Goldman Sachs has expressed its preference for large-cap Indian stocks that have underperformed the broader market recently, ahead of the country’s general elections next year. The Wall Street brokerage believes that the overall macro outlook necessitates a cautious approach. In addition to the underperforming large-cap stocks, Goldman Sachs favors companies with stable growth and consumer stocks that are expected to rebound as demand recovers. While the Nifty 50 index has risen over 16% since its March lows, mid-cap stocks have rallied more, with a 37% surge. Goldman Sachs believes that sectors such as financials, consumer, and IT stocks, which have lagged behind the Nifty 50, could witness a rise in the coming months. The analysts noted that cyclicals like banks, industrials, and consumer discretionary companies have generally outperformed blue-chips in election years, while defensive sectors like telecom, consumer staples, and export-linked IT stocks have underperformed. Goldman Sachs also highlighted that while the recent large-cap rally is slightly ahead of past pre-election rallies, mid-caps appear to be overextended. The brokerage firm also stated that some opinion polls suggest the ruling National Democratic Alliance (NDA) would retain power if elections were held now, providing policy continuity that markets would likely welcome. However, they cautioned that no significant event risk has been priced in. The report mentioned that while domestic growth remains resilient and the earnings outlook is strong, Goldman Sachs prefers a conservative stance over the next 3-6 months due to expensive stock valuations and risks related to higher oil prices, elevated US yields, and a stronger dollar. The firm also believes that this could moderate the pace of foreign investors’ inflows into domestic equities.