Investing.com — Bernstein Research has a neutral outlook on the index, India’s benchmark stock market index. The firm expects a modest return of 8% to 9% for the index this year.
This position comes amid a complex investment environment, where global and local factors interact to shape market sentiment and investor strategies.
Bernstein’s neutral stance on the Nifty stems from his assessment that the Indian equity market is fully priced at current levels.
This was gleaned from extensive interactions with over 100 global investors, who expressed discomfort with market valuations but continue to invest due to continued domestic inflows.
Despite the high valuations, cash levels among investors have not risen significantly, suggesting a compulsion to continue investing, primarily due to strong domestic liquidity.
The note points to a general lack of enthusiasm across sectors. Investors have shown limited interest in sectors such as fast-moving consumer goods, automotive, and IT services, mainly due to concerns about peak valuations and potential disruptions, such as the rise of electric vehicles in the automotive sector.
However, sectors such as telecommunications and healthcare have received some attention, which is in line with Bernstein’s bullish stance on these sectors. Real estate, despite the challenges it faces, continues to attract attention due to its growth potential.
Bernstein classifies the current phase of the bull market as the end of the “acceptance phase,” where huge valuations have become the norm, but rational investing still prevails.
However, signs of an “invincible phase” are beginning to emerge, a phase characterized by limited scrutiny of business models and a shift toward high-risk, high-reward investments.
Despite these developments, Bernstein still takes a selective approach, preferring to pick specific stocks across sectors.
While the possibility of a US recession looms, Bernstein believes the Indian market is more vulnerable to domestic risks.
These risks include potential political instability due to upcoming local elections, lack of earnings promotions, and increased support programs that could put pressure on the fiscal budget.
“We believe that fears of a US recession, at least at the current stage, are overblown and the Indian macroeconomic outlook will largely be impacted independently. In fact, lower commodity prices may help by depreciating the Canadian dollar and supporting the rupee,” the analysts said.
Bernstein points to the pause in earnings upgrades for Nifty and Next50 companies, suggesting that the strong earnings growth seen in the past may not continue at the same pace.
The company notes that earnings revisions were liberal, allowing for higher valuations that may not have been acceptable in previous market cycles.
Despite the challenges, Bernstein’s neutral stance on Nifty, coupled with modest return expectations, reflects a balanced outlook.
Continued domestic investment flows, particularly through systematic investment plans and discretionary allocations, provide protection against potential market declines.
However, brokerages remain cautious, advocating a bottom-up stock-picking approach rather than broad sector bets.