Citi on what to do with Indian stocks after a ~10% correction in Nifty?

Investing.com -- Citi Research analysts believe that the recent ~10% correction in the Nifty index has brought valuations to a more reasonable level, positioning the market for potential recovery. 

The one-year forward price-to-earnings ratio of the Nifty is now slightly above its five-year historical average, offering a more balanced outlook for investors.

Despite weak second-quarter earnings in consumer sectors, other areas such as Financials , Industrials, Healthcare, and Telecommunications showed robust double-digit growth. 

The growth in domestic flows has been a stabilizing factor for the market, even as foreign institutional investor outflows—driven by a stronger U.S. dollar—have created some headwinds. Citi notes that a sustained FII sell-off could further test market sentiment.

“Looking ahead, potential 2H recovery in public capex & rural demand are positives while urban consumption & asset quality remains a watch,” said analysts at Citi Research.

At the same time, challenges like muted urban consumption and potential stress in unsecured retail lending warrant close monitoring.

Citi maintains a cautiously optimistic view, with a target of 25,000 for the Nifty by September 2025, implying a 7% upside from current levels. 

Sectorally, the brokerage has upgraded its stance on Cement, expecting a volume recovery and stabilization of profitability metrics in the second half. 

Financials, Pharmaceuticals, and Telecommunications remain preferred sectors, while Consumer Discretionary and IT are underweighted.

The brokerage advises investors to focus on sectors and stocks poised for cyclical recovery while being mindful of ongoing risks like asset quality concerns and external macroeconomic factors. 

With improved valuations and a favorable sentiment indicator, Citi suggests that medium- to long-term investors may find the current levels attractive for selective accumulation.

Source: Investing.com