Bernstein retains Nifty target of 26,000, flags policy-driven distortions | Markets News
Brokerage Bernstein has maintained its Nifty target at 26,000, arguing that much of India’s current earnings and market strength is being driven by policy-driven “distortion”, a dynamic that rewards specific stocks and sectors but caps broader index returns.
In its India Strategy report, the brokerage highlighted eight ‘distortions’ — ranging from government subsidies and GST cuts to external borrowings and an upcoming government wage revision — which may be temporarily impacting corporate earnings and macro indicators such the rupee’s stability.
The report said that NSE 200 earnings grew by just 8 per cent in June quarter while the revenue growth for the same stocks stood at around 12 per cent, making it the strongest topline growth quarter over the last 10 quarter.
“NSE 200 earnings grew a mere 8 per cent in June quarter – far from an exceptional growth, but there is a clamor to look at earnings ex-OMCs (oil marketing companies) to make underlying appear better. An economy is an interconnected system, and removing one part of it to reveal the ‘underlying’ picture can often be misleading,” the report said.
The report added that 78 per cent of the consumer companies said that there were either no price hikes or only minor hikes partly covering the cost increase due to the West Asian crisis.
The brokerage named Titan and passenger vehicle makers as plays on the wage-led consumption theme, Mahindra & Mahindra as a rural-demand beneficiary, and quick-commerce and logistics firms such as Eternal and Delhivery as gainers with expanding pool for gig jobs. Electronics manufacturing services and defence firms were cited as the cleanest ways to play the Production Linked Incentive (PLI) theme.
“If distortions are shaping earnings, valuations and capital flows, investors should focus less on whether they agree with them and more on identifying who benefits while they persist. History suggests that markets often reward the beneficiaries of distortions well before they reward the eventual winners of economic efficiency. However – growth driven by distortion does not lead to high equity returns for the market – and this reflects in our current modest returns view for the index,” the report added.
