Citi upgrades India to 'overweight' citing stable earnings, economic growth

Citigroup analysts upgraded India to "overweight" from "neutral" in their emerging markets allocation on Friday, citing strong earnings and economic growth momentum.

The brokerage expects India's blue-chip NSE Nifty 50 index to rise 7% between now and the end of the current financial year ending March 2025, setting a target of 23,900.

The Nifty 50 closed at 22,055.20 on Friday. The benchmark has underperformed the MSCI Emerging Market Index in 2024 so far.

Citi's view is underpinned by the expectation that India's economy - the fastest growing among major peers - will remain strong, growing at 6.8% in the current fiscal.

The brokerage's estimates imply an earnings CAGR of 13% between fiscal years 2024 and 2026, with the trajectory broadly stable, Surendra Goyal, managing director and head of Indian research at Citigroup, said in a note on Friday, while also attributing the India upgrade to sustained economic growth.

It also attributed India's one-year forward price-to-earnings (P/E) of 20x, which is slightly higher than the long-term averages, to a stable earnings trajectory.

The brokerage remains "overweight" on India's banks, insurers, public sector enterprises, autos and capital goods companies among others. It recommends "underweight" on information technology firms, metals, consumer durables and discretionary as well as paint companies.

Citi downgraded China to "neutral" from "overweight", saying the recent rally in its stock markets occurred despite weakening fundamentals.

Foreign portfolio investors have sold Indian shares since the beginning of April, aggregating to about 191 billion rupees ($2.29 billion).

China's markets, however, have benefitted from a rising share of foreign inflows, helped by valuations that are