Citi's India Head of Research, Surendra Goyal, has set a 26,000 target for the Nifty, citing a mid‑teen earnings growth trajectory and a 17‑times earnings valuation that sits roughly one standard deviation below the index’s 10‑year average.
At the time of the report, the Nifty was trading near 17× P/E, a full point below its 10‑year mean of 18.0. The valuation correction, accelerated by concerns over limited AI infrastructure participation, rising crude prices, and global macro uncertainty, has created a more favourable backdrop for equity investors.
Consensus earnings models from Citi point to mid‑teen EBITDA growth for FY24 and FY25, outpacing the 12‑14% range projected by the broader market. This robust outlook is underpinned by stronger-than‑expected corporate earnings and a resilient earnings‑to‑price ratio.
Despite the rally, Goyal remains cautious on IT services, citing intense competition, AI‑led productivity hits, slower revenue growth, and a stabilising rupee that could erode the currency‑related margin lift the sector enjoyed last year. Rising acquisition and captive‑buyout costs further strain the capital requirements for growth.
On the macro side, Citi’s economics team foresees two more RBI rate hikes, with the pace of tightening tied to inflation trends. A stabilised rupee could also reduce the currency support that IT firms have leveraged.
The next two quarters will be pivotal in revealing whether the IT sector’s fundamentals are turning, and whether a global AI slowdown will spill over into a broader market drag. Private banks and hospital chains, however, remain attractive options due to healthy fundamentals and attractive valuations.