Daily Newsletter

17 September 2021

  • Indian equity indices ended at record closing highs on Thursday supported by gains in banking and FMCG stocks.
  • The interbank call money rate settled higher at 3.00% on Thursday compared to 2.50% on Wednesday.
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Citi Wealth Insights Podcast - Index Funds

17 September 2021

In Today’s Podcast we talk about Index Funds and their importance for Investors.

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Labor Market Dynamics and Consumption Trends

15 September 2021

Citi analysts review the trends emerging from the labor market dashboard and share it’s implication on consumption in a post second covid wave scenario.

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June Quarter GDP Print Belies Underlying Trends

07 September 2021

India’s Real GDP growth stood at 20.1%YY in 1QFY22. But sequentially, real GDP fell by~42%QoQ, saar in 1QFY22, albeit lower than 69% fall in 1QFY21 after the first wave. Citi analysts expect 2QFY22 real GDP growth at 8.1%YY and retain FY22 forecast at 9.5%YY.

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Contours of RBI’s Policy Normalization

01 September 2021

Framing RBI’s Policy Normalization path with multiple variables at play, Citi analysts believe that the evolution of growth parameters will primarily determine RBI’s comfort to start the normalization process. They believe the pace of normalization maybe accelerated on account of elevated CPI when activity revival is close to complete.

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The Ebb and Flow: 1QGDP preview and 2Q Economic Recovery

25 August 2021

The economic disruption caused by the second wave was less severe than the first wave - a feature likely to be visible across all GDP components in 1QFY22. High frequency data and quarterly company results suggest that 1QFY22 (Jun-21) real GDP growth (31st August release) could come in at 23.0%YY (vs. 1.6% in 4QFY21).

What Lies Ahead? While 1Q seems to have moved in line with Citi analysts’ expectations, there are some emerging downside uncertainties to the FY22 9.5%YY real GDP growth view.

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RBI Aug MPC: Rates anchored low; Abstinence from urgency of policy shift to normalization

10 August 2021

Set amidst expectation of staying status quo on rates, stance and guidance, the revised forecasts for growth (unchanged) and inflation (FY22 5.7% vs 5.1% earlier) in the Aug MPC were broadly in line with Citi analysts’ expectations. Citi analysts expect persistent excess liquidity and INR 250bn of further bond purchases under G-SAP to keep 10y bond yield in 6-6.30% range.

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Revenue Surprises amidst Rising Growth Uncertainties

04 August 2021

Despite a second wave, gross tax collections continue to surprise on the upside with around 24% of the full-year budgeted gross tax revenue collected in 1QFY22 – a much better than the pre-Covid trend of ~17%. With expenditure near the budgeted trend – will the government exercise flexibility in the initially planned Rs.4.75trn 2HFY22 gross GSec borrowing calendar to be announced end September?

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Changing Gears: The “New Economy” in India

28 July 2021

Citi analysts believe the upcoming internet/e-commerce IPOs (first large listing on 24 Jul at $13bn+ market cap & multiple listings lined up) will give investors options to take exposure to the “new economy”. Citing the opportunity as huge with 12%/20% of market cap in US/China at end 2020, Citi analysts highlight that execution will be the key.

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An Upbeat Agri Sector and A Geared Up Rural Economy

21 JULY 2021

With the post-second wave economic recovery underway, there remain some question marks over the extent of rural distress and how it is shaping up rural demand. Basis an in-depth analysis of around 23 underlying rural economy variables, Citi analysts expect agriculture sector to remain resilient albeit with a fading rural exceptionalism seen in FY21.

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Looking Ahead: 1Q FY22 - Valuations High; Pace of Recovery and Global Cues hold the Key

13 JULY 2021

The 1QFY22 witnessed the impact of the second Covid wave & resulting restrictions across India.

Citi analysts highlight the key potential drivers while assessing the impact on the economic activity alluding to the Pace of recovery as the key variable to watch out for.

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3QFY21 Household Savings and Debt Trends

02 JULY 2021

RBI’s preliminary estimates of flow of household savings for 3QFY21 indicate that the unprecedented rise in “forced” and precautionary savings after the first Covid wave continued normalizing from 10.4% of GDP in 2Q to 8.2% in 3Q. The estimates revealed that this moderation was driven by a significant weakening in the flow of household financial assets, which more than offset the moderation in the flow of household financial liabilities.

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India Unlock Phase Begins: Activity and Policy Response

24 JUN 2021

Citi analysts point to the Narrow Recovery Index improving by more than 20% in mid-June, from its lows a month ago. Observing a decent turnaround in activity, Citi analysts attribute this to mechanical/pent-up demand driven improvement, as restrictions across the country are eased. Citi analysts note that the success of the vaccination programme in controlling future Covid waves would be the key factor to watch for in 2HCY2021.Citi analysts do not expect any large fiscal stimulus, instead foresee more targeted interventions to provide relief to the urban poor and Covid-affected sectors like contact-based services.

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2021 MID YEAR OUTLOOK
Traveling to the post-COVID world: New portfolios for a new economy

17 JUN 2021

COVID has changed the global economy, which requires shifts in portfolios.

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India Employment Trends and Implications for Consumption

16 JUN 2021

Economies depend on increasing levels of consumption to maintain their health. Labor market dashboard suggests that disruption arising out of the second wave is relatively contained. Citi analysts expect a disconnect between the labor market and consumption dynamics citing depressed sentiment that may overshadow income, in the near term. With Non-farm employment fallen by ~10% in second wave, Industrial ex-construction jobs difficult to come by, high youth unemployment and limited manufacturing jobs - Wage cost growth in listed companies in 4Q has reaffirmed K-shaped recovery. Citi analysts believe consumption growth could be less dependent on income and more on sentiment, making it harder to forecast.

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India Equity Strategy: 4Q Earnings Review; Commodities and Favorable Financials Base at Play

16 JUN 2021

NIFTY earnings continue to witness upward revisions (consensus FY22 EPS is +3% since start of the Q). As per Citi analysts the 4Q’21 earnings reported so far have been strong with the 2yr earnings growth CAGR at ~25%.They believe this robust growth is on account of strong commodity sectors and favorable financials base. Citi analysts have revised their NIFTY target for Mar'22 to 15.5k (19x FY22 EPS; up from 15.4k). The focus continues to be on the recovery path post second wave lockdowns, impact of commodity price increases on inflation/margins and global cues.

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FY21 Fiscal Deficit Delivering Headroom

10 JUN 2021

The central government reported a higher than budgeted revenue in FY 21 led by indirect taxes. The Govt has utilized additional fiscal space to likely clear almost all Food Corporation of India (FCI) dues from National Small Savings Fund(NSSF).Citi analysts believe the overall revenue in FY22 could be higher than budgeted and the Government may defer announcing additional market borrowing despite the negative second-wave shock and higher GST compensation cess related requirement of funds.

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RBI Monetary Policy: A United Front on Policy Continuity; Durable Growth and Dovish Stance Dominate

04 JUN 2021

The Monetary Policy Committee (MPC) voted unanimously to maintain status quo leaving key policy rate unchanged at 4%. Deciding to stick with only state-based forward guidance, the MPC committed to maintain “accommodative stance as long as necessary to revive and sustain growth on a durable basis...”. Amidst evolving macro-economic and financial conditions, the RBI refrained from providing time based guidance while cutting its GDP forecast for FY22 to 9.5% and revising Inflation forecast upwards. Citi analysts do not expect a hike in repo rates until middle of next year and expect RBI to keep the 10y bond yield in 5.90-6.20% range.

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RBI Monetary Policy Committee Preview: Setting Policy Direction with a Dovish View

02 JUN 2021

The Monetary Policy Committee (MPC) meets on 2 – 4 June against the backdrop of a Pandemic ravaged economy and upward risk to Inflation. The June MPC gains significant importance as succoring growth will likely be the main priority at this stage. Citi Analysts believe limited maneuverability to cut rates, lowered efficacy of incremental monetary easing and global inflationary pressure are three key challenges the central bank will be faced with while formulating a sagacious policy framework. Expecting an adjustment in the Government Securities Acquisition Programme (GSAP) amount to manage yields, Citi analysts believe it may prove to be an important signaling instrument even while the RBI may consider time based guidance to anchor short term rates.

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The Seesaw of Price and Policy: Inflation and Expected Policy Response

20 May 2021

The consumer price inflation eased in April’21 by ~120bps to 4.29%YY led by favorable base effects. Citi Analysts expect the Headline inflation to likely revert to ~5.3%YY in May’21, and expect the average headline CPI at ~5.0%YY in FY22, with risks to the view tilted to the upside. Citi Analysts expect RBI to likely favor growth over inflation in its June Monetary policy given the debilitating impact of second COVID wave on the Indian Economy. As per Citi analysts, it is unlikely that RBI MPC will respond to this base effect led temporary fall in April headline CPI through additional easing measures.

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A Look Through the Monocle: FY22 Growth Estimates Revised

20 May 2021

In the light of better visibility on the peak of Covid cases and extent of lockdowns, Citi Analysts reassess FY22 Growth Estimates. With the Narrow Recovery Index suggesting a fall in the economic activity by ~25-30% now from close to pre-Covid levels in Feb-Mar, Citi Analysts have revised FY22 real GDP growth forecast to 9.5%YY from 12.0%YY.Characteristically favorable points that may define the ongoing fiscal’s growth trajectory are: Less stringent lockdowns, a better equipped organized sector, limited long-term scarring, supportive external demand, vaccination in 2H and surprise policy stimuli.

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The Cash and The Flow: Fall In Currency Demand and Macro implications

12 May 2021

Considered the universal store of value - Money or Currency In Circulation in India fell sharply between December 2020 to March 2021, showing a marginal improvement in April’21.Citi Analysts attribute it to three factors namely: Lockdown induced “dash for cash” phenomenon Reflecting normalization, Higher digital payments coupled with better tax compliance and a modest rural demand in 2HFY21 where payments are traditionally cash based.

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A Calibrated Combat: RBI Unveils Liquidity Measure

12 May 2021

Acknowledging the impact from the surge in Covid infections and consequent disruption in economic activities, RBI governor Shaktikanta Das on 5th May’21 announced targeted measures ranging from additional loans to enhance healthcare capacity to MSME relief packages to combat the situation rather than giving a blanket moratorium. Alleviating constraints by allowing lending institutions to provide relief to stressed borrowers, without raising concerns on their entire loan book seemed to be the preferred approach of the central bank as observed by Citi Analysts.

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A Shot at the Jab: Targeted Vaccination Drive

05 May 2021

Citi analysts are confident of the increase in the level of vaccinations globally while expecting the emergence of variants of COVID-19, unlikely to cause a second pandemic. Back home, Citi analysts believe the beacon point to be an accelerated vaccination drive of top 50 populous cities in India, citing positive externalities for managing lives and livelihood and prevent a third wave, with the conspicuous ‘fear factor’ impacting consumer sentiments.

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RBI Policy: Balanced messaging and some respite for bond markets

07 April 2021

The Monetary Policy Committee (MPC) unanimously decided to keep the policy repo and reverse-repo rates unchanged at 4% and 3.35% respectively during its Apr’21 monetary policy review while continuing with the ‘accommodative’ policy stance. The RBI also introduced the secondary market G-sec acquisition program, under which the central bank pre-commits to a defined quantum of G-sec purchases regardless of evolving macro conditions – a move similar to quantitative easing programs.

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Higher household leverage and slower activity point to Covid-19 related stress

23 March 2021

High frequency economic data suggests early tapering of economic activity in Mar’21, possibly due to the second-wave of Covid-19 spread in India. Further, financial leveraging for households increased to 5.4% of GDP in 2QFY21, possibly reflecting some economic stress due to the pandemic. Citi analysts believe that fueling consumption growth purely through increased household leverage may not be ideal, given India’s low per-capita income levels.

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Vehicle Scrappage Policy: Incentives may undershoot expectations

23 March 2021

The proposed guidelines necessitate Commercial vehicles (CV) over 15 years of age and Private vehicles (PV) older than 20 years to undergo a ‘fitness test’, including tests for emission, braking and safety equipment among others. Citi analysts believe that stringent fitness and renewal guidelines may depress the demand for used-vehicles, while having limited impact on scrappage of old vehicles.

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Rising Global Bond Yields and Oil Prices may lead to a volatile Rupee

17 March 2021

INR has been one of the best performing Emerging Market currencies so far in 2021. However, the steep rise in oil prices, elevated bond yields in the US and expectations of ‘tapering’ from the US Fed may lead to higher INR/USD volatility in 2HCY21. Citi analysts believe that the RBI may intervene to limit rupee depreciation in case of large capital outflows and expect the INR to remain within 72-74/USD range over the next 6-12 month period.

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Higher commodity prices push inflation forecasts upwards

17 March 2021

Citi analysts believe that rise in international commodity prices may present an upside pressure to headline inflation over the near-term. Citi analysts believe that spot Brent prices may push above USD 70/bbl by the end of Mar’21, prompting oil producers to increase output in Apr’21.

Higher oil prices and core inflation in Jan-Feb’21 led Citi analysts to revise up their average inflation forecast to 5% YoY for FY22 (vs 4.8% earlier). They expect headline CPI to fall below 5% YoY in 3QFY22 led by base-effects.

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Do rising Bond yields in the US have a bearing on Indian equities?

10 March, 2021

Citi analysts expect further rise in 10yr US Treasury Bond yields (from 1.56% currently) to keep global equity markets under some pressure. However, from India’s perspective, recent data does not reflect significant correlation between equity market valuations and US Treasury yields. However, a reversal of FII flows into Indian equities due to strengthening of USD may trigger a correction from current valuations.

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Higher Bond Yields and lower slippages may support NIM growth for Banks

10 March, 2021

Citi analysts believe that the sharper rise in yields at the lower-end of the yield-curve and Bank’s preference for medium-term lending may drive improved lending-margins for Indian banks. They expect Net Interest Margins (NIM) to improve 15-20bps YoY in FY22, led by lower slippages of accounts into Non Performing Assets (NPA) and lower interest reversals.

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Improved Fiscal conditions may help RBI manage Bond auctions

04 March, 2021

Gross tax revenues grew 20% YoY in Jan’21 versus implied budgeted contraction of -10% YoY (as per revised FY21 Budget), beating the conservative estimates made by the government. Citi analysts believe that there may be a 0.5%-1% (INR 1-2 lakh cr) of downside risk to the government’s fiscal deficit estimate of 9.2% for FY21.

Citi analysts believe that better-than-expected fiscal space may leave the government with a large cash balance as we enter into FY22 and provide some flexibility to the RBI in management of G-sec bond auctions.

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GDP growth turns positive in 3QFY21, however risks remain

04 March, 2021

India’s real GDP grew by +0.4% YoY in 3QFY21 (vs Citi analyst’s expectation of +2.1%), returning to marginally positive territory following two quarters of contraction, led by recovery in investment and manufacturing growth. Citi analysts revise their FY21 real GDP growth estimate to -7.5% YoY (vs -6.2% earlier) and continue to expect a rebound to 12.5% YoY growth in FY22 supported by positive fiscal impulse, accommodative monetary policy and a rebound in investment growth.

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Crude Oil: Prices likely to remain elevated in near-term

23 February, 2021

Brent crude oil prices have climbed up 77% since Oct’20 amid vaccine-led optimism and improvement in economic activity. Discipline among OPEC+ countries with respect to extended production cuts announced in Jan’21 may also have accelerated erosion of global inventories in recent months. Brent crude oil prices have reached USD 66/bbl – up 28% so-far in 2021. Despite near-term risks from the winter-upsurge in Covid-19 cases, Citi analysts expect spot Brent crude oil prices to touch USD 70/bbl over the next 3 months.

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Banks may continue to see strong earnings growth in FY22

23 February, 2021

Banks under Citi analyst’s coverage saw loan growth of +4% QoQ in 3QFY21 (vs. +2%/1% growth in 1Q/2Q FY21), while deposits grew at a healthy pace of +17% YoY (+2% in QoQ).

Nifty Bank index has risen +20% over the past 3 months, outperforming benchmark Nifty50 index by 600bps over the same period. While most banks have beaten consensus earnings estimates for 3QFY21, Citi analysts believe that improving economic growth, credit demand and better asset quality may drive further earnings upgrades for FY22.

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Equity Strategy: Strong Earnings momentum and Liquidity support

09 February, 2021

Banks under Citi analyst’s coverage saw loan growth of +4% QoQ in 3QFY21 (vs. +2%/1% growth in 1Q/2Q FY21), while deposits grew at a healthy pace of +17% YoY (+2% in QoQ).

Citi analysts expect Nifty earnings to grow ~10% YoY in FY21, followed by EPS growth of 34% / 15% YoY in FY22 / FY23. They revise their Dec’21 Nifty50 target to 14,500 (from 14,000 earlier) implying P/E valuations of 19x FY22 EPS.

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Shift in Fiscal stance drives upgrade of GDP growth estimate

09 February, 2021

Citi analysts expect India’s GDP to have reached pre-Covid levels in Dec’20 and expect real GDP growth of +2.1% YoY in 3QFY21 followed by a 3.4% YoY growth in 4QFY21. Further, Citi analysts expect GDP growth to rebound to +12.5% YoY in FY22 from an estimated contraction of -6.2% YoY in FY21.

Citi analysts expect the RBI to keep policy rates on a long-pause, and expect 10yr G-sec bond yields to remain between 6% - 6.25% range until the end of the current fiscal year.

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RBI Policy: Dovish assurances but short on details

05 February, 2021

The RBI left benchmark repo and reverse-repo rates unchanged at 4% and 3.35% respectively during its Feb’21 monetary policy review, while maintaining the ‘accommodative’ stance in-line with expectations.

Contrary to expectations, the RBI refrained from providing specific details regarding near-term support to bond markets, despite the larger-than-expected government borrowing program. Citi analysts expect 10yr G-sec bond yields to remain between 6% - 6.25% range until the end of the current fiscal year.

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Budget FY2022: Reform push and conservative revenue estimates

02 February, 2021

Expenditure allocation to Covid-related support areas like rural/agri activities declined, while urban development, commerce, energy sectors saw a significant increase in expenditure allocation.

Citi analysts expect sectors like Financials, Auto, Industrials and Cement to be among the primary beneficiaries. They increase their Nifty target for Dec’21 to 14,500 (vs 14,000 earlier) factoring in recent upgrades to earnings estimates.

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FY22 Budget Preview: Focus to Shift from “Survival” to “Growth”

27 January, 2021

Citi analysts expect the Government to pivot from ‘survival’ mode to ‘revival’ mode in the upcoming Union Budget 2021-22, with lower expense allocation towards income-support measures and higher allocation towards public infrastructure capex, incentives for domestic manufacturing and affordable-housing.

While FY21/22 Nifty EPS growth estimates have improved 12% / 7% since Oct’20, current Nifty valuations (1yr fwd P/E) remain at a 15yr high. Citi analysts retain their estimated Nifty50 target for Dec’21 at 14,000, implying 19x 1yr forward P/E valuations.

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2021 Annual Outlook: New Economic Cycle, New Opportunities

01 January, 2021

The year 2020 has seen its fair share of major events – from the onset of the COVID-19 pandemic to the recent US Presidential election. Despite the backdrop of uncertainty, global equities have managed to recover back to pre COVID-19 levels, bolstered by massive government stimulus and more recently, positive news on COVID-19 vaccine.

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Precious Metals Outlook: Last Hurrah for Gold?

09 December, 2020

Gold prices have corrected ~5% since Nov’20 (down 10% from Aug’20 peak) amid positive developments on the Covid-19 vaccine front and conclusion of the 2020 US Presidential Elections bolstering risk appetite.

Citi analysts believe that improvement in global economic activity, enabled by effective vaccine distribution, may pose as a headwind for gold prices going forward. They expect spot prices for the yellow metal to decline towards USD 1,650/oz by 4QCY22 (from USD 1,860/oz currently).

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RBI Policy: Unanimously accommodative despite Inflationary pressures

07 December, 2020

MPC unanimously decided to leave policy repo and reverse repo rate unchanged at 4% and 3.35% respectively, while re-iterating its guidance to maintain the ‘accommodative’ stance at least into the next financial year despite persistently high inflation. Citi analysts now expect benchmark policy rates to remain unchanged through 2021.

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Manufacturing led recovery in India’s 2QFY21 GDP Growth

02 DECEMBER 2020

The pace of GDP contraction slowed sharply in 2QFY21 to -7.5% YoY (vs -23.9% YoY in 1Q), in-line with Citi analyst’s expectations, led by a rebound in the manufacturing sector, while lower government spending proved to be a drag on overall growth. Citi analysts revise India’s real GDP growth estimate upwards to -7.8% YoY (vs -8.0% earlier). Further, sharp recovery in the private sector and reduced risk of a permanent demand damage may also present upside risks to FY22 GDP growth expectations of +8.9% YoY.

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Agri and Formal sector employment drives Labour market improvement

02 DECEMBER 2020

Unemployment rate in India moderated further in Nov’20 to 6.7% from 8.4% in Aug’20 (vs 23.5% in Apr’20) with improvement in formal sector employment and continued strength in agri/rural sector employment. However, worsening wage-cost growth in certain sectors (construction, travel, textiles) and stubbornly high inflation may pose some downside risks to the better-than-expected consumption recovery witnessed over the last three months.

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Earnings Revisions Turn a Corner, Nifty Valuations May Remain Elevated

25 NOVEMBER 2020

Nifty50 index has returned ~10% so-far in Nov’20 amid incrementally positive vaccine news flow and close to USD 7bn of FII inflows into Indian equity markets. Further, improved risk appetite globally and better-than-expected 2QFY21 corporate earnings results lead Citi analysts to set their Dec’21 Nifty50 target at 13,000, implying a valuation multiple of 18x 1yr forward P/E (up from 17x earlier).

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Strong economic recovery in 2Q; Upside risk to FY21 GDP growth estimate

25 NOVEMBER 2020

Given stronger-than-expected recovery in economic activity, Citi analysts expect India’s GDP contraction to moderate to -7.5% YoY in 2QFY21 (vs -9.1% as per earlier estimate) – a significant improvement from the -23.9% YoY decline witnessed in the prior quarter. While manufacturing and agricultural sectors are expected to support overall growth in 2QFY21, Citi analysts believe that the pace of recovery may moderate going forward, following the festive-season spike in activity.

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Margin expansion drives better-than-expected Nifty Earnings growth

10 NOVEMBER 2020

For Nifty50 companies that have reported 2QFY21 earnings so-far, PAT increased 22% YoY (vs Citi analyst’s expectation of 1% YoY), led by better than expected margin expansion despite modest top-line gains. Sectorally, Financial and commodity sector companies led the positive earnings surprises.

While economic activity and corporate earnings trends have improved recently, current Nifty50 valuations remain expensive at 18x FY22 EPS (assuming 40% YoY earnings growth in FY22).

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Economic Activity approaches normalcy with broad-based improvement in Oct’20

05 NOVEMBER 2020

Citi analyst’s activity tracker index suggests a broad-based improvement in economic activity to over 90% of pre-Covid (Feb’20) levels in Oct’20. Recovery rate from Covid-19 improved to 91.5% for the country, with a decline in active cases from ~10 lakhs in mid-Sep’20 to 5.4 lakhs now, contributing to some improvement in consumer sentiment. Citi analysts however see risk of a rise in urban Covid-19 cases post festive season.

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Government Expenditure contraction may impact Growth recovery

05 NOVEMBER 2020

While Gross tax revenue collection for the Central government improved to -13% YoY in 2QFY21 (from -33% YoY in 1Q), revenue expenditure by the Centre declined -9% YoY in 2QFY21 (vs 11% YoY growth in 1Q). Capex growth also fell -12% YoY in 1HFY21.

Citi analysts believe that the fiscal stimulus support provided so far (1.3-1.5% of GDP by the Centre + 0.3% of GDP by States) may have been somewhat offset by the excise duty hikes and public expenditure compression.

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Nifty target revised amid 2QFY21 Earnings beat, MSCI EM index rebalancing

29 OCTOBER 2020

For the Nifty50 companies that have released 2QFY21 earnings results so far (~40% by weight), Profit After Tax (PAT) grew 10% YoY (20% QoQ), 2% ahead of expectations. EBIDTA grew 20% YoY driven by cost controls. Better-than-expected 2QFY21 earnings trend and improvement in economic activity leads Citi analysts to revise their Sep’21 Nifty50 target upwards to 11,700 (from 11,000 earlier), implying a 17x 1-year forward P/E valuation (vs 16x earlier).

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Government to bear ‘interest on interest’ cost for Small borrowers

29 OCTOBER 2020

The Central Government released details of the scheme under which the difference between compound interest and simple interest, for the moratorium period, will be credited to the accounts of eligible borrowers by lending institutions, on or before 5th Nov 2020.

Citi analysts believe that this scheme may provide a boost to retail festive spending, while benefiting lenders, especially those with higher lending rates, like microfinance and credit card segments.

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U.S. Presidential Elections and U.S. / China Relations - Outlook for the Global Economy and Investment Markets

16 OCTOBER 2020

The 2020 US presidential election is scheduled for November 3, 2020 - the 59th quadrennial presidential election. Could the election outcome alter the course of the market recovery that has seen global equities rebound 45% (as of 21 September) from March-lows? Is the strategic rivalry between US and China likely to continue heating up beyond trade? As the global economy reorients business and supply chains across US and China, how does this impact your portfolio?

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India Equity Strategy: Sectoral Earnings Expectations and US Elections

21 OCTOBER 2020

A Trump re-election may increase the likelihood of lower taxes (positive for US equities) and expansion of trade disputes (negative for Indian exports), while a Democratic win may improve chances of a large US fiscal stimulus and weaker USD – positive for FII flows into Emerging Markets, as per Citi analysts.

Sequential improvement in demand, operating leverage and cost efficiency may support corporate earnings in 2QFY21, while increasing input and freight costs, higher marketing spends and provisioning (for Banks) may present downside risks.

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2QFY21 Earnings: Sharp recovery expected with pick-up in activity

14 OCTOBER 2020

As companies resume operations post-lockdown, revenues are expected to improve 17% QoQ for Nifty50 companies. Citi analysts expect Profit After Tax (PAT) for Nifty50 companies to decline 11% YoY (+34% QoQ) in 2QFY21 supported by decent YoY margin trends in healthcare, utilities, IT, metals and telecom sectors.

With the broad based recovery in Indian equity markets current valuations of 18x FY22 EPS appear to have run ahead of the pace of economic recovery, as per Citi analysts.

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RBI Policy: Explicit Growth Bias with targeted Liquidity Enhancements

12 OCTOBER 2020

While keeping key lending rates unchanged, the RBI decided to look through the current spike in inflation and resolved to retain its ‘accommodative’ stance into FY22. Citi analysts believe that support from RBI’s bond purchases, expectations of a weaker USD and easing CPI over the coming months may encourage foreign inflows into Indian debt markets, driving 10yr G-sec bond yields to 5.65% (from 5.9% currently).

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Equity Strategy: Markets race ahead of Economic Recovery

08 OCTOBER 2020

Nifty50 returned ~9% in 2QFY21, while Nifty Midcap and Smallcap indices rose 15% and 23% respectively in the same period following a broad-based rebound in economic activity. In USD terms, MSCI India index rose ~20% in the Jul-Sep’20 period, 100-120bps ahead of S&P500 and MSCI EM indices. With valuations currently at >19x FY21 EPS (>2sd over mean), Citi analysts remain cautious and retain their Sep’21 Nifty target of 11,000 (implying a 16x 1yr forward earnings valuation).

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Government’s borrowing target dampens hope of a significant stimulus

08 OCTOBER 2020

Central government estimates an INR 4.34 lakh cr of borrowing requirement in 2HFY21, implying a ~70% YoY increase in gross G-sec issuance for FY21. While the borrowing calendar implies an FY21 fiscal deficit of 7% of GDP for the central government, Citi analysts expect additional borrowing requirements to arise towards the end of the fiscal year and push the fiscal deficit to 7.7% of GDP for FY21.

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Precious Metals may continue to outperform despite recent correction

30 September 2020

Despite the ~4.8% pullback in prices in Sep’20, gold continues to outperform major global equity and bond benchmarks, with YTD returns standing at 24%. Citi analysts remain bullish on gold over the medium-term and expect prices to reach USD 2,200/oz by the end of 2020 and climb up to USD 2,400/oz over a 6-12 month period. Silver prices are projected to reach USD 40/oz (from current USD 24/oz) pulling the gold/silver price ratio to 60x.

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Infrastructure Capex may see recovery in Atmanirbhar Bharat

30 September 2020

Citi analysts expect infrastructure capital expenditure to grow at a rate of 9-11% CAGR over the next 5-6 years, aided by improvement in regulatory environment, land acquisition, production linked incentives, import restrictions and lower corporate taxes. Citi analysts believe that large infra sector companies may benefit from the recent pickup in private capex funding (up 48% YoY in 1H FY20) and higher capacity utilization in consumer durables/discretionary, electronics, food & beverages as well as export oriented sectors.

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CPI remains elevated in Aug’20; Policy Rates expected to stay on hold

23 September 2020

In line with expectations, headline inflation remained steady at 6.69% YoY in Aug’20 vs revised Jul’20 CPI of 6.73% (revised down from 6.93% earlier). Citi analysts expect RBI to keep the policy lending rates on hold at least till Feb’21 and believe headline CPI may drop below 4% in Dec’20. Further policy responses may be determined by prevailing growth & Covid-19 dynamics and changes to the Flexible Inflation Targeting framework, due to be implemented in Mar’21.

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Labor Market trends may presage the nature of Consumption recovery

23 September 2020

As per CMIE data, total employment reached 97% of pre-Covid levels in Aug’20. Citi analysts expect urban demand to benefit from pent-up spending power and further relaxations, given the relatively lower disruption in higher skilled/better paying jobs, driving discretionary demand going forward. While tepid rise in wholesale food prices, Covid-19 spread and waning effect of fiscal stimulus may weigh on rural recovery.

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Improvement in Economic Activity despite a spike in Covid-19 cases

16 September 2020

Activity in key sectors (like petrol/electricity demand, car/two-wheeler sales, Rail Freight and Port cargo) reached >80% of its pre-Covid levels, while Retail payments, Tractor/Fertilizer sales and Pharmacy sales reached above their pre-Covid levels. However, despite the broad-based improvement in economic activity, CMIE consumer sentiments appear to be extremely subdued in both rural and urban areas.

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SEBI Introduces Asset Allocation restrictions for Multi-Cap Funds

16 September 2020

On 11th Sep’20, market regulator SEBI introduced asset-allocation guidelines for mutual funds operating under the Multi-Cap category. With effect from 31st Jan’21, all Multi-Cap mutual funds have been directed to ensure that a minimum 25% of their assets are invested in Large-cap, Mid-cap and Small-cap scrips each, while maintaining 75% of total asset allocation towards equity related instruments.

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RBI strategy pivots to INR appreciation bias to contain Inflation

09 September 2020

Citi analysts believe that resumption in economic activity, high inflation levels and fears of asset price bubbles may restrict further increase in surplus liquidity by the RBI. Given RBI’s perceived change in strategy, Citi analysts revise their USDINR forecast range to 72 - 74 (vs 74-76 earlier), assuming a further 2% depreciation in USD over a 6-12 month period. They retain their near-term target for 10yr G-sec bond yields at 5.8%

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Improvement in funding conditions for NBFCs while valuations remain cheap

09 September 2020

Average moratorium for NBFCs under Citi’s coverage declined from 38% in Apr/May’20 to 29% in Jun’20 with large divergence within segments. Funding environment for NBFCs has improved significantly over the past three months, however, term-premium remains at a 6 year high, while investors also continue to prefer higher rated NBFCs. Citi analysts believe that markets are currently pricing many NBFCs at cheap valuations of <1x Price/Book Value, lower than the 5yr average.

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Government Borrowing, Risk aversion and Liquidity driving Fixed Income Markets

01 September 2020

Despite the RBI’s efforts to push credit uptake in the real economy, bank’s SLR (Statutory Liquidity Ratio) has jumped to a 24-month high of 28.8%. Delay in conducting OMOs to absorb excess G-sec supply, combined with lower rate-cut expectations led to a 30/50bps increase in 10yr/5yr G-sec yields in Aug’20, however RBI’s actions on 31st Aug’20 may help lower 10yr G-sec bond yields to 5.8%, as per Citi analysts, with upside risks from inflationary concerns.

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Sharp Contraction in 1QFY21 GDP Print leads to downward revision of FY21 Estimates

01 September 2020

India’s real GDP contracted by 23.9% YoY in 1QFY21 (vs 3.1% growth in 4QFY20), sharper than Citi analyst’s estimate of -17% YoY, driven by a broad based decline in both Investment and Private consumption. Citi analysts now expect India’s real GDP to contract by 8% YoY in FY21 (vs earlier estimate of -6%YoY). The recent moderation in the pace of Covid-19 spread along with relaxations under ‘Unlock 4.0’ may lead to a positive GDP growth print of 1.9% YoY in 4QFY21.

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Upside surprises on both Current and Capital accounts support BoP surplus

25 AUGUST 2020

Driven by upside surprises on both current and capital accounts in 1HFY21, Citi analysts revise their Balance of Payments (BoP) estimate for FY21 to surplus USD 64bn (vs USD 34bn earlier). Citi analysts continue to expect INR to trade within the 74-76/USD range over the near-term. The pace of USD depreciation, India’s BoP dynamics and RBI’s FX intervention strategy may determine the INR/USD outlook for 2HFY21, as per Citi analysts.

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1QFY21 Earnings: Cost Savings drive Positive Surprises; Weak USD may support Inflows

25 AUGUST 2020

For 86 of the BSE-100 companies that have reported 1QFY21 earnings so-far, EBIDTA fell 8% YoY (470bps ahead of expectations), while PAT fell 29.4% YoY (270bps ahead of expectations). While savings in employee cost and marketing expenses may reverse going forward, Citi analysts expect some of the efficiency gains to persist, contributing to margin expansion for corporates.

While FII inflows have supported equity markets in recent months, DMFs have pulled out ~INR 18k cr so-far in FY21. Citi analysts set their Nifty50 target for Sep’21 at 11,000 (implying 16x 1yr-forward P/E valuations).

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Persistently high CPI print may prevent further rate-cuts by the RBI

18 AUGUST 2020

Headline CPI for Jul’20 came in at 6.93% YoY, rising 70bps MoM, as vegetable price inflation jumped to 11% YoY in Jul’20 (from 4% in Jun’20). Citi analysts believe that despite weak demand, retail prices remain elevated due to supply side disruptions. They revise their average CPI estimate for FY21 to 5.3% YoY (from 4.6% earlier), and believe that persistently high CPI and household inflationary trends may prevent the RBI from cutting the repo rate further in FY21.

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Economic Activity Tracker: Recovery stalled in Jul’20, could Aug’20 be better?

18 AUGUST 2020

With daily new confirmed Covid-19 cases having risen above 60,000/day (higher than the US), India is now the only major economy where the curve hasn’t shown any signs of flattening as yet. Consequently, economic activity indicators have plateaued, delaying economic recovery. While electricity demand, rail freight and Google’s mobility trends data remain broadly close to early-Jul’20 levels, indicators such as fertilizers sales, air quality index, GST E-way bills and retail payments suggests that activity worsened since early-Jul’20.

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1QFY21 Earnings Halfway: Efficiencies Drive Positive Surprises

11 AUGUST 2020

Halfway through the 1QFY21 earnings season, year-on-year trends have been expectedly weak (revenue down 15.6% YoY; earnings down 21.7% YoY). Operating performance, however, surprised positively (EBITDA down only 6.6% YoY) as cost control efforts partly offset the effects of operating deleveraging. With Nifty currently trading at expensive valuations of over 20x FY21 P/E (>2sd above mean) and India's relative premium to other Emerging Markets at 1sd above mean, Citi analysts maintain their Nifty target at 10,500 for Mar’21.

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RBI Policy: Focus on Safeguarding the Financial System and a Prudent 'Pause'

07 AUGUST 2020

In line with Citi analyst’s expectations, the Monetary Policy Committee (MPC) decided to take a ‘pause’ in the rate easing cycle during the Aug’20 monetary policy review. Measures on asset restructuring may help safeguard the financial system as we approach the end of the moratorium period and help improve credit flow. Given the pro-growth guidance provided by the RBI, Citi analysts believe that space for further 50bps of repo-rate cuts remain in the current easing cycle.

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Precious Metals Rally: Gold shines to Fresh Highs

04 AUGUST 2020

Gold prices have rallied ~30% so-far in 2020 (to USD 1,976/oz; INR 53,708/10g), rallying 9% in the past 2 weeks alone, riding record pace of ETF investor inflows, weakening USD and low interest rates around the globe. Citi analysts lift their short-term target (0-3m) for gold spot prices to USD 2,100/oz and highlight a possibility for prices to hit USD 2,300/oz in a bullish scenario over the 6-12 month period.

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Fiscal Deficit: Gross Tax Revenues at Multi-Decadal lows in 1QFY21

04 AUGUST 2020

Gross tax collections declined 33% YoY in 1QFY21, reflecting the full impact of stringent Covid-19 related lockdowns and economic contraction on both direct and indirect tax collections. The Central Government’s fiscal deficit reached 83% of the full-year budget in 1QFY21, higher than the last 5 year average of 60%. Given the downgrade in India’s FY21 nominal GDP growth expectations to -3.3% (from -0.7% earlier) Citi analysts also revise India’s FY21 fiscal deficit estimate to 7.6% of GDP (up 20bps).

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Indian Banks: Focus on liquidity while NIM may remain under pressure

27 JULY 2020

Given uncertain macro conditions, banks are increasingly focused towards improving their deposit franchise. Share of ‘retail deposits’ in the deposit mix for large private & PSU banks has risen to 65-75%, indicating a more granular and stable deposit franchise, while mid-sized banks show a higher dependence on bulk/wholesale funding, with only 40-45% retail deposits. Citi analysts expect larger banks to continue to benefit from higher deposit flows in the near term. Cost of deposits have also continued to trend lower, driven by lower system rates and higher liquidity.

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India Equity Strategy: Bullish Arguments; Limited Upsides

27 JULY 2020

MSCI India is trading at a 46% premium to other EMs (close to average). Earnings Yield Gap is also at long-term average (despite high equity valuations) due to ~150bps decline in bond yields over the past 1.5yrs. However, while Nifty is currently trading at 17x FY22 P/E, Citi analysts see downside risks to the FY22 earnings growth estimates (+30% YoY) and maintain their Nifty target for Mar’21 at 10,500.

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Trade Surplus: Exports rebound amid weakness in domestic demand

21 JULY 2020

India’s merchandise trade balance reached surplus territory for the first time in 18 years, registering +USD 0.8bn in Jun’20, with non-oil trade balance also improving to a surplus of USD 3.9bn in Jun’20 (vs USD 1.3bn deficit in May’20). While export contraction moderated to -12% YoY in Jun’20 (vs -36% / -60% in May / Apr’20), non-oil imports continued to decelerate at a sharp pace of -45% YoY in Jun’20, re-affirming Citi analyst’s view of greater weakness in domestic markets as compared to global markets.

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Normal Monsoons may help cool persistently high Inflation

21 JULY 2020

India’s headline CPI came in at 6.1% YoY in Jun’20, down from Apr’20 peak of 7.2% YoY, but still higher than expectations, indicating persistent effect of supply chain disruption and social-distancing norms on core and non-veggie food prices despite subdued demand.

Citi analysts believe that the RBI may leave policy rates unchanged in the Aug’20 MPC meeting while retaining the accommodative stance.

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1QFY21 Earnings Preview: Focus on the Future

14 JULY 2020

For the Nifty50/Sensex companies, Citi analysts expect revenues to decline 18%/17% YoY in 1QFY21 due to reducing operating leverage, partly offset by lower input costs, lower advertising/promotional spends and other cost control initiatives. Consequently, PAT is expected to decline 37% and 25% YoY for Nifty and Sensex companies respectively, with downside risks from higher Covid-19 related provisioning by Banks.

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2020 Mid Year Outlook: Investment Opportunities and Challenges in a Post COVID-19 Recovery

14 JULY 2020

The longest bull market in history, which lasted between 2009 and early 2020 was put to an abrupt end by the onset of the COVID-19 pandemic. However, global equities and bonds have since rebounded from their March lows, on hopes that massive government stimulus could help the world economy recover.

What are the investment opportunities and challenges in a post COVID-19 recovery? How should investors position their portfolios in these uncertain times?

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FY21 GDP Growth: Persistent virus spread pulls down growth expectations

07 JULY 2020

Given the delay in containment of Covid-19 spread in India and the prolonged supply-side shock to the economy, Citi analysts revise their FY21 GDP growth estimate to -6% YoY (from -3.5% YoY earlier). The downgrade is primarily led by a downward revision in 1QFY21 GDP growth estimate to -21% YoY (from -16% YoY earlier).

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Equity Strategy: Limited Upsides amid elevated Valuations

07 JULY 2020

Equity Markets have responded to the almost V-shaped recovery in economic activity with Nifty50 having gained ~40% from Mar’20 lows (currently ~13% below pre-Covid levels).

Citi analysts expect Nifty earnings to remain flat or show a modest decline YoY in FY21 and grow 34% YoY in FY22 (CAGR for FY19-22E at 11%), with downside risks. They retain their Mar’21 Nifty50 target of 10,500, implying continued volatility and a ‘buy on dips’ approach.

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Covid-19 Update: Improvement in Recovery Rate; Health infra under pressure

23 JUNE 2020

The doubling rate of active Covid-19 cases in India has shown an encouraging improvement to 28 days from 18.3 days (as of early Jun’20). Further, the recovery rate has crossed the 50% mark, while the fatality rate remains at 2.9%, much lower than the global average of 5.6%. However, while the rate of daily tests conducted has increased to 1.4-1.5 lakh (from 0.9-1.0 lakh/day in mid-May’20), the conformation rate has also risen to 5.8% (from 4.0% in mid-May’20).

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External Trade: Merchandise Trade Deficit Lowest since the GFC

23 JUNE 2020

India’s merchandise trade deficit dropped to a decadal low of USD 3.2bn in May’20 (lowest since Feb’09), benefiting from the collapse of oil prices in Apr’20. Citi analysts however expect trade deficit to have bottomed out in May’20, as rising oil prices and improvement in domestic demand may shrink the gap between import and export growth.

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Money Matters: RBI’s FX Reserves and Currency in Circulation at a High

16 JUNE 2020

RBI’s forex reserves grew to >USD 500bn on June 5th evidencing India’s substantial external-sector strength. Currency in Circulation (CIC) jumped over 200% over the last 3 months (Mar-May’20), while banks’ non-food credit growth declined by 100bps MoM (as on 8th May’20), reflecting Covid-19 related disruption and risk-aversion among banks.

Citi analysts caution that the persistent excess liquidity may inspire a demand side inflation towards the end of the year. Citi analysts expect INR to trade within the narrow range of 74-76/ USD in the near term.

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Equity Strategy for the New Normal: Sectoral Themes Post-Covid

09 JUNE 2020

While Nifty50 index is back to its 5 year average valuation (on a 1yr-fwd P/E basis), Citi analysts prefer a ‘buy on dips’ approach, given that earnings yield gap remains attractive and valuations premium over MSCI EM is still ~1sd below mean. Citi analysts revise their Nifty target to 10,500 for Mar’21 (from 10,000 earlier), implying a 16x 1yr-forward P/E multiple.

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India GDP Growth: Challenging Conditions may Impede Recovery

02 JUNE 2020

In a fourth consecutive quarterly decline, India’s real GDP growth fell to 3.1% YoY in 4QFY20, down from 4.1% YoY growth observed in the prior quarter (3QFY20), lowest since Mar 2009. The weak GDP print was majorly led by a sharp decline in private consumption growth, from 6.6% YoY in 3QFY20 to 2.7% YoY in 4QFY20. Citi analysts now highlight downside risks to their GDP growth expectations of -3.5% YoY in FY21.

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4QFY20 Earnings: Undershooting expectations at Halfway Mark

02 JUNE 2020

For the 47 of the BSE-100 companies that have reported earnings for 4QFY20 so far, the single-digit revenue and EBIDTA growth was broadly in-line with Citi analysts' expectations. Profit After Tax (PAT) however declined by over 25% YoY for these companies, significantly undershooting Citi analysts’ expectations of a 2.7% YoY growth. Citi analysts expect overall BSE-100 earnings to decline by 20% YoY in 4QFY20.

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RBI Policy: Rate Cuts and Continued Regulatory Forbearance

26 MAY 2020

In a second consecutive inter-meeting action, the RBI announced further steps to support growth through liquidity and regulatory measures, including a 40bps repo-rate cut and further extension of the payment moratorium on term and working capital loans by three months (till 31st Aug’20). Citi analysts expect 10yr G-sec bond yields to trade within the 5.5-6.0% range and USD/INR to trade within 75-76.5 range in the near term.

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Economic Activity Tracker: Uptick in Key Indicators in Lockdown 4.0

26 MAY 2020

Key economic indicators suggest a pick-up in activity from record lows seen in Apr’20. Rail freight, electricity demand and mobility trackers show that economic activity has returned to end-March/early-April levels, driven by relaxations allowed by some states over the last week. However, the lack of significant moderation in Covid-19 spread may make larger relaxations difficult, according to Citi analysts.

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India's Economic Package: Supply Side Focus and Reforms Push

19 MAY 2020

Citi analysts estimate the overall fiscal cost of the stimulus announced last week by the Finance Minister to only be 1.2 – 1.3% of GDP. Citi analysts expect the Government’s willingness to absorb credit risk of vulnerable entities to facilitate flow of credit through the system, avert defaults and subsequent demand-shock.

While there was generous focus on the supply side, the lack of appetite to absorb losses for the formal sector indicates limited fiscal space. Citi analysts keep their estimate of FY21 fiscal deficit unchanged at 7.4% of GDP.

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Modest Stimulus and Lockdown Extension drives GDP growth downgrade

19 MAY 2020

Citi analysts revise India’s FY21 GDP growth expectations lower to -3.5% YoY (from 0.6% growth estimated earlier). Citi analysts now expect real GDP to contract by 16% YoY in 1QFY21, and register less than 1% YoY quarterly growth in2Q-4Q FY21.

India's GDP growth is expected to recover sharply to 9.2% YoY in FY22, benefiting from the low base and an expected recovery in economic activity. Slowdown in global growth and risk of structural challenges to domestic growth may pose further downside risks to the growth estimate.

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GDP Growth Estimate: Lockdown Extension triggers Downgrade

12 MAY 2020

Citi analysts downgrade their FY21 GDP growth forecast to 0.6% YoY, from 1.7% YoY earlier, following a third extension of the nation-wide lockdown till 17th May 2020, expecting a contraction of 7.3% YoY in 1QFY21. Citi analysts, however, expect a sharp recovery to 2.7% YoY growth in 2QFY21, benefiting from inventory restocking and pent-up consumer demand. Resumption of normalcy may, however, be delayed until the number of Red Zones (accounting for 48% of India’s GDP) decreases substantially.

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Government Borrowing Plan to push G-sec Bond Yields Higher

12 MAY 2020

The central government revised its FY21 gross borrowing target to INR 12 lakh cr, up from INR 7.8 lakh cr, implying an increase of ~2% of GDP. While a full year slippage was widely expected, the elevated borrowing plan for 1H FY21 took the markets by surprise.

Citi analysts now expect Centre’s fiscal deficit to reach 7.4% of GDP in FY21, including the impact of lower nominal GDP growth and the anticipated fiscal stimulus directed towards the poor, MSMEs, infra capex among others.

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Fiscal Stimulus: Lesser available Fiscal Space today vs post-GFC period

05 MAY 2020

Entering into the Global Financial Crisis of 2008, India’s fiscal deficit stood at 2.6% of GDP (lowest ever), leaving ample space for the government to provide a stimulus of more than 3% of GDP in FY09.

In contrast, Citi analysts expect the Centre’s fiscal deficit to reach 4.3% and 8% of GDP in FY20 and FY21 respectively, including expected fiscal stimulus in the form of direct income support for the poor, humanitarian & health packages, credit support to MSMEs and vulnerable industries, etc.

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Monetary Policy Actions so far: GFC vs COVID-19

05 MAY 2020

The RBI had been on a rate-hiking cycle in 2008 and was able to provide 425bps reduction to the repo rate over a 7-month period post-GFC (eventually bringing repo rate from 9% to 4.75%).

In contrast, RBI was on the last leg of a rate-cut cycle when the Covid-19 crisis hit. While the repo rate has already been reduced to 4.4% (reverse repo-rate at 3.75%), Citi analysts expect further 50bps of reduction by Jun20.

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Fiscal Deficit: Designing a Stimulus amid Mounting Slippage

30 APRIL 2020

Citi analysts believe that the central government’s fiscal deficit may have reached 4.3% of GDP in FY20, suggesting a further 50bps of slippage from the revised estimate of 3.8% as per Feb20 budget.

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India Economics: Growth Estimate Downgraded as Lockdown Extends

21 APRIL 2020

While the lockdown has been extended in India until 3rd May 2020, the government announced relaxation of several restrictions outside of “containment zones”. Despite this, Citi analysts expect a resumption in economic activity to remain challenging.

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RBI Policy: Incremental Push towards Liquidity Transmission

20 APRIL 2020

While focusing on provision of liquidity to NBFC and SMEs, the RBI has announced another set of actions combining rates, liquidity and regulatory measures and tried to further dis-incentivize risk aversion by banks.

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4Q Nifty Earnings Estimate: First-look of the Lockdown Impact

15 APRIL 2020

While a larger impact of the lockdown is expected to be felt in 1QFY21, Citi analysts expect 4QFY20 earnings to provide a preview of the earnings pressures to come. Citi analysts expect Nifty earnings to decline ~20% YoY in 4QFY20 (up 3% YoY ex-commodities, aided by favorable base effect in Financials). They expect the topline (revenues) to decline ~6% YoY.

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External Trade: Current Account Surplus to Support INR

08 APRIL 2020

Citi analysts expect India’s current account to turn surplus (at ~0.5% of GDP) in FY21, first time in 17 years. However, capital account surplus (at ~1.4% of GDP) may fall to its lowest since the Global Financial Crisis (GFC).

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Equity Strategy: Earnings Downgrades and Valuation Opportunities

08 APRIL 2020

Citi analysts expect to see sharp downgrades to FY21 consensus earnings estimates in the coming weeks and believe that it may be a year of flat earnings growth. They expect Nifty earnings to grow
15-20% YoY in FY22 driven by low base and economic recovery.

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Fiscal Response to Covid-19: Focus on the Most Vulnerable

01 APRIL 2020

The Finance Minister, on Thursday (March 26th) unveiled a fiscal package worth INR 1.7 Lakh Cr (0.75% of GDP) focusing on the most vulnerable sections who would be disproportionately affected by the current national lockdown. Citi analysts expect lower working days in 4QFY20 and 1QFY21 to drag the GDP growth by ~400bps, spread between the two quarters.

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RBI Policy: Unscheduled and Power Packed

27 MARCH 2020

In an unscheduled meeting on Friday (March 27th) the RBI announced a 75bps reduction in the repo rate (4-2 split decision) along with several other measures to enhance liquidity transmission in response to containing the impact of the Covid-19 spread.

Citi analysts expect the 10yr G-sec bond yields to grind lower towards 5.50% given lower policy rate, surplus liquidity and support from continued OMOs & LTROs.

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Lockdown to force Earnings Downgrades;
Nifty Target at 10,100 for March 2021

26 MARCH 2020

Citi analysts believe that the 21-day lockdown period may be followed by a month of gradual relaxation of restrictions.

Expecting Nifty FY21 earnings to remain flat YoY and recover in FY22, off a low base, Citi analysts set a Nifty target of 10,100 for Mar21, implying a ~16% upside from current levels.

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Wish-List for a Fiscal Response to
Covid-19

24 MARCH 2020

Threats of a global recession, stressed financial markets and weak domestic demand growth may call for a sizable, targeted and timely stimulus in Citi analyst’s view.

They now believe that the FRMB restrictions may have to be temporarily set aside, similar to the post-GFC period when fiscal deficit rose from 2.6% of GDP to 6.1% in just one year following a slew of stimulus measures.

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Equity Valuations Attractive; Expect Volatility to Continue

16 MARCH 2020

Indian equities have declined 25% since their January 2020 peak under a combined impact of Covid-19 global outbreak and stress in the financial sector.

While near-term volatility cannot be ruled out, equity valuations now appear attractive, as per Citi analysts. They revise their Nifty50 target for Dec 2020 to 11,400 (from 12,200 earlier), implying a ~19% upside from current levels.

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Covid-19 Impact on India: Equity Valuations Reasonable; Supply Chain Disruption Expected

03 MARCH 2020

In line with major global indices, Indian equity markets lost ~7% in the past week following FII sell-off on reports of rapid spread of Covid-19 virus outside of China. Citi analysts believe that from a valuations perspective, equities present an improved risk/reward scenario post the recent correction and lower their December 2020 Nifty target to 12,200 (from 12,700 earlier) implying a ~9% upside from current levels.

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RBI POLICY – Unconventional Support to Growth, Uncertain Inflation Environment

07 FEBRUARY 2020

The Sixth Bi-Monthly Monetary Policy Statement for FY 2019-2020 was released by the Reserve Bank of India (RBI) on 6th February 2020. Following were the key highlights.

1. Repo rate was left unchanged at 5.15%

2. Stance left unchanged as “Accommodative”

Citi analysts believe that the RBI has been able to use unconventional measures to improve both cost and availability of credit. In an adverse growth-inflation environment, Citi analysts expect these measures to encourage money supply growth and help stimulate the economy.

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Budget FY2021: Focus on Macro Stability with Limited Growth Stimulus

03 FEBRUARY 2020

In the longest budget speech in history, the Finance Minister chose to stick with fiscal discipline and refrained from providing significant expenditure-led stimulus to growth. Given high expectations in the run up to the budget, BSE Sensex fell 2.43%, with most sectoral indices ending the day in red, reflecting some disappointment.

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FY21 Budget Preview: Call for Stimulus amid Fiscal Concerns

29 JANUARY 2020

Citi analysts expect the government to focus on encouraging manufacturing, stimulating demand (rural/mid-income segment) and pushing infrastructure development, in addition to trying to revive ailing sectors like NBFCs, power and real estate. Given high expectations in a fiscally strained environment, any disappointment may result in a correction in the equity markets as valuations remain high.

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2020 Annual Outlook: Thriving Amid Uncertainty

03 January, 2020

Global equities returned 28% in 2019 as the year ended with optimism on the trade front and reduced recession risks. Citi analysts expect global GDP growth of 2.7% YoY in 2020 supported by easy monetary conditions, offsetting the risk of economic slowdown. They expect Emerging markets to rebound to a GDP growth of 4.2% YoY, while Advanced economies may moderate to 1.5% YoY growth.

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Citi Analysts set Nifty target for Dec 2020 at 12,700; 1yr-fwd P/E multiple at 16x (down from 17x earlier)

23 December, 2019

Citi analysts believe that the cascade of policy rate reductions and asset purchases by Central Banks around the world has been a key driver of bullishness in the global markets. They expect Nifty earnings to grow ~32% in FY21, recovering from effects of one-offs and price wars in the telecom sector and an expected normalization of credit losses in the financial sector.

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Gold — Safe haven in times of Uncertainty

19 December, 2019

Gold, a safe-haven asset, has returned ~15% so far this year. Citi analysts maintain a bullish outlook for the yellow metal over the medium-term, driven by expectations of heightened trade tensions and subdued oil prices throughout 2020. They expect gold prices to average $1,625/oz over the next 6-12month period.

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Revisiting Mid-Caps: Valuation Discounts may present selective Opportunities

12 December, 2019

Large-cap valuation premium over Mid-caps has reached close to its 10-year peak. Citi analysts think that risk aversion following recent macroeconomic concerns may have created selective valuation-driven opportunities in the Mid-cap space.

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RBI POLICY – Surprise Pause, but remains “Accommodative”

05 December, 2019

The Fifth Bi-Monthly Monetary Policy Statement for FY 2019-2020 was released by the Reserve Bank of India (RBI) on 5th December 2019. Following were the key highlights.

1. Repo rate was left unchanged at 5.15%.

2. Stance left unchanged as “Accommodative”.

Consequently, the reverse repo rate and the marginal standing facility (MSF) rate / Bank rate remains unchanged at 4.90% and 5.40% respectively.

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GDP growth falls further, long road to Recovery

04 December, 2019

Despite strong government spending, India’s GDP growth slowed for the sixth straight quarter to 4.5% YoY in 2QFY20, led by a further decline in investment activity. Citi analysts expect GDP growth to average at 4.9% YoY in FY20, and recover to 5.9% YoY in FY21.

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2QFY20 Earnings: EBIDTA Ahead of Tepid Expectations; Expect Limited Upside

21 NOVEMBER, 2019

EBIDTA for BSE-100 companies came slightly ahead of expectations, with most sectors benefiting from lower input costs. Given expensive valuations, Citi analysts expect limited upsides from the equity markets in the near term.

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Stuck in the Middle: Rising Food Prices vs Subdued Demand

21 NOVEMBER, 2019

Food & Beverage CPI rose to 6.9% YoY in Oct19, even as core CPI continued to decline. Citi analysts believe that the spike in Food CPI in a demand-constrained economy may complicate policy response from the RBI.

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2QFY20 Earnings Estimate: Continued Weakness; tax cut impact to be watched

13 OCTOBER, 2019

Citi analysts expect Nifty pre-tax earnings (PBT) to decline 3% YoY in 2QFY20. They roll forward their Sensex target by 6-months and set it at 40,500 for September 2020, lowering the 1-year forward P/E multiple to 17x (down from 18x earlier).

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RBI POLICY – Rate Cut expectations met, guides for a Dovish stance

04 October, 2019

The Fourth Bi-Monthly Monetary Policy Statement for FY 2019-2020 was released by the Reserve Bank of India (RBI) on 4th October 2019. Following were the highlights.

1. Repo rate was cut by 25bps to 5.15% with immediate effect.

2. Stance left unchanged at “accommodative”.

Consequently, the reverse repo rate and the marginal standing facility (MSF) rate / Bank rate stand adjusted to 4.90% and 5.40% respectively.

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Corporate tax cuts announced - Citi analysts raise Mar’20 Sensex target to 40,500 (39,000 earlier)

23 SEPTEMBER, 2019

Citi analysts raise their Sensex target multiple to 18x from 17x earlier. Sensex has rallied by ~8% in the last two trading days, on the back of these developments.

  • Broad based reduction in corporate tax rates gives a definitive boost to corporate EPS.
  • There is a likely medium/long term boost to domestic manufacturing.
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Markets More Reasonably Priced, with Limited Downside

05 SEPTEMBER, 2019

Equity markets seem to have turned quite bearish in the last few months over a subdued macro outlook. Large-cap indices have significantly outperformed the mid/small cap indices since 2018, highlighting a cautious market sentiment. Citi analysts revise down their Sensex forecast, but see limited downside from current levels.

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RBI POLICY – Growth Focus with a Calibrated Cut

07 AUGUST 2019

The Third Bi-Monthly Monetary Policy Statement for FY 2019-2020 was released by the Reserve Bank of India (RBI) on 7th August 2019. Following were the highlights.

1. Repo rate was cut by 35bps to 5.40% with immediate effect.

2. Stance left unchanged at “accommodative”

Consequently, the reverse repo rate and the marginal standing facility (MSF) rate / Bank rate stand adjusted to 5.15% and 5.65% respectively.

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Earnings Disappoint, Yield Gap Improves amid Sharp Correction

06 AUGUST 2019

1QFY20 earnings decline of 3% YoY for 42/BSE-100 companies has been disappointing so far. However, following the sharp correction in equity markets, Earnings Yield Gap appears to have improved. Citi analysts lower their Sensex target to 39,500 for March 2020.

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Budget FY2020: An Overview

08 JULY 2019

Balanced between growth priorities and fiscal discipline, the budget provides impetus to the financial system while making a big push on affordable housing and manufacturing. The increase in FDI limits for multiple sectors and focus on ease of doing business should benefit businesses in the medium term.

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2019 Mid Year Outlook: Embracing Uncertainty in a Slower Growth Environment

01 JULY 2019

After gaining 16.7% in the first 4 months of 2019, Global equities are now entering seasonally weaker summer months, further amplified by US-China trade risks. For EMs, Citi analysts anticipate GDP growth of 6.4% in 2019 on the back of ongoing Chinese recovery and supportive policy, and believe that a highly diversified multi-asset class portfolio approach remains essential in today’s volatile environment.

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Auto Sales Growth – Demand Headwinds to Persist For Now; Recovery in 2HFY20

01 July 2019

Auto sales growth, seen as an important indicator for domestic consumption, continues on a downward trend. Citi analysts breakdown the key issues plaguing the auto industry amid production scale-backs and declining sales growth projections.

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India - Debt market update

18 JUNE 2019

Liquidity conditions in the Indian debt markets remain tight as spreads between G-sec and corporate bond yields stay elevated. While the RBI continues to provide support through various tools of liquidity injection, recent corporate rating downgrades give cause for concern.

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RBI POLICY – LOWER RATES, STANCE “ACCOMMODATIVE”

07 JUNE 2019

The Second Bi-Monthly Monetary Policy Statement for FY 2019-2020 was released by the Reserve Bank of India (RBI) on 6th June 2019. Following were the highlights.

1. Repo rate was cut by 25bps to 5.75% with immediate effect.

2. Stance changed to “Accommodative”

Consequently, the reverse repo rate and the marginal standing facility (MSF) rate / Bank rate stands adjusted to 5.50% and 6.0% respectively.

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Slowing GDP Growth Highlights Need for Reforms

05 JUNE 2019

India’s GDP growth in 4QFY19 slipped more than expected to 5.8% YoY, while overall growth for FY19 reached a 5-year low of 6.8% YoY.

Citi analysts list the areas needing immediate government attention, after a sentiment positive election outcome.

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Elections done, Markets Look for Policy Action

28 MAY 2019

With the political event-uncertainty behind us, markets now look for policy action to spur domestic consumption and private investment activity. Citi analysts expect the government to focus on these areas, given limited fiscal headspace.

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India Growth Slows Down More than Anticipated

22 MAY 2019

Citi analysts estimate the year-on-year (YoY) GDP growth for the Jan-Mar19 period to have moderated to 6.2%. Consequently, the FY19 GDP growth average is expected to undershoot Central Statistics Office’s (CSO) estimate (7% YoY) by 10-20 basis points (bps).

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India 2019 General Elections Update: Strong Voter Turnout recorded until now

10 MAY 2019

Voter Turnout for the 2019 General Election looks to surpass historical highs. The first four phases recorded an average voter turnout of near 67%.

Voter-Verified Paper Audit Trail (VVPAT) machines deployed for the first time. Exit poll estimates are expected after 6:30pm IST on 19th May. Vote counting will take place on 23rd May 2019.

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RBI Policy – Lower Rates, stance stays Neutral

5 APRIL 2019

The First Bi-Monthly Monetary Policy Statement for FY 2019-2020 was released by the Reserve Bank of India (RBI) today. Following were the highlights.

1. Repo rate was cut by 25bps to 6.0% with immediate effect.

2. Stance left unchanged at “Neutral”

Consequently, the reverse repo rate and the marginal standing facility (MSF) rate / Bank rate stands adjusted to 5.75% and 6.25% respectively.

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Revisiting Mid-Caps

15 MARCH 2019

Mid-cap stocks have witnessed a sharp rally over the past few weeks, after underperforming Large-caps by ~20% in 2018. Citi analysts see some uptick in investor interest in Mid-caps, as post the correction of past 1 yr, they appear to be more reasonably valued.

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RBI POLICY – DOUBLE DOVISH OUTCOME.

By Gaurav Kulshreshtha | 07 February 2019

The Sixth Bi-Monthly Monetary Policy Statement for FY 2018-2019 was released by the Reserve Bank of India (RBI) today. Following were the highlights.

1. Repo rate was cut by 25bps to 6.25% with immediate effect.

2. Stance changed from “Calibrated Tightening” to “Neutral”

Consequently, the reverse repo rate and the marginal standing facility (MSF) rate / Bank rate stands adjusted to 6% and 6.50%.

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Interim Budget FY2020

Gaurav Kulshreshtha | 01 FEBRUARY 2019

India Finance Minister presented the Interim Budget for fiscal year 2019-20 today. This pre-election budget aimed at reducing financial burden on the poor, while also introducing some tax relief measures for middle-income groups.

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India - Debt market update

31 JANUARY 2019

Liquidity conditions improved starting December 18 aided by the OMOs conducted by RBI. However, with recent developments indicating concerns around exposures of Debt Mutual Funds, Citi analysts believe that liquidity conditions can tighten further as we head into the seasonally tight February-March period.

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