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Bernstein remains neutral on Nifty, 8-9% return expected this year

Published 2024-08-12, 04:38 a/m
© Reuters.

Investing.com -- Bernstein Research has adopted a neutral outlook on the Nifty 50 index, India's benchmark stock market indicator. The brokerage is predicting a modest 8-9% return for the index in the current year.

This position comes amid a complex investment environment, where global and domestic factors interplay to shape market sentiment and investor strategies.

Bernstein’s neutral stance on the Nifty is rooted in its assessment that the Indian equity market is fully priced at current levels. 

This was drawn from extensive interactions with over 100 global investors, who expressed discomfort with market valuations but continue to invest due to persistent domestic flows. 

Despite the high valuations, cash levels among investors have not significantly increased, indicating a compulsion to remain invested, primarily driven by strong domestic liquidity.

The note flags a general lack of enthusiasm across various sectors. Investors have shown limited interest in sectors such as Fast-Moving Consumer Goods (FMCG), Autos, and IT services, mainly due to concerns over peak valuations and potential disruptions, such as the rise of Electric Vehicles (EVs) in the automotive sector. 

However, sectors like Telecom and Healthcare have garnered some interest, aligning with Bernstein’s overweight (OW) position on these sectors. The real estate sector, despite its challenges, continues to attract attention due to its potential for growth.

Bernstein categorizes the current phase of the bull market as the end of the "Acceptance Phase," where hefty valuations have become the norm, but rational investing still prevails. 

However, signs of the "Invincibility Phase" are beginning to emerge, characterized by limited scrutiny of business models and a shift towards high-risk, high-reward investments. 

Despite these developments, Bernstein maintains a selective approach, favoring specific stock picks across sectors.

While the possibility of a U.S. recession looms large, Bernstein believes that the Indian market is more susceptible to internal risks. 

These include potential political instability due to upcoming state elections, lack of earnings upgrades, and increased subsidy programs that could strain the fiscal budget. 

“We believe fears of US recession, at least at the current juncture, are over-accounted and Indian macro will largely play out independently. Softening commodities can, in fact, help by way of reduced CAD and support to rupee,” the analysts said. 

Bernstein notes a stall in earnings upgrades for Nifty and Next50 companies, indicating that the strong earnings growth witnessed in the past may not continue at the same pace. 

The brokerage mentions that earnings revisions have been liberal, allowing for higher valuations that might not have been acceptable in previous market cycles.

Despite the challenges, Bernstein’s neutral stance on Nifty, coupled with a modest return expectation, reflects a balanced outlook. 

The continued domestic investment flows, especially through Systematic Investment Plans (SIPs) and discretionary allocations, provide a cushion against potential market downturns. 

However, the brokerage remains cautious, advocating a bottom-up stock-picking approach rather than broad sectoral bets.

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