Citi downgrades Indian equities to 'neutral' on lofty valuations, upgrades China, South Korea

Citi upgraded equities in China and South Korea to 'overweight.'

Citigroup Inc.'s brokerage arm downgraded its rating on Indian equities to 'neutral' from its earlier 'overweight' stance on Thursday, July 17. On the other hand, China and South Korea's markets have been upgraded to 'overweight' on an improved earnings outlook and reasonable valuations.

According to Citi, India's macro story looks better than peers and a U.S. trade deal remains possible, but the market’s EPS growth outlook no longer looks exceptional against the backdrop of still
relatively high valuations.

However, even while faced with higher tariff exposures, South Korea and China are more favourably viewed due to comparatively better EPS revision trends amid still-reasonable valuations, suggested Citi strategists. China's tech sector has seen renewed investor interest, rallying over 20 percent so far this year.

Citi had upgraded India to 'overweight' in February, believing there could be a meaningful upside as a result of the less demanding valuations at the time. The brokerage expected the benchmark Nifty 50 to hit the 26,000 mark by the end of 2025.  “The market also screens like a relative outperformer, should tariff risks return,” Citi had said.

Citi’s report in February had highlighted three major factors supporting its bullish view on India:

Tax Cuts and Rising Consumption – The Union Budget for FY26 introduced personal income tax reductions, which are expected to boost consumer sentiment and demand, it said in its report.

Recovery in Public Capex – Recent data suggests a strong pickup in government capital expenditure, adding to growth momentum.

Easing Monetary Policy – The Reserve Bank of India (RBI) recently initiated its rate-cut cycle with a 25 basis points reduction. Citi’s economists anticipate another 50 basis points of easing in the coming months.

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