Foreign brokerage firm Citi today lowered its rating on Indian stocks to “underweight” from “neutral” citing growth concerns and said the Indian markets could move up only by seven per cent in 2013.
“The recent market rally has raised economic and political expectations and we fear the rebound in the economy, corporate risk appetite and the investment cycle will lag expectations,” it said, while cutting the domestic stocks to “underweight.”
Underweight in an analyst’s opinion usually means that the security/market is expected to underperform either its peers or a benchmark index. On the other hand, neutral means the same is expected to match its peers or benchmark index.
The spectre of general elections in the world’s largest democracy next year will make 2013 “very noisy”, it said.
“After being best among the BRICs in 2012, we cut India from neutral to underweight...We look for a 7 per cent upside in the local market, supporting our underweight,” the Citi report said.
The Sensex today ended 3.04 points lower at 19,663.55.
The comments come amidst the market rallying nearly 28 per cent in 2012 and many brokerages like Goldman Sachs earlier this week predicting that the market would rally about 17 per cent this fiscal with Nifty pegged at 7,000 by December and the Indian markets to be the second best performer after Korean markets.
The Indian equities will, however, find support from government action and an ease in inflation and interest rates, the report said.
The domestic markets have rallied since September last year following bold policy measures by the government and the announcement of the third round of quantitative easing by the US Federal Reserve.
Citi said stocks in financial, consumer discretionary and materials sectors were its favourites.
In the country-wise weight break-down, China is the most preferred emerging market, followed by Korea and Taiwan, the report said.
In the sectoral break-up for India, the financial sector tops the list, followed by IT and energy.