NEW DELHI: Dalal Street has had quite a run, clocking its strongest rally in 35 years with Sensex soaring an impressive 10% rise in the pre-Diwali session.But with the celebrations comes the big question: can the stock market keep the momentum going in Samvat 2083, or will investors have to brace for a few bumps along the way?Brokerage firm Citi Research seems to be betting on more upside, raising the Nifty50 target to 28,000 points by the end of 2027, up from its earlier estimate of 26,000 points by September 2027. The new target suggests an upside of around 12% from the index’s last close of 24,986.4.The firm has identified three key factors that could support equities in the coming period: a strong earnings outlook, lower crude oil prices and the possibility of slower capital expenditure on artificial intelligence (AI).Citi has also raised the valuation multiple assigned to the benchmark index.
Foreign investors return as AI-linked trades unwind
The revised target comes after a period in which Indian equities lagged their global peers. Enthusiasm around the AI trade and elevated crude oil prices had weighed on the outlook for Indian stocks, particularly as the country is the world’s third-largest oil importer.However, the recent market trend has been more encouraging. The Nifty 50 gained more than 10% over seven trading sessions through Friday, supported by renewed buying from foreign portfolio investors (FPIs). The return of foreign money coincided with an unwinding of AI-linked trades and a retreat in oil prices.Citi believes there could be further room for foreign investment in Indian equities.“Over the past two years, AI has crowded out almost everything else. Our analysis suggests a ~100bp increase in India active weight could drive ~$12bn of inflows,” Citi said in its India equity strategy note dated November 8.FPIs have already purchased Indian shares worth more than $4.1 billion in November so far. This marks their biggest monthly inflows since September 2024.
Slower AI spending and lower oil prices improve sentiment
The shift in investor sentiment towards Indian equities has also followed the Democratic victory in the US midterm elections. This fuelled expectations of slower AI-related capital expenditure and lower oil prices, amid hopes of an end to the conflict involving Iran.Citi said the possibility of a slower pace of data centre investments could encourage investors to move towards other assets, potentially benefiting Indian markets.“Post US mid-terms, risks of increased pace of data center moratoriums has aided rotation into other assets, (and this) could continue to benefit India,” Citi said.Lower crude oil prices are another factor behind the brokerage’s positive outlook. Since India is the world’s third-largest oil importer, a decline in oil prices could support its macroeconomic outlook as well as earnings assumptions.“Lower oil price could help India’s macro and earnings assumptions. A $10 (per barrel) lower oil price would help (current account deficit) by 30-40 bps and inflation by 50 bps,” the brokerage firm said.
Citi raises Nifty’s valuation multiple to 18 times
Citi’s revised Nifty target also reflects a change in the valuation multiple it uses for the benchmark index. The brokerage has increased its price-to-earnings multiple to 18 times from 17 times, taking its target to 28,000 points by the end of 2027.Its earlier projection had placed the Nifty 50 at 26,000 points by September 2027.The latest estimate therefore reflects both the higher valuation multiple and the brokerage’s expectations of support from earnings, lower oil prices and a possible slowdown in AI-related capital expenditure.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
