Global investment bank Citi has raised its target for the Nifty 50 to 28,000 from 26,000 earlier, citing several factors, including a favourable earnings outlook, declining crude oil prices and a slowdown in AI capital expenditure growth.
The revised target implies an upside potential of around 12% from the Nifty 50's closing level on Sunday. Citi has also raised its target valuation multiple to 18x from 17x and extended its target horizon to December 2027 from September 2027.
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In its latest report, Citi mentioned four key reasons behind its bullish outlook on Indian markets.
1. Strong Q2 Earnings
Citi said the Q2 earnings build on the positive momentum generated in the Q1, despite elevated commodity prices. It expects India's earnings to grow at a CAGR of 15% to 16% over FY26 - FY28, which is in-line with the consensus forecasts.
2. Lower Crude Oil
Secondly, it believes lower oil price could help India's macro and earnings assumptions. A $10 fall in oil prices would help India's current account deficit (CAD) by 30 bps to 40 bps, and help cool down inflation by 50 bps. This is estimated to drive 2% upgrade for Nifty 50's Earnings Per Share (EPS).
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3. Slower AI Capex
After the US mid-term election results, the risks of increased pace of data center moratoriums has aided rotation into other assets, which Citi believes could continue to benefit India.
“If AI capex growth materially slows, it could have an impact on token availability/prices and therefore on pace of AI-diffusion,” Citi said. It believes Indian companies are relatively better placed as focus on AI monetization and outcomes will increase.
4. Improving FII Flows
As per MSCI, there are ~$1.5 trillion assets benchmarked to MSCI EM. Assuming a near 20%, every 100 bps increase in active weight could result in inflows of $12 billion, Citi said.
India's weightage in MSCI EM as well as India's ‘Underweight' in EM portfolios are both at close to multi year lows. In the past 3 weeks, domestic market has witnessed inflows of over $6 billion, while domestic flows also continue to remain resilient.
Key Risks For Indian Markets
According to Citi, Middle East situation remains volatile and any spike in oil prices would be a near-term risk. Additionally, consumption slowdown going forward given the anniversarisation of GST benefits as well as El Nino impact along with AI impact on jobs being worse than expectations would also be key risks.
Citi's Top Picks
Citi added Bajaj Finance to its top picks, citing 25%+ growth visibility with diversified product bouquet and healthy provisioning buffer, that supports earnings resilience and superior return ratios.
It expects staples to see near-term benefits if lower oil prices sustain, however, it flagged high competitive intensity in the sector.
Citi also expects some industrials stocks to see continued near term pressure from datacenter theme. It said its preferred plays have other drivers like power capex, manufacturing and infrastructure spending etc., and expects continued earnings momentum.
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Disclaimer: The views and opinions expressed by the investment advisers on NDTV Profit are of their own and not of NDTV Profit. NDTV Profit advises users to consult with their own financial or investment adviser before taking any investment decision.
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