Citigroup Joins Foreign Brokerages In Cutting Year-End Target for Indian Stocks

Investment bank faces its own cut in stock price over forex rigging settlement.

Citigroup Inc. (NYSE:C) has joined the league of other local and foreign brokerage houses by cutting the year-end performance of Indian stocks, owing to concerns over poor corporate performance of Indian companies, as well as a growing yet sluggish economy, hampered by forecast that calls for lackluster monsoon rainfalls, which will affect the output of crop production. UBS and HSBC have also lowered their outlooks.

According to Citi, it has reduced the Sensex Index from 33,000 points to 32,000 points, whereas HSBC has reduced it from 30,100 to around less than 27000 points – much lower than that of Citi’s forecast.

In a statement, Citi said that the investor should still keep faith to the South Asian nation’s stock market, while conceding that despite the uptick in growth, mostly as a result of rebasing the economy, challenges remain, such as slowdown in earnings growth, the prospect of foreign funds outflow as a result of a potential rise in interest rates by the Federal Reserve, and an underperformance against other markets (its neighbor Pakistan is performing even better than them).

However, breakdown suggests that the investment banking group is bullish on the banking, auto, cement, pharm, and telecom sectors, which is the reason why Citi expects the Sensex to rise up to 35000 points by next summer in June 2016. The announcement of the budget, which seems to have contained some “big bang” reforms, has also led to bullish assessment, but the key to focus will be on the implementation. This along with declining of interest rates and steady flow of domestic funds should help to keep investors interested.

Meanwhile, the global investment bank has announced that it has to pay less than $400 million as a settlement for manipulating foreign exchange rates. It came on the same day that the bank said that it has pleaded guilty to charges levied by federal authorities. However, in addition to the settlement to the Federal Reserve, the bank has to pay $925 million to the Justice Department; the total fines to be paid are around $1.65 billion.

In response to the settlement, Citigroup CEO told federal authorities that the company has overhauled its monitoring and control systems, and in that process, it has terminated nine employees, including those who were involved in the rigging scandal. More terminations are on the line here, he said.

Citi Stock price ended the day at $54.72, down 0.22% the previous day because of the scandal.