After cautioning on macro and earnings risks all through 2024, brokerage firm Bernstein has turned constructive on Indian equities and is advising investors to “selectively start buying” Indian stocks.

In a note released on Thursday, January 2, Bernstein said that the current quarter is the most critical for the markets as the focus shifts back from elections to growth.

Although there are some risks that still persist to the financial year 2026 consensus earnings estimates, Bernstein believes that the “mood-spoiler phase” is largely over after the earnings misses in the current financial year.

“We nevertheless lower our target PE multiple to 19.5x two-year forward Earnings per share (EPS) and build a year-end Nifty 50 target of 26,500, representing 12% returns this year,” Bernstein wrote in its note.

The Nifty 50 had ended 2024 with gains of 8.75%, its ninth straight year of positive calendar year returns.

Bernstein expects downside to be limited on the Nifty, as cutting EPS estimates by 5% and multiples to a decade low takes the brokerage to a target of 22,000 on the downside as a bear case scenario.

The brokerage said that this “period of gloom” was not discovered suddenly as the bubble was long building, only to be acknowledged recently. Earnings misses, weak GDP numbers and Fed commentary have all contributed to the fall seen in the last month or so.

“The government capex that has eluded the economy for the full year may start coming back and even the budget may be utilised to foster growth and strong base effects will start wearing off,” Bernstein wrote.

Bernstein believes that while Donald Trump’s presidency is cited as an uncertainty, that can be beneficial in several cases like the China+1 or spending environment for IT companies.

“And if geopolitical situations are reason enough to stop investing, that uncertainty has already lasted several years and is not going away anytime soon. We ask, if there is a time so start buying, why not now?” Bernstein’s note said.

So What Is Bernstein Betting On?

Bernstein said that their sectoral views this time does not represent any overarching theme in general, but a very sector-specific views, which will emerge as India’s macro recovery over the next few months.

The brokerage will be a “careful buyer” in Financials with a reduced weightage, IT and Telecom as “overweight.” It has also upgraded Utilities to “overweight” but remain “underweight” on Industrials on lofty valuations.

Bernstein has also downgraded Healthcare to “underweight” on valuations, though growth there remains healthy.

While it is not too optimistic on the consumption space for the year, it expects some policy action and rural recovery to aid sentiment. As a result, it has upgraded Consumer Staples to “equalweight”, while retaining the same rating on Auto stocks.