Global brokerage Citi has lowered its 12-month target for the Nifty 50 index to 26,000 from 27,000, reflecting growing concerns over geopolitical risks, earnings uncertainty, and subdued foreign investor sentiment. The revised target still implies an upside potential of approximately 12 percent from current market levels.

According to Citi, persistent tensions in West Asia, alongside uncertainties related to artificial intelligence adoption and potential weather-related disruptions, have negatively impacted investor confidence. The brokerage noted that India's allocation within global emerging market portfolios has fallen close to a five-year low, while active underweight positions among foreign investors remain near multi-decade highs.

As part of its revised outlook, Citi reduced its target valuation multiple for the Nifty to 18 times one-year forward earnings from 19 times earlier. The brokerage warned that an extended period of geopolitical instability could lead to earnings downgrades across multiple sectors, creating additional pressure on equity valuations.

This marks Citi's second downward revision to its Nifty target this year. Earlier, the brokerage had cut its target to 27,000 from 28,500 amid concerns that escalating geopolitical conflicts could negatively affect economic growth and corporate profitability.

Despite the cautious stance, Citi highlighted several supportive factors for Indian equities. The brokerage said domestic demand remains resilient and market valuations have become more attractive following the recent correction. It also observed that India's weight in the MSCI Emerging Markets Index has declined significantly from peak levels seen in 2024, potentially creating room for higher allocations if global investor sentiment improves.

Strong domestic institutional participation continues to provide support to the market. While foreign institutional investors have remained net sellers, domestic institutional investors have absorbed a significant portion of the selling pressure, helping stabilize market performance.

Sector-wise, Citi maintains an overweight view on financials, telecom, healthcare, utilities, and defence, while remaining underweight on information technology services, consumer staples, and metals. The brokerage also added Hitachi Energy to its list of preferred stock ideas following the initiation of coverage on the company.

Separately, concerns around the impact of artificial intelligence on the IT services sector continue to grow. Market participants are closely monitoring the potential effects of AI-led pricing pressures and changing technology spending patterns, which could weigh on sector growth over the coming quarters.

Analysts also highlighted rising crude oil prices and persistent inflation concerns in the United States as additional risks for emerging markets, including India. Elevated energy costs and a prolonged higher interest-rate environment could continue to influence investor sentiment and market performance in the near term.