Nifty 50 Offers 'Reasonable' Valuations Post 10% Correction, Says Citi
Looking ahead, a potential recovery in public capex and rural demand in the second half of the year are positives, Citi said.
India's benchmark gauge—NSE Nifty 50—posted a reasonable valuation after witnessing the biggest correction since the Covid-19 pandemic in 2020, according to Citi Research.
Valuations are more reasonable with Nifty one-year forward price to earnings now just slightly above five-year average, Citi said in a note on Nov. 19.
Second quarter earnings were weak in consumer sectors, but status quo in most others with decent double-digit growth in financials, industrials, healthcare and telecommunication space, Citi said.
Looking ahead, a potential recovery in public capex and rural demand in the second half of the year are positives, it said. "Urban consumption and asset quality remain a watch."
Domestic flows continue to be robust, but sentiment may be tested if global funds sell-off sustains, it said. Foreign investors have sold stocks worth over Rs 1.59 lakh crore—a record in terms of streak and magnitude since Sept. 27, while domestic institutions have bought stocks worth over Rs 1.5 lakh crore during the same period.
The brokerage's September 2025 Nifty 20 target is 25,000, a 7% upside from the previous close. "Our sentiment indicator has turned more favourable after a long time—suggests similar 12-month forward returns."
Citi added Ramco Cement Ltd. and switched from Devyani International Ltd. to Jubilant Foodworks Ltd. in its mid-cap picks. The brokerage is overweight on financials, telecom and pharmaceuticals and is underweight on consumer discretionary, information technology and metals.
Nifty corrected by 11.1% from the recent peak, while the mid-and small-cap indices corrected by over 11% and 10%, respectively.
Goldman Sachs expects the market to remain range-bound over next three months and has a three-month target of 24,000 for Nifty 50. The brokerage sees back-loaded recovery in Nifty and earnings growth with a 12-month target of 27,000. "Believe Indian equities should be relatively insulated from macro headwinds."
Meanwhile, HSBC Global Research has recently cut the 2025 year-end target of BSE Sensex as risks of earnings downgrades amid high valuations weigh on the global brokerage.
