Brokerage firm Citi has cut its Nifty 50 target to 26,000 from 27,000 in its latest note, citing higher earnings per share (EPS) downgrade risks from a prolonged conflict in West Asia and broader macro headwinds. According to the latest India equity strategy note, the revised target implies an upside potential of 12% from current levels, with the Nifty 50 index last closing at 23,162. Despite the cautious near-term call, the brokerage flagged the medium-term outlook as healthy, noting that any resolution of the West Asia situation and a pause in FII outflows could trigger upside, given how low global portfolios are currently positioned on India. The firm has also reduced its valuation multiple to 18 times from 19 times previously, with the revised multiple rolling forward to March 2028 earnings estimates. The brokerage noted that market valuations now hover closer to their 10-year long-term average, making them more reasonable compared to the elevated levels seen over the past few years. Citi maintains that India remains its third most important market in Asia and expects to continue deploying capital across commercial banking, corporate banking and investment banking, as per Achintya Mangla, head of financing, Investment Banking, Citi.
The brokerage identified three primary concerns driving the subdued sentiment among foreign institutional investors. As reported by Citi, the combined impact of geopolitical tensions, artificial intelligence-related uncertainty, and El Niño risk has weighed on market sentiment, particularly among FIIs. According to their estimates, "India allocation in GEMS funds is at 5-year low & India Underweight remains close to highest in 20 years." The India weightage in the Emerging Market index is now nearly 11% compared to nearly 20% in mid-2024. FPI outflows have totalled $30 billion on a year-to-date basis, according to the latest data. A key concern flagged by Citi is the sustainability of strong consumer demand trends witnessed in the March quarter, with the brokerage believing maintaining that momentum could prove challenging in the face of inflationary pressures and uneven demand recovery across segments. The report notes that many global funds continue to maintain an underweight position on Indian equities, which could become an important factor if market sentiment improves because even a modest reversal in foreign flows could provide support to Indian equities. According to Citi, foreign investors are questioning India's position in the global AI race and turning their attention to markets such as South Korea and Taiwan, which are more directly linked to the AI supply chain.
The second concern highlighted by Citi is AI-related risks, with India not being a significant participant in the infrastructure rollout. According to the brokerage, the medium-to-long-term implications on jobs, wages and therefore, consumption will have to be monitored. As per Citi, investors are debating whether India could face challenges if the global Artificial Intelligence infrastructure buildout remains concentrated elsewhere. The Nifty has come under pressure in recent sessions amid sustained FII selling, with West Asia tensions among the factors weighing on broader emerging market equities. The report adds that as incremental value capture shifts from AI-enablers to AI-beneficiaries, India's relative disadvantage may change, making this a crucial factor to watch going forward. Citi believes that India currently remains a limited participant in the foundational infrastructure build-out supporting AI, creating concerns around the potential impact of automation on domestic employment, wages and consumption over the medium term, though it expects the narrative could eventually shift in India's favour as value creation migrates from AI infrastructure providers to software and services companies that benefit from AI adoption. According to Citi, the risk is whether IT services companies are doing enough to adopt AI, with the brokerage fearing it is not enough yet, given that 45% of the urban workforce in India is in financial services and IT services, all of which are at risk of AI.
The BSE 100 headline Ebitda growth came in at approximately 6% on a year-on-year basis in the fourth quarter, marginally below estimates and below long-term trends. As per Citi, Consumer and materials sector delivered beats while financials and utilities missed estimates. The Nifty 50 has been under pressure across multiple time frames, slipping 0.65% over the past week and 2.32% over the last month. Losses have extended over a three-month horizon as well, with the index down 2.53%, reflecting continued consolidation. The broader trend remains subdued, with the index falling 10.17% over six months and more than 11% so far this year. On a one-year basis, the Nifty is down 7.47%, though longer-term performance remains strong with gains of over 25% in three years and more than 47% over a five-year period. The brokerage also flagged risks from higher crude oil prices and El Niño-related weather disruptions, which could create cost pressures and force companies to raise prices. Citi has also added Hitachi Energy India to its preferred stock list following its recent initiation of coverage on the electrical equipment sector.
Despite the bearish near-term positioning, Citi noted that low allocation levels themselves create a case for a recovery. The brokerage's Citi India Sentiment Indicator (CISI) is currently at levels suggesting approximately 10% one-year forward returns. According to the brokerage's note, Citi has highlighted Financials, Telecom, Healthcare, Utilities, and Defence as their key "overweights," while IT Services, Staples, and Metals are their top "underweights." Among its top large-cap picks, Citi favours HDFC Bank, ICICI Bank, SBI, Polycab India, Bharat Electronics, Hitachi Energy, Sun Pharma and NTPC. The more cautious stance comes against the backdrop of recent weakness in the benchmark index, with the brokerage's note placing it among those flagging near-term caution on India while staying constructive on the medium-term picture. The report also notes that domestic investor flows have remained resilient despite market volatility and foreign selling pressure, another important factor to monitor. According to Citi, some of the largest private equity funds have raised more capital in the last one year for investments in India than ever before, demonstrating continued conviction in the country's long-term potential.
Separately, financial services firm PL Capital has also cut its 12-month Nifty 50 target by 631 points to 26,449 from 27,080, valuing the index at a 10% discount to its 15-year average price-to-earnings multiple of 17.2 times in its base-case scenario. PL Capital projected a bull-case target of 29,387 and a bear-case target of 20,771. The brokerage remains cautious on IT services, consumer-facing sectors, chemicals, agriculture and oil and gas, while favouring private banks, NBFCs, metals, capital goods, defence, data centres, renewable energy, railways, ports, shipbuilding, semiconductors and healthcare. Citi maintained that global flows may remain volatile in the near term as AI sentiments fluctuate, and some tempering in AI optimism may reduce FII outflow pressures for India. The report highlighted several themes to monitor, including the impact of any slowdown in Global Capability Centres (GCCs) on employment and wage growth, the resilience of domestic investment flows, and the evolving AI narrative as value creation shifts from AI enablers to AI beneficiaries. According to Citi, the biggest theme globally is AI, with construction companies benefiting from data centre build-out, power and energy sectors, and India's opportunity today is in energy and data-centre infrastructure.
