Citi Suggests Key Triggers And Stocks To Watch After Resilient Q3 Earnings
Foreign Institutional Investor outflows for the quarter-to-date period amount to $3.6 billion, even though there was a recorded FII inflow of $7 billion in the third quarter.
Indian companies delivered another resilient earnings in the quarter ended December 2023, largely led by the industrial and energy sectors, according to Citi Research.
The Ebitda growth of companies listed on the BSE 100 and Nifty 50 stood at 18% and 13% year-on-year, respectively, while their earnings growth was ahead at 19% and 10%, respectively, Citi said.
During the third-quarter earnings, upgrades exceeded downgrades for FY24E in Citi's coverage of BSE-100 in the ratio 41:33 and for FY25E in the ratio 39:35, the research firm said in a Feb. 16 note. The revision trajectory, while modestly negative, remains better than long-term average trends in earnings revisions, the note said.
Citi's and consensus Nifty earnings per share growth projections for FY24E, FY25E and FY26E are 18%, 14%, and 13%, and 20%, 15%, and 14%, respectively. This implies a Citi and consensus EPS growth projection of a 13–14% compound annual growth rate for FY24E–26E, the note said.
Key sectors with both earnings beats and upward revisions to estimates include autos and healthcare, while financials and materials missed estimates and saw downward revisions in earnings, Citi said.
The year-on-year topline growth for BSE-100, excluding the energy sector, stood at 9%. Overall, BSE-100 exhibited robust performance, with Ebitda and profit after tax growth at 18% and 19% year-on-year, respectively. This growth outpaced expectations, surpassing by 600 basis points for Ebitda and 700 basis points for profit after tax.
Preferred Sector And Stocks
Citi's preferred sectors and stocks are:
Overweight:
PSU Utilities & Defence
Industrials
Banks/Insurance
Underweight:
Consumer Discretionary
IT Services
Metals
Citi made adjustments to its preferred list and midcap picks:
Preferred List Changes: Replaced Reliance Industries with Bharat Petroleum Corporation,
Midcap Picks Changes:
Added MMYT, 360One, and Concorde Biotech to the midcap picks.
Removed Sobha from the midcap picks.
Flows And Valuations
Foreign Institutional Investor outflows for the quarter-to-date period amount to $3.6 billion, even though there was a recorded FII inflow of $7 billion in the third quarter.
Domestic flows remain resilient, with quarter-to-date inflows totaling $5 billion, consistent with the robust inflow trend seen in the third quarter at $7 billion.
Key Watch Factors
a) Outcome of General Elections (May 2024): The results of the general elections in May '24 are anticipated with great interest. Recent state elections and incremental opinion polls indicate a low probability of any surprise outcome.
b) FII Flow Trends: The trend in foreign institutional investor flows will be a critical factor.
c) Citi Global and India Economists' Views:
Global Growth Slowdown/US Recession: According to Citi's global economists, there are indications of a global growth slowdown and a potential U.S. recession.
India Rate Cut Cycle: Citi's economists in India anticipate delays in the rate cut cycle.
