Nifty target at 28,100: What Bernstein says on India-US trade deal, market valuations

Bernstein cut its rating on India to neutral, saying 2026 is likely to be a year marked by “little bits of everything” but lacking a single dominant growth driver. The brokerage said the Indian equity story, which had been powered in recent years by record SIP inflows, strong government capital expenditure and the China-plus-one narrative, appeared to be losing momentum.

Bernstein said India has entered 2026 as one of the most expensive equity markets globally, trading at more than 20 times forward price-to-earnings, with valuations well above the average of key global economies. It said 15.1 times is the average PE across 15 key economies that it tracked. The foreign brokerage said market in the current phase is more likely to reward valuation-led catch-up trades rather than earnings-driven rallies, limiting scope for sustained valuation expansion.

“We’re taking a more measured view on India and while the market still looks set for positive returns, we expect it to be capped,” it said.

Bernstein said it was not turning negative on India’s long-term prospects, but believed the market was entering a phase of more muted returns as key policy levers were largely exhausted and real GDP growth appeared closer to a peak. It set a Nifty target of 28,100, implying a high single-digit return of about 7.5 per cent for the year.

The brokerage said earnings growth had been lacklustre and even after assuming a 13.5 per cent earnings CAGR over FY26 to FY28 and a 19 times multiple on two-year forward earnings, upside appeared limited. Bernstein also flagged elevated volatility, driven by geopolitical events, and said any near-term rally led by headlines such as a US trade agreement was likely to fade as policy uncertainty persisted through the year.

“After a lackluster year for earnings, even after assuming a 13.5% earnings CAGR over FY26–FY28 and a PE multiple of 19x, on two year forward earnings (FY28E) we get limited room for large returns,” it said.

On macro drivers, Bernstein said most growth-supportive measures were already in the past. It said the scope for further rate cuts was limited to 50 to 75 basis points at best, tax and GST cuts had largely played out, and government capital expenditure was flattening. While a partial recovery in private capex was possible, the brokerage said it was unlikely to be strong enough to materially lift momentum. It added that capacity utilisation had remained around 75 per cent for the past four years, suggesting limited urgency for aggressive investment.

From a global perspective, Bernstein said a potential US trade deal was the only visible positive catalyst, but questioned its durability. It noted that recent trade frameworks signed by the US with Japan and the UK in 2025 were not formal free trade agreements and were implemented through executive orders, making them inherently volatile. Any easing of punitive tariffs, including reciprocal tariffs, would at best return India to conditions seen in mid-2025 and would not provide a relative extra edge compared with South East Asian peers, Bernstein.

Bernstein also said foreign flows were unlikely to return in a meaningful way amid global volatility, even as domestic SIP inflows remained strong. It cautioned that SIP flows, while structural, were insufficient on their own to sustain elevated market valuations without earnings acceleration or fresh catalysts.

On sectoral positioning, Bernstein said it continued to remain overweight on financials, telecom and select discretionary consumption stocks, while moving to a modest overweight on information technology and introducing real estate as an overweight sector. It downgraded consumer staples to equal weight, citing rising disruption risks as organised channels accelerated fund-raising, and retained equal weight on metals, healthcare and utilities, while staying underweight on industrials.

Overall, Bernstein said India was likely to navigate 2026 without meaningful structural catalysts, making it a year of adjustment rather than acceleration for equity markets.