Citigroup Global Markets sees the Sensex at an optimistic 21,500 this December, an estimate despite India being among the worst performing markets in 2011 (year-to-date) globally

However, this estimate is a tad lower than the firm's own earlier estimate of 22,000 for the Sensex.

Citi expects India's GDP to grow in the range of 7.5-8 per cent in FY12 and sees corporate earnings growth in the 18-19 per cent range. The economy is close to the peak in terms of incremental pressures from falling growth and rising interest rates.

“The structural risk lies in profitability, not growth,” said Mr Aditya Narain, MD and Head of Research, Citigroup, at a conference in Mumbai. “The return-on-equity, which is very high now, will be threatened in the medium term.”

The capex pipeline is rising in contrast to the market view that capex is dead.

The company sees a sign of the capex cycle bottoming out, though a turnaround would still be dependent on the urgency with which government approvals come in for land acquisition, transportation and distribution related issues. Easier and cheaper funding options are also vital, said Citigroup.

There is a disconnect between the faltering investment cycle and a fairly consistent year-on-year loan growth of 22 per cent suggesting reasonable demand for funding that does not match fully with the apparent slowdown.

Moreover, there is limited evidence of this funding demand supporting higher inventory requirements and inflation, suggesting that underlying growth is not as weak as it is made out to be.

Overweight

The firm is overweight on financials, energy, pharma and telecom stocks.

The catalysts to growth will be easing macro and commodity price pressures, capex revival due to government policy and widening global growth differential.

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