Following the continued positive stock market momentum for the better part of 2014, Citi believes the upsurge to continue in 2015. The brokerage expects Nifty to touch 9850 and Sensex to hit 33,000 for December 2015. The gains, according to them, will be “front-loaded with falling rate gains, back-loaded with an actual economic/investment recovery; and accompanied by steady regulatory/execution reform”.
Citi economists say policy rates should fall 75 bps in 2015 – with downside risks to inflation and they believe the rate engine will fire now, and in early 2015.
Citi, however, cautions that economic / earnings fuel will likely stay cool, till mid-2015. With still modest near-term visibility (loan growth/pipeline, investments), corporate caution/discipline and regulatory reform still underway, a consistent economic/earnings uptick is only likely in mid 2015.
In a note to clients, the brokerage expect reforms to be a ‘sober, travelling companion’ rather than ‘big bang’ and that they believe will lend continue support to markets.
The factors that could act as speed bumps in the bull case scenario include high ownership, economic /governmental expectations and slightly expensive valuations a little over mean. But the greater risk they foresee is that the “rapidly falling commodity prices have started becoming too much of a good thing”.
Citi has re-worked their model portfolio to go overweight on banks, energy, cement and pharma.