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‘Lockdown Blues’ Spur Citi to Cut India Stock Index Target

Citi reduces Nifty 50 target to 10,100 from 11,400 as the brokerage expects sharp earnings downgrades over coming weeks

‘Lockdown Blues’ Spur Citi to Cut India Stock Index Target
The NSE headquarters in Mumbai, India. (Photographer: Sajeet Manghat/BloombergQuint)

(Bloomberg) -- Citigroup Inc. has slashed its target for an Indian benchmark stock gauge, as the world’s biggest lockdown threatens an economy set to grow at its slowest pace since the global financial crisis.

Earnings estimates for the year ending March 2021 will see “sharp downgrades over coming weeks,” analyst Surendra Goyal wrote in a note Thursday titled “Lockdown Blues,” reducing the target for the NSE Nifty 50 Index to 10,100 from 11,400. Assuming gross domestic product growth over the next 12 months to slow to 2.5%, earnings will be “flattish,” he added.

India on Tuesday imposed a three-week lockdown to curb the spread of the virus, as experts warn it could be the next global hotspot for cases. Confirmed cases have surpassed 600 with 10 deaths. Economists expect a substantial blow to the economy as the nation comes to a standstill, with ING Groep NV and Deutsche Bank AG saying the country is poised to shrink next quarter and full-year expansion is expected to suffer markedly.

‘Lockdown Blues’ Spur Citi to Cut India Stock Index Target

According to Citi, the Nifty may bottom at 7,600 -- about 9% lower than the current level -- based on earnings and economic forecasts. “We find financials’ underperformance a bit overdone given where valuations are” and consumer discretionary, materials and industrials may outperform coming out of a crisis based on historical analysis, Goyal said.

During the 2008 crisis, earnings declined 14% and 5% in 2009 and 2010, respectively, before climbing 25% in 2011, he added.

India stocks had a record fall on Monday triggered by a shutdown in its political and financial centers. However, most analysts have barely altered their price targets so far.

©2020 Bloomberg L.P.