Indian equities downgraded to 'neutral' by Bernstein; Nifty upside capped at 7.5%

India is entering 2026 as one of the most expensive equity markets globally, trading at over 20x forward price-to-earnings, compared with an average valuation of 15.1x across 15 key global markets tracked by Bernstein, according to Venugopal Garre.

The Bernstein analyst said that markets have now moved back into a phase of elevated valuations. Historically, such phases have tended to reward cheaper markets through catch-up trades, unlike the period starting FY24, when more expensive markets continued to attract flows and became even costlier.

Bernstein also mentioned that years with limited market catalysts tend to be driven more by valuation re-rating and catch-up trades rather than strong earnings growth. This makes valuation discipline increasingly important for investors.

Earnings growth in 2025 was relatively modest. Even after assuming a 13.5% earnings CAGR through FY28 and applying a 19x multiple on two-year forward earnings per share, Bernstein arrives at a Nifty target of 28,100. This implies a return of about 7.5% from current levels.

Given the focus on absolute returns and the limited upside indicated by these assumptions, Bernstein has downgraded its stance on India to 'Neutral'.