Citigroup upgrades India rating from 'neutral' to 'overweight', downgrades China

Citigroup India rating: Citigroup analysts have adjusted their stance on India within emerging markets, upgrading it from "neutral" to "overweight," as reported by Reuters. The move is grounded in the country's strong earnings and the momentum of its economic growth. 

Anticipating a 7 per cent increase in India's blue-chip NSE Nifty 50 index by the end of the current fiscal year, Citigroup has set a target of 23,900. Despite the Nifty 50's recent underperformance compared to the MSCI Emerging Market Index, Citi remains optimistic about India's economic prospects.

The brokerage's confidence is boosted by expectations of continued strength in the nation’s economy, which is currently the fastest-growing among major peers, with a projected growth rate of 6.8 per cent for the current fiscal year. Surendra Goyal, managing director and head of Indian research at Citigroup, highlighted an estimated earnings compound annual growth rate (CAGR) of 13 per cent for FY24-FY26, attributing the India upgrade to sustained economic expansion.

Furthermore, Citi pointed to India's stable earnings trajectory as reflected in its one-year forward price-to-earnings (P/E) ratio of 20x, which slightly exceeds long-term averages. The brokerage's sectoral preferences within India include an "overweight" stance on banks, insurers, public sector enterprises, autos, and capital goods companies while recommending an "underweight" position on information technology firms, metals, consumer durables and discretionary, as well as paint companies.

China downgraded to neutral

In contrast, Citi downgraded China to "neutral" from "overweight," citing a discrepancy between its recent market rally and weakening fundamentals. While foreign portfolio investors have been selling Indian shares since April, China's markets have seen an increase in foreign inflows, partly due to comparatively cheaper valuations. This downgrade of China contrasts with the stance taken by global brokerage Jefferies, which increased China's weighting in its Asia Pacific ex-Japan relative-return portfolio.

Citi reiterated its "overweight" rating on Taiwan and Korea while maintaining an "underweight" position in Latin American countries.

(With Reuters inputs)