Mumbai: Political uncertainty before a spate of crucial state assembly polls later this year that may set the tone for next year’s national elections, and tepid earnings growth, have prompted foreign brokerages to cut their year-end targets for benchmark indices.

Citigroup and CLSA have cut their targets for Sensex and Nifty for 2018, citing earnings downgrades and macro concerns, respectively. On Sunday, Citigroup cut its Sensex target for December to 35,700 points from 36,900 earlier. The Sensex rose 0.27% to 33,880.25 points on Tuesday.

“With FY18E likely to be another year of tepid earnings growth (single digit expected), we would watch out for downgrade risks to FY19 estimates, given elevated expectations," Citigroup said in a note on Sunday. “Our sentiment indicator now suggests around 5-7% returns over 12 months. We expect 2018 to be a volatile year for Indian markets."

Volatility is likely to be the flavour of this year, with five state elections to be held before January 2019, and the general elections due by May next year.

Also, the US Federal Reserve’s policy moves would dictate the flow into or redemption from riskier assets such as emerging market equities. Citigroup expects its coverage universe, or the companies that it tracks, to report earnings growth of around 10% in the March quarter, and added that the growth is driven by commodity sectors—in fact, earnings growth for Citigroup’s universe of firms excluding the oil and gas, and metal sectors, is estimated to be little changed from a year earlier. Sensex and Nifty touched record highs of 36,443.98 and 11,171.55 points on 29 January. They have since shed 7.03% and 6.89%, respectively. Earlier this month, CLSA said the Nifty may not cross 11,000 this year as macro concerns cap market gains, cutting its previous target of 11,400.

A few were even more pessimistic, as they feared a decline in flows into Indian stocks.

Dhananjay Sinha, head of research at domestic brokerage Emkay Global Financial Services, sees Sensex and Nifty little changed at 33,500 points and 10,700 points at the end of 2018, citing shrinking liquidity. “Liquidity (for Indian markets) may dry up because of lower flows into mutual funds at a time when global liquidity is also tightening," said Sinha.

UBS Securities India, however, retained its end 2018 target of 10,500 points, saying it is not reviewing it currently.

“Our end-2018 Nifty target of 10,500 is based on 18 times one-year forward price-to-earnings, implying no returns from the index in 2018," Gautam Chhaochharia, head of India research; analyst Sanjena Dadawala and economist Tanvee Gupta Jain of UBS Securities India, had said in a January note.