Investing.com -- Bernstein has a cautious stance on Indian equities despite recent market pullbacks, tax cuts in the budget, and an anticipated rate cut by the Reserve Bank of India (NSE:BOI).
Brokerage continues to favour low-volatility stocks, advising against high-volatility names due to ongoing earnings downgrades and rising equity risk premiums.
While valuations have moderated, Nifty now trades at 21.3x forward P/E versus its peak of 23.3x. Bernstein sees no clear inflection point for a risk-on shift. The firm noted that the worst of the earnings downgrade cycle has yet to pass, with analyst sentiment at record bearish levels for Staples, Energy, and Materials.
Low-volatility stocks have outperformed high-volatility stocks by 3% year-to-date, a trend the firm expects to continue. Meanwhile, high-volatility names remain overvalued and heavily crowded, facing further earnings cuts.
On consumer discretionary, Bernstein remains cautious despite tax relief in the budget, arguing that the sector has historically relied on momentum, high beta, and growth—factors currently under pressure. However, the auto sector’s low ownership may present selective opportunities.
With market uncertainty persisting, Bernstein recommends defensive positioning in free cash flow-yielding Consumer Staples rather than chasing growth-driven plays.