Citi Just Raised Its Sensex Target By 1,600 Points. Here’s Why

Citi has increased its 12-month forward target for India’s benchmark stock index S&P BSE Sensex to 37,300 from 35,700 earlier, citing strong earnings and a pick up in growth.

The brokerage house builds 25 percent growth estimate in the current financial year on the back of strong earnings recovery aided by lower base. The financials segment would account for half of this growth, it said in its earnings estimates report for December 2018 to March 2019.

However, a tough macroeconomic situation, crude prices, upcoming state and general elections as well as valuations which are at a 60 percent premium to emerging markets, remain risks to these estimates, it added.

Sensex, which is currently trading at 37,390, has returned 9.5 percent so far this year.

Earnings Drives Target Increase

The earnings growth so far in the first quarter of this financial year has been 13 percent, which is largely in line with estimates, the report said. This growth is excluding of Tata Motors Ltd. and lenders such as Axis Bank Ltd., ICICI Bank Ltd. and Bank of Baroda. There have been positive growth surprises in sectors such as auto, telecom and utilities. For the banking space, higher provisioning for bad loans has impacted earnings and hence they have been weaker than expected, the report added.

Domestic Flows Strong

The markets have seen support from domestic institutional investors with inflows of $50 billion to assets under management. Fund allocation by both foreign institutional investors and DIIs to the top 30 companies of the benchmark index has risen by four percent over the last four quarters, Citi Research said.

FIIs have raised active weights in cyclicals, while domestics have raised active weights in materials, energy, and IT.

What’s Citi Bullish On?

• Top Stocks with Overweight: SBI, HDFC Bank, L&T, NTPC, Tata Steel.
• Top Stocks with Underweight: Reliance Industries, HDFC, TCS, HUL, ICICI Bank.