The second Covid-19 wave is likely to dampen consumer sentiment and hit economic recovery, Citi Research said.
“While the second wave hasn’t yet led to severe activity lockdowns of last year, dampening of consumer sentiments looks inevitable and sharp restrictions are possible,” it said in a report. India’s vaccination pace has accelerated, but at around 3 million doses a day it’s away from reaching herd immunity, the research firm said.
According to Citi, the economic activity in India improved sequentially in the quarter ended March, although the pace of improvement moderated. A rise in commodity prices and a return of discretionary spending likely imply some mean reversion on margins, it said.
“Excluding the commodities’ space, we expect 7%/4% quarter-on-quarter growth in top-line/profit for Nifty,” Citi said. With a new set of restrictions, however, Citi/consensus bottom-up forecasts of more than a 33% rise over the year-earlier may not be pricing in any major impact.
Among the sectors, Citi expects margin compression to impact the quarter-on-quarter trends for the discretionary, IT and healthcare sectors.
Also, valuations, the research firm said, remain expensive on an absolute basis. Its strategists remain cautious about global variables such as rising yields, the U.S. dollar, and the trajectory of the second wave of Covid-19.
Citi’s key overweight sectors are financials, industrials, real estate and pharma, while it’s underweight on consumer and auto.
Watch the full discussion with Citi Research here: