Bernstein names three themes that will lead any market relief rally; Downgrades staples, autos

Brokerage firm Bernstein has reiterated its "neutral" stance on the Indian equity markets and maintained its year-end Nifty 50 target of 26,000 in its latest note on Monday, June 1.

Bernstein's Nifty 50 target implies a potential upside of 10% from Friday's closing levels.

The note, authored by Venogopal Garre, goes on to say that any potential de-escalation in West Asia due to any deal between the US and Iran could trigger a relief rally in the markets.

However, it expects that relief rally to be short-lived given the weak macros and a potential revival in equity issuances, which are yet to reach record levels of 2024 and 2025 due to the ongoing market uncertainties.

The brokerage highlights three themes that could drive that potential relief rally in the markets:

• One, under-owned low-governance names linked to global themes such as AI and data centers.


• Two, globally exposed sectors such as IT and healthcare. For the year so far, the Nifty IT index is still down over 20%, while the Nifty Pharma index has gained over 7%.


• and three, rebound trades as the West Asia-related headwinds fade.

Within the domestic markets, Bernstein lays emphasis on selectivity as the most important factor to generate returns.

Bernstein's Sectoral Exposure

Based on this thesis, Bernstein has reduced its exposure to consumption-oriented names, by downgrading Consumer Staples and Autos to "underweight", given the limited policy support, inflation headwinds, and signs that the auto demand may have peaked.

Within financials, which the brokerage has upgraded to "equalweight", banks stay at equalweight, while the brokerage is "slightly underweight" on NBFCs. It has maintained its "overweight" stance on NBFCs.

Bernstein has also moved the energy sector to "equalweight" but has upgraded Oil Marketing Companies to "overweight" as it believes that the worst of the crude shock appears behind these companies now.

Additionally, it has also maintained its "overweight" stance on IT, which is the worst performing sectoral index so far this year.