I disagree with you. Manchester City is still favourite to win the league because Pep has an almost unchanged squad. Gundogan is the player whose absence would be greatly missed, he was their captain and was carrying the team on his shoulders in every games. Another player being rumoured to leave is Mahrez. He's been restricted to the bench, and sometimes when he comes in he produces something spectacular but I don't really see how his departure would affect the team.
Gundogan left and perhaps Mahrez will leave Manchester City but he will not be the only star player will leave Etihad in this summer. Manchester City still have very strong squad to be competitive enough in Premier League and they have high chance to protect their title. However they will be challenged more by competitors like Arsenal, Liverpool, Chelsea and perhaps Manchester United as well as Newcastle United. They are champions in Champions League and they will carry a task to protect it too. I think pressure to succeed in Champions League will continue to impact their performance in Champions League.
Pep is also recruiting good players to strengthen the team like the acquisition of Kovacic from Chelsea and Josko Gvardiol from Leipzig, so they still pose a threat to other teams.
Kovacic and Gvardiol will help Manchester City to have better defense. Kovacic will support Rodri in the midfield and Gvardiol will bring both strength for their defense but also will help them to have more proactively attacking from their back line.
I was quite impressed with the changes made by Pep Guardiola by allowing some of his main players to leave the club and replace them with relatively younger players, especially for Gvardiol who is still very young, meaning that Guardiola understands that to keep his team performing well in the season that will start playing the match needed young players who are fitter.
It does not rule out if it turns out that these players need a longer adaptation than expected, thus affecting their appearance later, but Manchester City still has several old squads that are very likely to close the gap if things don't go as expected.
But once again Guardiola has shown an important role in compiling their players because next season will be even more pressured because there are 3 titles they have to defend, the English premier league title, the FA cup and the toughest in my opinion is the champions league title.
Their appearance was highly anticipated and at times their appearance was quite sluggish at the beginning but managed to cope well until the end of the season.