'Era of more downgrades': Why Bernstein sees Nifty at 26,500 by year-end

Exceptional earnings? No. India is yet to see kick start of earnings upgrade cycle. But Bernstein believes the era of more downgrades seems to be behind us. It said companies missing Q4 earnings estimates in the NSE100 pack are the lowest since September 2021, adding that 51 per cent of the index constituents, which reported Q4 results  so far, have beaten estimates by over 4 per cent this quarter, the highest since June 2023.

For now, Bernstein is not building room for upgrades in its targets — as earnings recovery in FY26 and FY27 is being factored by consensus. Yet, the brokerage sees Nifty at 26,500 by December. 

It said the market is positioned well and believes macros will stay resilient with improved liquidity, lower rates, better government capex spends, rural demand and support from tax cuts helping reduce earnings risks. 

"We expect volatility to continue and do not expect a linear increase in Nifty, but we reiterate our end-of-year Nifty target of 26,500 and suggest bottom-up stock picking," it said.

Bernstein said a remarkable feature of Q4 earnings is that there are no exceptional earnings. At a broader level, India are seeing a marginal slowing of earnings growth -- 10 per cent growth for reporting NSE100 firms against 11 per cent in the December quarter. 

What India has successfully avoided is the worst case earnings projections that resulted from the continuous downgrades since September last year, Bernstein said. 

"Each sector has seen its mix of cuts and resilience. What's interesting is that a whopping 51 per cent of the firms have beaten estimates by over 4 per cent this quarter, the highest since June 2023. The firms missing estimates are the lowest since September 2021," it said.

This is a welcome change from the past five quarters, when not even 40 per cent firms were able to beat estimates. The number of firms missing estimates at 19 per cent is the lowest in the last 14 quarters. With this performance, Bernstein believes the era of more downgrades seems to be behind us. 

Bernstein said a  bottom-up study of NSE200 suggests a similar pattern. The consensus projections in the previous month has barely moved, which is remarkable given it is in the midst of earnings season, it said.

For the next fiscal, earnings growth is outpacing the topline growth, indicating a return to the margin story, the brokerage added. 

With Nifty nearing 25,000, India is back to usual business after a dramatic weekend that culminated in India-Pakistan ceasefire. 

"Equity markets in India are rebounding and our upgrade in January largely reflected a view that bottoming macro and limited impact of global events should support a bottom for Nifty below 22,00 and drive upside as positive fundamentals emerge," Bernstein said.