Citi cuts Nifty March 2021 target to 10,100

Citigroup Global Markets has cut its March 2021 Nifty target to 10,100 from 11,400 as the three-week lockdown amid the coronavirus scare threatens to hit the economy sharply.

Earnings estimates for the financial year ending March 2021 will see sharp downgrades over the coming weeks, said Citigroup in a note titled ‘Lockdown Blues’ Thursday. Meanwhile, CIMB Securities said earnings outlook of Indian companies may be negative in the short term due to the lockdown, but the sharp decline in the index has driven trailing PE of the Nifty to below -1standard deviation of its 15-year mean, which has led to improvement of risk-reward. Bharti Airtel, Dr Reddy’s Laboratories, HCL Technologies, HDFC Bank, ICICI Bank, Larsen & Toubro, Maruti Suzuki India, Reliance Industries, SBI Life, and UltraTech Cement are Citigroup’s top large-cap picks. For CIMB, HDFC Bank, Hero MotoCorp, Infosys and Coal India are the top picks.

Citigroup said earnings will be ‘flattish’, assuming gross domestic product growth over the next 12 months slows down to 2.5%. The brokerage said there should be a recovery in the financial year ending March 2022, off a low base.

India imposed a three-week lockdown on Tuesday to stop the spread of coronavirus. As cases multiplied to a few hundred in India, and globally, the epicentre of the virus started shifting from China to the US and Europe, domestic indices also tanked along with decline in global markets. The Nifty ended up 3.9% at 8,641.45 on Thursday, extending gains for the third straight session but it is down 30% from its record high of 12,430.50 hit in January. Stock markets have hit a circuit twice in March, also recording their biggest ever one-day decline on Monday as uncertainty loomed over the implications of the virus spread globally. Several analysts have predicted a recession in 2020.

Citi believes that the Nifty may bottom at 7,600, which is another 9% decline from current levels, and the underperformance in financials is a bit overdone given where valuations are after the correction.

In staples, there is a huge premium for near-term visibility, and their premium to the market has only gone up.

The timing of global and India recovery from the coronavirus issue is impossible to call — any further delays there could have further economic/earnings impact, said Citigroup.