in India has lasted longer than typical, but has stabilized over the past three months. Third-quarter results are tracking better than expected, leading to upgrades in select pockets. Koul expects MSCI India profits to recover from 10% this year to 14% next year, driven by a better nominal growth environment.

Thirdly, Koul notes that foreign investors have net sold US$30 billion over the past year, the second-largest historically, pushing foreign ownership and mutual fund allocations near two-decade lows. However, recent reversals suggest improving foreign risk appetite and flows as earnings recover. Moderation in US trade tensions could act as an additional market catalyst.

Finally, Koul highlights that valuations remain high but see modest de-rating risk based on six different valuation approaches. India’s relative premium to Asia has normalized, historically leading to moderate outperformance.

Overall, Koul’s upgrade on India reflects his optimism about the country’s growth prospects and his belief that valuations are no longer overly stretched. With the government’s supportive policies and improving earnings, India is poised for a recovery in the coming years.