Citi Picks Preferred Stock, Sector Bets As It Sees Nifty At 18,300 By December 2023

It pegged Nifty's December 2023 target at 18,300. The benchmark closed at 18,608 on Tuesday.

<div class="paragraphs"><p>(Source: Freepik)</p></div>
(Source: Freepik)

Potential upside for Indian equities in 2023 appears "limited" even as growth trends are likely to "remain decent", according to Citi Research.

Investors will look out for themes such as rural recovery, private capex, sustainability of credit growth, global slowdown impacts, rates, and inflation in 2023, the research house said in a note.

"Flows provide support—resilient domestic and improving FIl flows—along with a weaker U.S. dollar. India’s macroeconomic stability, relatively resilient EPS growth, and conducive flow environment justify India’s premium valuations, but the upside potential appears limited."

Citi expects the market to consolidate and would "selectively buy on dips, with our longer-term view remaining positive".

The research house pegged Nifty's December 2023 target at 18,300. The benchmark last closed at 18,608.

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Citi Research listed certain key focus areas for 2023:

Consumption: Citi will watch for recovery in rural consumption trends in 2023, benefiting from a better winter crop, potentially rural-oriented spending in the pre-election budget set to be announced in February, and early signs of improvement in nonfarm employment. On the other hand, urban consumption might be negatively impacted by waning job growth momentum in the IT sector due to the global recession, a high base from reopening-led spending growth in 2022, and the impact of a sharp rise in lending rates in the property and discretionary segments.

Capex Cycle And Credit Growth: The public capex cycle has improved in FY23, and Citi would watch for private capex recovery given improving capacity utilization, a favourable policy environment—PLI schemes, ongoing China+1 strategy—and a strong corporate balance sheet and cash flows. Further, Citi's bank analysts expect some moderation in overall loan growth in FY24, but they expect the loan growth momentum to remain well above the pre-Covid trajectory overall.

Margin Risks: Bottom-up earnings expectations for FY24 are baking in margin expansion as well as decent growth momentum.

Flows And The Global Backdrop: Citi said a declining dollar is favourable for emerging market inflows, and India should benefit, especially from passive flows. Domestic flows have been resilient.

Preferred Sectors

Citi said it remains 'overweight' on banks, industrials, and PSU stocks in utilities and defense while being 'underweight' on consumer discretionary and metals.

It also made changes to its "preferred list". Citi removed Mahindra & Mahindra Ltd. after its strong performance to book profits and replaced Eicher Ltd. with Ashok Leyland Ltd.

Citi also introduced four contrarian picks for 2023 in its report, which it defines as "less crowded stocks".

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