India Stocks Get Citi Upgrade As Valuation Cools After Market Plunge
As a relief to battered Indian stocks, Citi Research upgraded the outlook to 'overweight' with economic recovery in sight amid cooling valuations.
The brokerage assigned a December year-end target for the benchmark NSE Nifty 50 at 26,000, implying a 15% upside from the current level. India stocks' overall market cap has plunged nearly $1.2 trillion since the peak last year to $3.99 trillion, according to Bloomberg data.
The valuations at 19 times one-year forward are close to the year long-term average on absolute and slightly above the five-year average relative to emerging markets, Surendra Goyal, equity analyst at Citi said in the note. "Third-quarter earnings have been in line with subdued expectations thus far."
The benchmark NSE Nifty 50 and the BSE Sensex have fallen 13.7% and 12%, respectively, from the previous peak, triggering the worst fall since 2020.
Economists at Citi expect real GDP growth to return to 6.5% in 2025, the note said, while noting that the personal income tax rate cuts should boost consumer sentiment and consumption demand ahead. Data also shows that public capex has started "recovering meaningfully".
The brokerage expects a further 50 basis points rate cuts in April and June as the Reserve Bank of India begins its policy rate easing cycle.
On the evolving Donald Trump tariff scare issue, India's limited exposure provides a relief, Citi said. "India has a largely domestic-oriented economy and the listed universe has limited exposure to goods trade with the US or China."
The commodity price's impact on earnings and the impact of a stronger US dollar on flows must be key factors to watch, Citi said, adding, "We are constructive on India."
Citi's India Play
Consumption: Mixed picture: Rural demand is recovering, but urban demand is slowing, Citi said. "Markets are watching fiscal and monetary policies, along with company-specific trends."
Capex: Public capital expenditure is improving, with a budget push for domestic manufacturing. Private investment will depend on capacity utilisation, Citi said in the note.
Citi Research is 'underweight' on information technology services, metals, and consumer discretionary, while being overweight on banks, insurance, pharma and telecom.
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