India Upgraded to ‘Overweight’ by Citigroup Analysts, China Downgraded: Full Market Analysis

Citi shifts stance on China stocks to neutral based on fundamentals, while upgrading India to overweight.

On Friday, Citigroup analysts upgraded India’s status from “neutral” to “overweight” within their emerging markets allocation due to strong earnings and economic growth momentum.

The brokerage forecasts a 7% increase in India’s blue-chip NSE Nifty 50 index by the end of the current fiscal year, setting a target of 23,900. This index closed at 22,055 on Friday, showing underperformance compared to the MSCI Emerging Market Index in 2024.

Citigroup’s optimism for India stems from its expectation of continued robust economic growth, projected at 6.8% for the current fiscal year.

The brokerage predicts an earnings Compound Annual Growth Rate (CAGR) of 13% for FY24-FY26, with a stable trajectory, attributing this projection to sustained economic growth.

India’s one-year forward price-to-earnings (P/E) ratio of 20x, slightly higher than long-term averages, is attributed to its stable earnings trajectory.

Citigroup maintains an “overweight” rating on various sectors in India, including banks, insurers, public sector enterprises, autos, and capital goods companies, while suggesting an “underweight” stance on information technology firms, metals, consumer durables and discretionary, as well as paint companies.

Conversely, Citigroup downgraded China to “neutral” from “overweight,” citing a recent stock market rally despite weakening fundamentals.

Foreign portfolio investors have sold Indian shares worth about 191 billion rupees ($2.29 billion) since April, whereas China has seen a rising share of foreign inflows due to relatively cheaper valuations compared to India.

Citigroup’s downgrade of China contrasts with Jefferies’ decision to increase China’s weighting in its Asia Pacific ex-Japan relative-return portfolio.

Citigroup maintains an “overweight” rating on Taiwan and Korea, while keeping an “underweight” stance on Latin American countries.

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