New Delhi, Jan 10: Stating that India's Gross Domestic Product (GDP) growth and risk appetite may lag expectations, Citigroup Global on Thursday cut India's rating from 'Neutral' to 'Underweight'.
Citigroup sees BSE Sensex rising by 7% more from current levels in 2013, with a target of 20,800. "Indian market will be led by earnings per share (EPS) growth in 2013, not PE expansion," the bank said. More government reform action, along with easing inflation and falling interest rates should support equities, added the bank.
The group favours cyclical stocks to defensives in the Indian market.
Earlier this week, Fitch had also said that India may face a credit ratings downgrade in the next 12-24 months. The recent macroeconomic trends have been disappointing, a Fitch analyst had said.
Last month, global rating agency Fitch had warned that policy slippage, fiscal loosening in the run-up to 2014 general elections and weak growth could force a downgrade of India's credit rating. It had pegged India's growth for the current financial year at 6%.
"Our affirmation of the 'BBB-' rating in June reflected India's diversified economy and high domestic savings... Policy slippage and/or mounting evidence of a structural decline in the trend growth rate, such as protracted relatively weak economic data, could cause the ratings to be downgraded," Fitch had said.
Standard & Poor's had also warned that India still faced one-in-three chance of downgrade in its sovereign rating to junk grade over the next 24 months citing high fiscal deficit and debt burden, but rival Moody's said the country's growth prospects for 2013 have improved.
"A downgrade is likely if India's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," the S&P had said in a statement.
"High fiscal deficits and a heavy debt burden remain the most significant rating constraints" it said.
The ratings agency had in April cut the outlook on India's BBB- rating, lowest investment grade, to negative from stable, assigning one in three chance of a downgrade to below investment grade over the next two years.
