Citi Research has expressed optimism on the Indian stock market, expecting a significant recovery in Nifty earnings in the near future. Following three consecutive days of gains, the benchmark stock indices showed resilience amid market corrections. The brokerage has not only reaffirmed its positive outlook on Indian equities but also made notable adjustments to its top stock picks, adding Cholamandalam Investment and Finance Co. and Zomato Ltd. while removing Hindustan Unilever Ltd. from the list.

Positive Market Outlook

Citi maintains a target of 26,000 for the Nifty by December 2025, indicating an impressive 14% upside potential. This optimistic forecast is supported by favorable macroeconomic indicators. Key metrics, including the Current Account Deficit, Balance of Payments, inflation, and GDP growth, are projected to improve.

• Expected GDP Growth: Citi anticipates India’s GDP growth to reach 6.5% in the financial year 2026E, a significant increase from mid-single-digit growth observed recently.
• Government Initiatives: The government’s push for capital expenditure, along with anticipated tax cuts starting in April 2024, and potential liquidity easing by the Reserve Bank of India, are expected to further stimulate economic growth.

Comparative Analysis: India vs. China

In comparing India’s economic prospects to those of China, Citi highlights India’s resilience amid challenges faced by its neighbor, particularly in the real estate sector. While analysts predict a 4.7% GDP growth for China in calendar year 2025E, India is emerging as a more attractive destination for investors. India’s premium in the MSCI index currently sits around 70%, a notable rise from its long-term average of 55%.

• The premium over China has significantly decreased from the 180% seen at recent market peaks, yet India remains appealing from a valuation perspective as foreign institutional investor outflows stabilize.

Strategic Stock Adjustments

Citi has shifted its stance on non-banking financial companies (NBFCs), upgrading them to ‘overweight’ from ‘neutral’. This move underscores the potential benefits these companies may reap from favorable regulatory changes and improving credit costs. As part of this strategy, Chola Finance has been included in Citi’s top picks due to its robust growth profile.

Conversely, the brokerage has downgraded the staples sector to ‘underweight’, citing its underperformance despite attractive valuations. The previous neutral outlook was predicated on the belief that low valuations would enable the sector to withstand cyclical slowdowns; however, this has not materialized as planned, leading to the removal of Hindustan Unilever Ltd. from the top picks.

Zomato: A Growth Opportunity

On a brighter note, Zomato Ltd. has been added to Citi’s recommended stocks following a notable drop in its share price. Analysts see substantial growth potential for Zomato, especially if competitive pressures ease in the food delivery sector. The company’s strong execution in its quick commerce segment positions it well for future success, enhancing its attractiveness to investors.

In summary, Citi’s updated stock picks and macroeconomic outlook reflect a blend of cautious optimism and strategic adjustments within the Indian market, making it a focal point for investors aiming for growth in 2024 and beyond.