India's earnings per share growth outlook remains robust and at low risk because of the diverse listed companies, Citi Research said. The brokerage estimates Nifty 50's EPS compound annual growth rate for financial year 2024 and 2026 at 9% and 12%. However, Citi Research has moderated the EPS estimates.
Citi Research remained optimistic for India's large-cap companies given their valuation. Significant foreign institutional outflows in the fourth quarter of calendar year 2024 have made large-cap valuation more reasonable. Moreover, high competition, pressure on margin, and challenge in consumption growth affected pockets of large-cap companies. Despite the minuses, Citi Research prefers large-caps to mid and small-caps.
Mid-cap and small-cap spaces witnessed less fall than large-caps in calendar year 2024 due to better domestic flows, thematic narrative, according Citi Research.
In the large-cap space, the brokerage prefers large private banks because of their better position heading to 2025 with investors focused on asset quality. Sector wise, Citi Research is 'overweight' on financials, telecoms, and healthcare. It's 'underweight' on consumer discretionary, information technology, and metals.
Citi Research replaced Cholamandalam Investment and Finance Co. with Kotak Mahindra Bank, and SBI Life Insurance Co. with HDFC Life Insurance in its top large-cap picks.
Contrarian picks for CY25 are Kotak Mahindra Bank, IndusInd Bank Ltd. Hindustan Unilever Ltd., Mahanagar Gas Ltd., and Shree Cement Ltd.Citi Research
Foreign institutional investors remain underweight on India. Further outflows are expected from Indian equities as the dollar index will likely remain strong as US President-elect Donald Trump takes charge.
In the backdrop of slowing urban consumption and improving rural demand, large branded players will likely focus on volume growth while their profitability will remain under pressure, Citi Research said in a note.
For discretionary stocks, there is likely to be divergence in growth across categories to persist in calendar year 2025 with growth remaining high in high ticket and premium categories.
Citi Research's economists expect sharp recovery in second half of financial year 2025 after a slowdown in the first half. The brokerage estimates the capital expenditure to grow 20% on the year in the last four months of FY25.
The brokerage also expects that credit growth will pick in the second half of current financial year. However, it will remain rangebound at 13–14% on the year.
The narrative has shifted to asset quality from growth and net interest margin with elevated stress in micro finance and unsecured segments. The brokerage expects retail—particularly unsecured—slippages to remain elevated in the near term during the deleveraging transition. Overall, the credit cost improvement and stabilisation is expected in second half of the of CY25.
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