'Meaningful upside': Citigroup upgrades India's stock market to 'overweight', sees Nifty at 26,000

Citigroup analysts upgraded India to 'overweight' from 'neutral' in their emerging markets allocation on Monday, suggesting a meaningful upside amid less demanding valuations. The foreign brokerage said benchmark Nifty50 would hit 26,000 level by 2025-end adding that "the market also screens as a likely relative outperformer should tariff risks returns."

On tariffs, Citi said India has a largely domestic-oriented economy and listed universe has limited exposure to goods trade with the US or China. "However, commodity price impact on earnings and impact of stronger US dollar on flows are a couple of points to keep in mind. We are constructive on India," it underscored.

Citi economists expect real GDP growth to return to 6.5 per cent in 2025 (vs. recent lows of 5.4 per cent YoY in Jun-Sep'24). "The Union Budget for FY26E delivered personal income tax rate cuts which should boost consumer sentiment and consumption demand ahead and recent data indicates that public capex has started recovering meaningfully. Finally, India's central bank (RBI) recently began policy rate easing cycle with a 25 bps (basis points) cut and our India economist expects further 50 bps rate cuts in Apr/Jun," the brokerage also stated.

In terms of artificial intelligence, Citi hoped as Al deployment/inference costs plummet for Indian IT Services companies, there would be more new opportunities but Al-based productivity pass-back risks and players using it for share gains resulting in deflationary impact are possible.

It also attributed India's one-year forward price-to-earnings (P/E) of 19x, which is slightly higher than the long-term averages, due to an "in-line with subdued expectations" earnings trajectory.

The brokerage remains 'overweight' on India's banks, insurers, pharma, healthcare, telecom, energy and cement sectors. It recommends 'underweight' on consumer discretionary firms, paints, IT services and metals. Citi stayed 'neutral' on consumer staples, real estate, NBFCs, automobile and consumer durables.