Nifty May Touch 28,500 By Year End, Says Citi Expecting Broad-Based Earnings Recovery — Check Sectoral Picks

Citi expects operating income growth of around 11% across its coverage universe in the third quarter of fiscal 2025, driven by a mixed but improving recovery in consumption, accelerating loan growth in financials, benefits of rupee depreciation for IT services, steady momentum in capital goods and reasonable growth in the typically volatile commodities space as per its latest note.

The brokerage's overweight sectors include banks, telecom, autos, healthcare and defence, while it remains underweight on consumer staples and IT services. The brokerage has set a Nifty December 2026 target of 28,500, valuing the index at 20x one-year forward P/E.

The brokerage says management commentary on the durability of consumption recovery and signs of stable asset quality will be key themes this earnings season. While Indian equity valuations are not cheap in absolute terms, Citi notes they look reasonable in a relative context versus long-term averages, especially as India has significantly underperformed emerging markets over the past year.

Among lenders, Citi expects quarter-on-quarter improvement in stress levels in microfinance and credit cards for banks. Investors will track NIM trends and delinquency patterns in business loans, CVs and affordable housing.

For NBFCs, AUM growth is expected to remain strong at 4–5% sequentially for vehicle and housing financiers, with funding cost benefits aiding margins.

In non-lending financials, life insurers are likely to report mixed VNB trends due to divergent margins and the absence of IT benefits post GST changes, while non-life insurers may see pressure from higher commissions in retail health and motor insurance. Citi expects PB Fintech to post a sequentially rise in yields, easing investor concerns around its commission structure, and only modest core PBT growth for capital markets players.

Citi expects staples demand to improve sequentially to 7% annually in the third quarter, up from 4% in the last quarter, aided by lower pricing after GST cuts and recovery from inventory destocking. Gross and EBITDA margins are expected to remain stable, a break from declines seen over the past four to five quarters.

In discretionary retail, revenue growth is likely to stay subdued, barring jewellery and cables and wires. Same-store sales growth is expected to remain muted outside jewellery. Reliance Retail’s Ebitda growth may moderate versus 2Q due to the timing of the festive season.

Autos saw robust Q3 volume growth, though positive operating leverage could be partly offset by lower gross margins from higher commodity prices and discounts. Commentary on demand sustainability, regulatory changes and global trends will be crucial.

In IT services, Citi expects this quarter's constant-currency revenue growth of 0.1–0.8% sequentially for the top five companies. The focus will be on the pace of recovery, amid hopes of a pickup in IT spending beyond AI-led deals.

For pharma, domestic sales are expected to remain strong, while base US business trends are likely flattish. Companies with heavy gRevlimid exposure may post weaker numbers, while those with strong branded franchises or product-specific drivers should deliver healthier earnings. Citi notes that Q3 is seasonally weak for hospitals.

Cement players are expected to see sequential Ebitda per tonne contraction, except UltraTech and JK, on 2–4% quarterly declines in realizations, though organic volume growth is projected at 4–14% YoY.

In energy, Reliance’s O2C business should benefit from higher GRMs, partly offset by weak petrochemicals. OMCs may see slight QoQ Ebitda improvement on higher GRMs and lower LPG losses, though marketing margins remain weak.

Telecom trends remain steady, with Jio adding subscribers, ARPUs inching up due to mix improvement, and Indus tenancies staying healthy.

In metals, Citi expects steel realizations and Ebitda per tonne to decline quarterly, while non-ferrous players benefit from better prices, though Novelis faces disruption from the Oswego fire.

Industrials are expected to post around 13% Ebitda growth, up from 9% in Q2, aided by the fading impact of the extended monsoon. Order inflows and margin outlook will be key monitorables.

In internet stocks, competition in quick commerce intensified in December following multiple fund-raises. Citi will watch the impact on growth guidance, capex plans and near-term margins.