India's Allocation in Global Emerging Market Funds Hits Five-Year Low: Citi Research

In its latest report, Citi Research said India’s allocation in Global Emerging Market (GEM) funds is currently at a five-year low. The brokerage noted that India’s weight in the global emerging market index has declined from around 20% in mid-2024 to about 11%, while global portfolios remain close to a 20-year high underweight position on Indian equities. According to Citi, foreign investor sentiment towards India remains subdued amid persistent geopolitical uncertainty and the associated macroeconomic challenges. The brokerage also highlighted concerns that India is not a significant participant in the global AI infrastructure buildout, making it important to monitor the medium- to long-term implications for employment, wages and consumption. It also added that while valuations have become more reasonable, with markets trading closer to their 10-year historical averages. However, it lowered its forward price-to-earnings multiple assumption for the Nifty from 19 times in December 2027 to 18 times in March 2028, resulting in a revised 12-month target of 26,000 for the index. The target is 1,000 points lower than its previous estimate of 27,000, reflecting concerns around geopolitics, AI-related developments and weather-related risks. Citi added that its Citi India Sentiment Indicator (CISI) points to potential one-year forward returns of about 10%. Despite these concerns, Citi maintained a constructive medium-term outlook on India. It said any easing of tensions in West Asia or a pause in foreign institutional investor (FII) outflows could provide an upside trigger for markets. “Global flows may remain volatile in the near term as AI sentiments fluctuate, and some tempering in AI optimism may reduce FII outflow pressures for India,” the report said. Commenting on fourth-quarter FY26 earnings, it noted that headline EBITDA growth for the BSE100 stood at around 6 % year-on-year, marginally below its estimates and historical trends. The brokerage identified crude oil prices and a potential El Niño event as key risks, while questioning the sustainability of strong consumer demand trends witnessed during the quarter. It added that rising input costs have prompted companies to implement price hikes. The report highlighted several themes to monitor, including the impact of any slowdown in Global Capability Centres (GCCs) on employment and wage growth, the resilience of domestic investment flows, and the evolving AI narrative as value creation shifts from AI enablers to AI beneficiaries. On sectors, Citi remains overweight on financials, telecommunications, healthcare , utilities and defence, while maintaining an underweight stance on IT services, consumer staples and metals. Separately, financial services firm PL Capital cut its 12-month Nifty 50 target by 631 points to 26,449 from 27,080. The brokerage valued the index at a 10% discount to its 15-year average price-to-earnings multiple of 17.2 times in its base-case scenario. It projected a bull-case target of 29,387 and a bear-case target of 20,771. PL Capital favours themes such as private banks, non-banking financial companies (NBFCs), metals, capital goods, defence, data centres, renewable energy, railways, ports, shipbuilding, semiconductors and healthcare. The brokerage remains cautious on IT services, consumer-facing sectors, chemicals, agriculture and oil and gas. “While markets are unlikely to witness a significant correction below recent lows, prolonged geopolitical uncertainty could continue to drive sharp volatility,” PL Capital said.