Citi Turns Cautious on Indian Markets Amid Rising Valuations

In a major shift, Citigroup has downgraded Indian equities from ‘overweight’ to ‘neutral’, citing relatively high valuations and lack of exceptional earnings growth. This marks a significant turn from Citi’s bullish stance earlier this year.

Back in February, Citi had upgraded India to ‘overweight’, projecting that the Nifty 50 could potentially hit 26,000 by the end of 2025. At the time, Indian stocks were trading at more attractive valuations, which led the brokerage to believe in a meaningful upside.

However, things have changed.

“India’s earnings growth no longer appears exceptional, especially when viewed alongside its still-elevated valuations,” Citi noted in its latest update.

China and South Korea Get the Thumbs Up

While India sees a downgrade, Citi has upgraded China and South Korea in its regional strategy. The key reason? Better EPS (Earnings Per Share) revision trends and more reasonable valuations.

Despite being exposed to higher tariffs, these markets are gaining favour due to improving fundamentals and attractive pricing.

In particular, China’s tech sector has seen renewed investor interest, with the segment rallying over 20% so far this year. This strong momentum is contributing to the improved outlook for Chinese equities overall.

Also Read: Goldman Sachs Defies Market Trend with Thriving P-Note Business in India

India May Still Outperform in Volatile Conditions

Interestingly, Citi had earlier acknowledged that India could act as a relative outperformer if global tariff risks return. However, with current high valuations, the brokerage now appears more cautious in the near term.

This move does not indicate a bearish outlook, but rather a recalibration of expectations in light of elevated stock prices and flattening earnings momentum.