Brokerage firm Bernstein has shifted to a neutral outlook on Indian equities, warning that growth may be driven by state support rather than core productivity. With a Nifty 50 target of 26,000, the firm flagged concerns over corporate profitability, AI-driven risks, and the long-term sustainability of subsidy-reliant business models.
Global brokerage Bernstein has adopted a neutral stance on Indian equities, setting a Nifty 50 target of 26,000 for the year-end. In its latest analysis, the firm challenged the narrative of broad economic resilience, suggesting that much of the current growth is an artificial byproduct of government intervention rather than organic productivity gains. Analysts noted that while the economy has shown stability, it is increasingly reliant on fiscal cushions that may not be sustainable in the long run.
A significant concern highlighted by the brokerage is the divergence between revenue and profit growth. While revenue for NSE 200 companies recently reached a ten-quarter high, net profit growth has lagged significantly, hovering between 7% and 8%. Analysts noted that this gap suggests many companies are struggling to maintain healthy profit margins without the help of external fiscal support. The report indicated that a large portion of consumer-facing firms struggled to pass on cost increases to customers, signaling a lack of genuine pricing power.
Bernstein also pointed to several structural challenges that could impact long-term growth. The analysts flagged the potential for Artificial Intelligence and automation to disrupt the services sector, a segment that has historically served as a primary driver of the Indian economy. Additionally, the brokerage expressed caution regarding the manufacturing sector, noting that recent growth trends have leaned heavily toward subsidy-based policies rather than investments focused on lasting labor productivity.
This cautious outlook has extended to specific sectors and companies. The brokerage recently reduced target prices for power finance entities such as PFC and REC, citing intensifying competition and early signs of a potential slowdown in loan growth. These moves reflect a broader skepticism about the ability of certain companies to maintain their growth momentum in an environment where policy levers are becoming more limited.
For investors, the report suggests that the market's reliance on debt and foreign currency deposits to anchor macroeconomic stability carries inherent risks. With a neutral stance, the brokerage implies that the scope for further earnings upgrades in the near term may be limited. The key monitorable for investors moving forward will be whether corporate earnings can accelerate beyond current levels and how companies adjust their business models if government subsidies are reduced. The report emphasizes the importance of distinguishing between firms that have established, sustainable pricing power and those that primarily benefit from government-backed schemes.