Bernstein has updated its India model portfolio following Q1 FY27 earnings, adding Paytm and Adani Ports while removing Avenue Supermarts. The brokerage highlights emerging risks in retail from quick-commerce competition and notes a slowdown in overall corporate earnings growth.
Bernstein has rebalanced its India model portfolio after the conclusion of the first-quarter earnings season for the 2027 fiscal year. The firm introduced new positions in Paytm, Adani Ports, and Eternal, while removing the retail chain Avenue Supermarts, often known as DMart.
Rationale Behind Portfolio Changes
The inclusion of Paytm, which comes with a target price of Rs 2,200, is largely driven by potential catalysts related to the Merchant Discount Rate (MDR) for UPI transactions. Bernstein expects that clarity on MDR and transaction thresholds could help the company improve its net payment margins. For Adani Ports, which has a target price of Rs 1,973, the brokerage points to the company's strong balance sheet and its growing international business footprint as key reasons for the inclusion.
Conversely, the removal of Avenue Supermarts reflects concerns about the retail sector. Bernstein noted that the stock has seen significant price gains recently. More importantly, the firm identified growing competition from the rapid expansion of quick-commerce services as a potential long-term risk to the business model of traditional large-format retail stores. This shift suggests that analysts are becoming cautious about how fast-delivery services might impact the profit margins and growth trajectories of established physical retail chains.
Earnings Momentum and Market Environment
The broader market context provided by Bernstein highlights a challenging environment for investors. Data from the first quarter of the 2027 fiscal year shows that earnings growth for NSE200 companies has slowed to 8%, down from 12.5% in the previous quarter. While the Nifty 50 companies managed a growth of 12.8%, the companies ranked from 101 to 200 within the NSE200 index reported much weaker results.
Beyond corporate earnings, the macroeconomic environment remains complex. Bernstein pointed to persistent inflation, with the Wholesale Price Index (WPI) remaining above 8% for four consecutive months. Additionally, there are concerns regarding agricultural output, with weak sowing data potentially impacting rural demand. Despite this, the brokerage maintains its target of 26,000 for the Nifty 50 index, which represents an approximate 8% upside from current levels.
Core Holdings and Outlook
While the portfolio saw changes, Bernstein maintained its focus on several established companies. Its preferred list includes Larsen & Toubro, NTPC, Axis Bank, HDFC Bank, Nuvama Wealth Management, and HomeFirst Finance Company. In the auto sector, Mahindra & Mahindra remains a preferred pick due to solid recent earnings, even though the overall demand environment remains uncertain.
Investors looking ahead should closely monitor how the quick-commerce sector continues to evolve, as it is directly influencing the outlook for traditional retail stocks. Furthermore, regulatory updates regarding payment processing fees and MDR will be critical to tracking the performance of fintech companies like Paytm. Finally, as base effects become more challenging from September 2026 onwards, market analysts will be watching to see if corporate earnings can maintain their current pace or if they will face further pressure.