Slowdown Not Fully Priced In By Indian Stock Market Despite October Rout, Says Bernstein

Even as the benchmarks are seeing the worst session in over four years, Indian stock market has not yet fully priced in the extent of the slowdown that could be on the cards, according to Bernstein Research.

India Inc. is set to face further heat with monsoons and elections being only part of the reasons for the earnings' misses, Bernstein said. The brokerage expects "further, but limited moderation" in Nifty from current levels to 23,500, which remains their year-end target.

Amid reports of an urban slowdown, it is unlikely that rural growth, driven by a good monsoon, could completely counter that effect, it said. "Thanks to an elongated period of strong growth, most participants, from policymakers to investors, still consider the slowing signs an anomaly."

However, macro factors are showing signs of slowing down across different indicators, it said. This would not be a drastic moderation, but significantly reduced from the growth values seen in the last financial year. "In our view, bottom-up play in select sectors is a good strategy."

Contrary to the market moves in October, earnings expectations have only moved a little, the research firm said. Most firms have announced the election impact and the above-normal monsoons as a one-off factor that distorted the demand environment, it noted.

"This promise of a more fantastic future seems to have worked, putting a significant burden on performance in the second half of fiscal 2025."

Of the NSE 100 firms that have reports earnings so far, about 48% have missed estimates by over 4%, the highest since March 2020, Bernstein said.

Consensus third quarter forecasts have increased, while the final quarter has fallen marginally from 21% to 18.3% earnings growth for Bernstein. "Full-year forecasts still remain in double digits despite an almost flat first half."

Jefferies has cut fiscal 2025 earnings' estimates for over 60% of the 98 companies it covers, among those that have reported second-quarter earnings. This is so far the highest downgrade ratio since early 2020, the brokerage said in a note on Oct. 30.

The mid-and small-cap indices had corrections of 7.3% and 4.5%, respectively, from their recent peaks, while the Nifty saw an 8.8% correction from its most recent peak.

According to provisional data from the National Stock Exchange, since Sept. 27, global funds have sold stocks valued at nearly Rs 1.3 lakh crore. During the same time period, domestic institutions purchased shares totalling Rs 1.23 lakh crore.