Indian equities have become more reasonably valued following the recent market decline, but they continue to trade at a premium compared with global markets. Brokerage firm Bernstein has reduced its December 2026 target for the Nifty 50 to 25,000 from 26,000, while retaining the possibility of an approximately 8% upside from current levels.
The brokerage expects the market could recover from its recent weakness, but cautions that it is too early to interpret a rebound as the beginning of a strong corporate earnings recovery. According to Bernstein, the sustainability of any market rally will depend largely on earnings growth and whether India’s valuation premium over other markets narrows.
Nifty Valuation Falls to a Nearly Six-Year Low
Bernstein estimates that the Nifty 50’s 12-month forward price-to-earnings (P/E) ratio has declined to 16.6 times, its lowest level in nearly six years. The index has fallen below 17 times forward earnings for the first time since June 2022.
Valuations at comparable levels were previously seen during the COVID-19 market crash and the market sell-off in 2022.
However, the brokerage cautions that lower valuations do not automatically make Indian equities inexpensive. India remains the world’s third-most-expensive equity market, according to Bernstein. Several other Asian markets continue to trade at lower valuations despite offering stronger medium-term growth prospects.
This suggests that the recent correction has improved valuations without fully removing the premium investors pay for Indian stocks.
Domestic Investors Offset Heavy Foreign Fund Outflows
Foreign investors have withdrawn approximately ₹3.10 lakh crore to ₹3.12 lakh crore from Indian equities between January 1 and October 20, 2026. The outflow represents a historic high, according to the figures cited in the report.
Domestic institutional investors (DIIs) have helped cushion the impact of these sales through sustained purchases of Indian shares. Regular investments through mutual funds and systematic investment plans (SIPs) have also supported market demand.
Bernstein has described the scale of domestic buying as unprecedented. While foreign investors have continued selling, domestic investors have helped prevent a deeper market decline.
However, this domestic support has also limited the extent of the valuation correction. As a result, Indian stocks have not become sufficiently inexpensive to offer a clear valuation advantage over several overseas markets.
Corporate Earnings Remain a Key Concern for the Market
Bernstein believes a lasting recovery in Indian equities will require stronger corporate earnings. At present, estimates for the financial year 2026-27 (FY27) show limited positive momentum.
Earnings projections have increased only modestly over the past three months, while several sectors continue to face downward revisions. This raises questions about whether corporate profits can support a sustained increase in share prices.
Several other factors could weigh on the market, including elevated crude oil prices, geopolitical uncertainty, limited clarity on a potential trade deal with the United States, and weak monsoon conditions and reservoir levels.
The brokerage is also cautious about the possibility of companies repeating the strong earnings growth recorded in the previous quarter.
Another 4-5% Rally Could Make Valuations Stretched
Bernstein estimates that a further 4-5% increase in Indian equities from current levels could push valuations back towards uncomfortable territory. Such a rally could take the Nifty’s forward P/E ratio closer to its recent average of 18.2 times.
This would leave limited room for further gains based on valuation expansion alone. According to the brokerage, a more substantial and sustainable rally would require a clear improvement in corporate earnings or a reduction in India’s valuation premium relative to global markets.
For investors, the key takeaway is that the Indian stock market has become cheaper following its recent correction, but it remains expensive compared with many international markets. Future market performance will depend on whether earnings growth improves and economic risks ease.
Disclaimer: This article is intended for informational and educational purposes only and should not be treated as investment advice or a recommendation to buy or sell securities. Market targets and valuation estimates are based on brokerage assessments and may change as economic conditions and corporate earnings evolve. Investors should conduct their own research and consult a qualified financial adviser before making investment decisions.