Bernstein has shifted to a neutral stance on Indian equities, citing limited visibility on earnings upgrade drivers despite expectations of positive market returns over the next year. Managing Director Venugopal Garre explained that while markets have already priced in an earnings recovery following last year's weak growth phase, the absence of clear catalysts for sustained earnings upgrades constrains the scope for sharp outperformance.

Earnings Projections Already Factored Into Valuations

The global brokerage firm has built in robust earnings growth expectations for Indian markets, with specific targets reflecting an optimistic but measured outlook.

Garre emphasized that the anticipated recovery is already reflected in current market valuations. "Markets are not looking for recovery anymore—that is priced in. What they are waiting for are drivers of earnings upgrades, and at this point, visibility on those remains limited," he stated. The FY28 growth projections assume favorable outcomes on margins and macro stability.

Margin Expansion Concerns Override Revenue Growth

A significant portion of consensus earnings growth projections for the next two years stems from margin expansion rather than strong topline recovery, according to Garre. This presents a structural concern as corporate margins have already reached near-peak levels across several sectors.

For earnings to surprise meaningfully on the upside, Bernstein identifies several potential catalysts:

• Much stronger overall economic growth
• Fiscal stimulus measures
• Pickup in private capital expenditure
• Large foreign direct investment inflows

However, Garre noted that these factors remain uncertain at present.

Limited Policy Stimulus Options Available

The macro environment presents additional challenges, with incremental data points showing signs of weakening. Interest rates are already positioned close to the peak of the rate-cut cycle, while the government has already implemented several consumption-focused measures in the previous year.

Delays surrounding the India-US trade agreement and uncertainty over its durability add another layer of concern for investor confidence.

Selective Sector Approach Adopted

Bernstein has adopted a selective, stock-specific investment approach rather than making broad sectoral bets. The firm maintains a relatively positive stance on consumption compared to industrials.

Within the financial sector, Bernstein's preferences over a 12-month horizon include:

• Private sector banks: Preferred over PSU banks
• NBFCs: Ranked lower following strong performance in the previous year

Budget Expectations Focus on Fiscal Mathematics

Looking toward the Union Budget, Garre identified the fiscal deficit number as a key variable to monitor, along with the balance between capital expenditure and subsidies. The brokerage does not anticipate further personal tax cuts and believes the government's capacity for aggressive spending is constrained by weak tax buoyancy and nominal GDP growth.

"The challenge is to maintain growth momentum without pulling back too sharply on spending. Flattening the fiscal glide path may be more effective than aggressive consolidation at this stage," Garre explained.

While Bernstein expects Indian markets to deliver positive returns, the firm warns that without strong macro or earnings catalysts, upside potential may remain capped in the near term.

Indian equity markets concluded Monday's trading session on a negative note, weighed down by cautious global sentiment and mixed corporate earnings announcements. Market participants remained watchful of international developments and ongoing quarterly results, with analysts expecting sideways movement in the near term.

Market Performance and Technical Outlook

Technical analysis suggests the market is at a crucial juncture, with analysts monitoring key support and resistance levels. The index requires a decisive move above 25,700 to trigger meaningful short-covering towards the 25,900 zone. However, a breakdown below 25,575 could lead to further downside pressure towards 25,450 levels. While short-term pullbacks remain possible, the overall market direction depends on global cues and earnings momentum.

Volatility and Market Sentiment

Market volatility showed signs of increase as the India VIX, which measures fear and uncertainty in the markets, rose 4.00% to settle at 11.83 levels. This uptick in volatility reflects the cautious approach adopted by market participants amid mixed signals from corporate earnings and global developments.

Institutional Activity

Institutional trading patterns revealed contrasting approaches between foreign and domestic investors on Monday:

The significant selling by foreign investors was offset partially by strong domestic institutional support, highlighting the divergent views on market prospects.

Currency Movement

The Indian rupee faced pressure during Monday's session, depreciating 12 paise to close at 90.90 against the US dollar. This level positions the currency close to its record low closing levels. The weakness was attributed to robust demand for the greenback from metal importers and persistent foreign fund outflows from Indian markets.

F&O Ban List

SAIL and Sammaan Capital Live Events Securities were placed in the F&O ban period. Securities enter the ban period when they cross 95.00% of the market-wide position limit, restricting fresh positions in the futures and options segment.

Analysts expect the market to continue trading sideways in the immediate term, with participants closely tracking global developments and the ongoing earnings season. Any escalation in geopolitical tensions could serve as an additional overhang on market sentiment.