Brokerage firm Bernstein has retained its “Neutral” stance on Indian equities and maintained its year-end Nifty 50 target of 26,000, implying an upside of around 10% from Friday’s closing levels.
However, the brokerage cautioned that a combination of weak macroeconomic conditions, earnings downgrades and a revival in equity issuance activity could limit gains even if markets receive a near-term boost from easing geopolitical tensions.
In a note authored by analysts Venugopal Garre and Arela, Bernstein said that any de-escalation in West Asia, particularly through a potential agreement between the United States and Iran, could trigger a relief rally in equities.
Yet the brokerage believes such a rally may prove short-lived as investors confront underlying challenges facing corporate earnings and market liquidity.
Crude remains the key market swing factor
According to Bernstein, crude oil prices remain the most important variable for Indian markets and corporate profitability.
A decline in geopolitical tensions that pushes crude prices toward $90 per barrel or lower would ease pressure on corporate earnings, support government finances and help preserve capital expenditure plans across sectors.
Such a scenario would likely improve investor sentiment and create room for stronger market performance.
However, the brokerage warned that any prolonged period of elevated crude prices could undermine India’s fiscal and current account positions while weighing on earnings growth.
“Even without a geopolitical shock, earnings risks are skewed to the downside,” the report said, noting that sectors traditionally viewed as relatively insulated from oil-price fluctuations are also facing growing pressure.
Earnings downgrades gather pace
Bernstein noted that earnings downgrades have resumed, with fiscal year 2027 estimates already cut by roughly 3% so far.
The brokerage expects earnings momentum among NSE200 companies under its coverage to moderate significantly.
It projects earnings growth of around 10% for FY27, down from the 14% compound annual growth rate delivered over the previous two years.
Several sectors are particularly vulnerable because expectations remain elevated following strong recent performance.
Bernstein highlighted discretionary consumption, utilities, information technology, building materials and automobiles as areas where earnings assumptions still reflect higher momentum than current conditions may justify.
As a result, the brokerage believes further earnings revisions should not come as a surprise.
Bernstein said healthcare and real Estate are the only sectors where it expects a genuine earnings acceleration, with healthcare benefiting from a favourable base effect after delivering just 4-5% earnings growth in FY26.
Three themes could drive a relief rally
Despite its cautious outlook, Bernstein identified several market themes that could benefit if geopolitical risks ease.
The first involves under-owned companies with lower governance perceptions that are linked to global growth themes such as artificial intelligence and data centres.
The second focuses on globally exposed sectors including information technology and healthcare.
While the Nifty IT index remains down more than 20% this year, healthcare companies have benefited from improving fundamentals and defensive characteristics.
The third theme consists of rebound trades that could emerge as concerns linked to West Asia gradually fade.
Even within these opportunities, Bernstein stressed that stock selection will remain critical as broad-based market gains become harder to achieve.
Sector preferences undergo shift
Reflecting its evolving outlook, Bernstein has adjusted its sector allocations.
The brokerage downgraded consumer staples and automobiles to “Underweight,” citing limited policy support, inflationary pressures and indications that automobile demand may have peaked.
Within financials, Bernstein upgraded the sector to “Equalweight.”
It remains neutral on banks while maintaining a slightly cautious stance on non-banking financial companies.
The brokerage also moved the broader energy sector to “Equalweight.”
However, it upgraded oil marketing companies to “Overweight,” arguing that the worst of the recent crude-related pressures may now be behind them.
Healthcare and industrials emerge as favourites
Among the sectors attracting greater optimism, healthcare and industrials stand out.
Bernstein described healthcare as a potential “resurgence” trade, supported by easing pricing pressure in the United States, lower tariff uncertainty and benefits from a weaker rupee.
Industrials are also becoming increasingly attractive due to their exposure to AI and data-centre infrastructure investments, themes that analysts believe will continue creating winners across the sector.
The brokerage further retained its “Overweight” rating on information technology despite the sector being the worst-performing major index segment this year.
While near-term earnings concerns persist, Bernstein believes IT could benefit disproportionately from any improvement in global growth expectations and easing geopolitical tensions.
For now, however, the brokerage remains cautious on the broader market, arguing that crude prices and earnings trends will ultimately determine whether Indian equities can sustain their recent gains and move meaningfully closer to their 26,000 Nifty target.
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