'Policy inertia' impacting market sentiment, says Citi

Citi, the global financial major, has marginally lowered the benchmark Sensex target for the year, citing domestic factors like slow decision-making at policy levels and growth numbers starting to come off the highs. With the global macro-economic scenario also looking bleak, it feels there are many issues that investors need to be watchful on.

In its latest India strategy report, Citi has lowered the year-end Sensex target from 22,000 to 21,500, while adding that there is a brighter side to the gloomier picture.

“There is a policy inertia... nothing gets approved. Policy decision-making is slow. That is the situation we are facing currently,” said Aditya Narain, managing director & head of research, India during his interaction with the media at the 6th Citi India Investor Conference.

In a similar context, their India economist, Rohini Malkani, highlighted the fact that the Indian parliament was able to function for “5.3 per cent of the total hours scheduled for the winter session”, which was “probably the worst in 25 years”.

She did add there was a feeling that the monsoon session would be better. “There is certain amount of consensus building up that things are slow and government may get its act together on the policy front. We do not expect the monsoon session to be a complete washout,” said Malkani.

The statements come only a day after finance minister Pranab Mukherjee, during his interaction with leading domestic and foreign institutional investors (FIIs), said the Indian growth story was robust and the government committed to doing whatever was necessary to achieving and sustaining a higher economic growth rate.

The minister assured institutional investors that the government would continue to take investor-friendly policies.

Narain, however, also said there were ample reasons for everyone to buy Indian stocks and that most investors are under-invested in equities.

“Beaten-down economic growth expectations, elevated earnings/macro risk perceptions, resultant moderation in valuations and India’s second-half seasonality are reasons to buy Indian stocks,’ he said in his report.

It adds: “The economy is now probably close to peak in terms of incremental pressures, and either growth falls or market rates rise — it is unlikely that both will happen, which is what we believe the market is suggesting.” The group is overweight on financials, energy, pharma, property and telecom. The foreign major is also looking at the mid-cap sector, though the “risk element” is a “little higher” in that space. “The business tends to be more susceptible to a tighter funding environment but, clearly, that is an area we would be looking at. The midcap space has generally become cheap in terms of valuation and the stocks matched with the business prospects are particularly attractive,” explained Narain.