India Equity Strategy: Markets on the Run ?

29 June 2022

Market has corrected ~17% from highs and is currently trading at 1sd below 5 year mean however, it is still above long-term average (LTA). Citi analysts highlight that long term averages have become more relevant given the high inflation & increasing rates.FII ownership is at multi-year lows however domestic flows are continuing to support the market despite the market pullback.Key Points appended below:

• 1. On A YTD basis MSCI India (US$) is down 17% vs 18%/23% for MSCI EM/S&P 500 and 10yr Indian bond yields are up 110b.The recent correction has brought absolute valuations to more reasonable levels (1sd below 5y mean) however the Relative valuations currently still look expensive (70%/20% premium to EM/US).



• 2. FII Ownership in India is at a decadal Low. FIIs are continuing to sell aggressively with CYTD outflows recorded at $26b. At a $14b of inflows CYTD, domestic flows are resilient. Citi analysts highlight that there will be pressure on domestic flows in the coming month, given that the 1-year market returns are now negative.



• 3. Indian economy is witnessing slower economic growth rate, high cost inflation and higher interest cost. This Implies consensus earnings expectations need to moderate from current levels of  18% and 15% for FY23E and FY24E respectively. Citi analysts indicate that Earnings revisions are starting to roll over – minor downward revision in the recent past.

For more updates please visit Citi Wealth Insights