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BENGALURU  - Goldman Sachs has downgraded Indian equities by one notch to 'market weight', citing a blistering run this year that has made them the best performing emerging Asian market.

Indian stocks have rallied nearly 28% in 2021 on the back of ultra-easy monetary policy, rising vaccinations and the economic reopening, compared with a 0.76% drop in the MSCI Emerging Market index.

The surge in valuations has also led several other brokerages such as Morgan Stanley, Nomura and UBS to slash their ratings on the market.

"We believe the risk-reward for Indian equities is less favourable at current levels," Goldman Sachs said in a research note.

The expected strong cyclical and profit recovery next year is well priced at current peak valuations, while the market faces risks from emerging macro pressures such as higher oil prices and the tightening of monetary policy at home and in the United States, it said.

"We think Indian markets could consolidate over the next 3-6 months and underperform the broader region," Goldman Sachs said in its Asia-Pacific portfolio strategy report dated Nov. 11.

The brokerage added it expected a robust pipeline of initial public offerings next year that could divert funds from the secondary market.