Citi in its note wrote that the combined impact of geopolitics, AI & El-Nino risk has resulted in a subdued sentiment, particularly among FIIs. The brokerage further noted that the India allocation in GEMS funds is at a five-year low and the “Underweight” positioning for the Indian markets is close to the highest level in 20 years.
What Are The Key Concerns For Indian Markets?
Citi’s note states that the subdued sentiment among FIIs for India is driven by some concerns, primary among them is the geopolitical tensions and the resulting macro challenges, which also prompted multiple forex-related measures announced by the Reserve Bank of India.
The second concern is AI, with India not being a significant participant in the infrastructure rollout. The brokerage said that the medium-to-long-term implications on jobs, wages and therefore, consumption, will have to be monitored.
What Are The Positives For Indian Markets?
Despite these concerns, Citi highlighted that one should not ignore the medium-term positives, such as the fact that domestic demand has held up well, and that the trends should remain decent beyond any cost inflation-led slowdown.
The second one is the fact that India weightage in the Emerging Market index is now nearly 11% compared to nearly 20% in mid-2024. Active positioning is also underweight, thereby increasing the scope of an increase once the tide turns.
Lastly, domestic flows have also sustained through the relatively weak market performance.
What Are The Factors To Watch For Indian Markets?
A significant slowdown in IT GCC could impact job, wage trends, according to Citi, and even though there is a slowdown currently, further deterioration will have to be watched.
Domestic flows are another aspect to keep an eye on as they have remained steady through the course of the uncertainty. Any moderation in these flows could be a risk to the market.
and lastly, as the narrative on AI changes from enablers to beneficiaries, India’s relative disadvantage within this segment may change, according to the Citi note.
What Are Citi’s Top Picks In Indian Markets?
While Citi has lowered its Nifty target multiple to 18x from 19x earlier, it said that some resolution of the West Asia situation and a pause in FII outflows will be key for the markets.
Citi has highlighted Financials, Telecom, Healthcare, Defence and Utilities as their key “overweights”, while IT Services, Staples, Metals are their top “underweights.” It has also added Hitachi Energy into its list of top picks having initiated coverage on the stock recently.
