Despite sharp pullback in equities, tax cuts in the union budget and the rate cut by the central bank, Bernstein Research sees no inflection point to add more risks in stocks and maintains their preference to low volume counters.
The brokerage firm has been cautious since the final quarter of fiscal 2024, with expectations of a market recovery in the second half of this year. “Unfortunately, we don’t see any clear inflection point yet,” the strategists at Bernstein said in a note, suggesting to avoid high volume stocks.
Valuations have become more reasonable with the brokerage pricing in 50 basis points rate cuts versus 90 basis points at the beginning of the year. “However, markets need to further re-price a less aggressive rate cut cycle and rising equity risk premium still remains a key headwind in the near-term,” it said.
Further, the worst of earnings downgrade cycle is also not over yet, Bernstein said. Analyst estimates are already near record bearish levels for staples, energy and materials, suggesting a tactical contrarian positive view. “All other sectors are not showing any signs of bottom yet in the downgrades.”
The uncertainty around tariffs and their potential impact on global macro remains a key concern for all EM markets, including India, the note said.
Indian stocks remained cautious, with NSE Nifty 50 and BSE Sensex down 0.5% and 0.3%, respectively, since the budget. The domestic stocks that fell 11% from their peak in September last year are unable to recover as global funds extend their selloff.
The record high performance dispersion between high volume and low volume has just started closing down, and in 2025, low volume stocks have outperformed the market by 3%, it said. “Despite the underperformance, high volume stocks are still trading at record high valuations, record high crowding and seeing earnings cuts.”
Bernstein is still cautious on consumer discretionary stocks after the Rs 1 lakh crore tax sops given in the budget. All three styles — momentum, high volume and growth — are likely to remain under pressure driven by record high valuations and increased pace of earnings cut, it said.
However, consumer staples tend to be driven more by free-cash-flow yielding names, which remains a good defensive exposure to own in the current market environment, Bernstein said.
. Read more on Markets by NDTV Profit.The uncertainty around tariffs and their potential impact on global macro remains a key concern for all EM markets, including India, Bernstein said. Read MoreMarkets, Business, Notifications
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