Citi thinks India is on the right side of trade

Talk of India staying the course. And the endorsement has come from none other than the global brokerage firm Citigroup which believes that Indian equity markets are probably perched on the right side of trade, but it’s too early to get more aggressive.

So much so that the brokerage has retained its Sensex year-end target of 20800.  

Take it from Aditya Narain, MD and strategist at Citigroup Capital Markets India.

“Directionally, after a period of 3-4 years where there was a fair amount of pain, we have now crossed the hump and the trajectory now onwards will be in India’s favour,” he said at Citigroup’s 8th India Investor Conference in Mumbai on Wednesday.

He went on to add: “The confluence of favourable top-down set-up from macro perspective and bottom-up in terms of what corporates are doing, could lead to a positive market over an extended period of time. My sense of what corporates are doing is fixing their balance sheets, becoming more return minded, reducing the risks and what some would argue is effectively becoming much more rational.”

Despite believing that such a combination would be positive for markets over an extended period, Citigroup is not going overboard while putting a higher target for the Sensex.

That’s because it believes it will take some more time for this favourable mix to play out.

“To expect markets logically to move materially at this point of time would require extended bets that macros would continue to do well and making projections far ahead in terms of time period. In that sense, we remain conservative but at the same time positive,” said Narain.

From portfolio construction and stock selection perspective, the brokerage is slightly biased towards cyclicals with nearly 300 bps overweight on financials, but for the rest of the portfolio, it’s taking a bottom-up approach with a slight overweight on utilities, telecom and pharmaceuticals.

Narain feels that at this point, the risk of market performance is very low while the only issue is that of reversal in foreign flows. However, he doesn’t see much.