Benchmark Stocks in India Fail to Offer 'No-Brainer' Bargains Despite Recent Sell-Off

Indian Stock Market Falls 15 Percent, Contrary to Expectations

The Indian stock market has experienced a decline of 15 percent so far this year, a drop that many investors had assumed would create a plethora of undervalued stocks. However, a recent report by Bernstein reveals that this market collapse has not led to an obvious "no brainer cheap stocks" scenario across the board.

To test this hypothesis, Bernstein took a fresh look at 94 large- and mid-cap companies, excluding financials and adding mid-caps to provide a more comprehensive view than the Nifty-50. This exercise was identical to one conducted a year earlier, after the market had corrected sharply. The goal was to determine whether the sell-off had made stocks appear like easy picks.

The "Good Base, Terrible Follow-Through" Pattern

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The biggest reason why things didn't feel like a bargain hunt is the "good base year (FY25) followed by a bad year (FY26)" phenomenon. Many companies posted solid results in the financial year that just ended, providing a comfortable starting point. However, the year that followed, FY26, turned out much weaker than expected.

A comparison of the expected growth rate in EBITDA between FY25 and FY27 across the 94 stocks reveals a significant decline from 35 percent (as of March 2025) to 19 percent today.

Nine out of the 14 sectors covered saw their FY27 free-cash-flow estimates cut over the past year. Earnings have been running in the mid-to-low single digits since the second half of last year, and downgrades continue to come in.

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Polarization of the Market

When Bernstein plotted each company's near-term EBITDA growth against its longer-term expectations, a striking pattern emerged. A year ago, most stocks sat comfortably in the middle band, where short-term reality and long-term hopes lined up neatly. Now, the middle band is almost empty, and stocks have moved to the extremes.

A particularly large crowd has gathered in the bottom-left corner: companies with low near-term EBITDA expectations but still-high hopes baked into the longer term. Bernstein calls this "an interesting pattern" that emerged directly from the continuous estimate cuts since mid-2024.

Sectors Hit Hardest

Consumer discretionary (cars, retail, restaurants, fashion) took the deepest hit on the earnings side, with the biggest price correction yet its profit expectations dropped even more sharply. The gap between the price fall and the earnings downgrade is the widest here.

On the other side, only two sectors – cement and energy – largely escaped the big downgrade wave. Virtually every other sector saw a significant drop in the FY25-27 EBITDA growth rate.

Bernstein's Playbook

Bernstein's report concludes that the best way to approach investing at this stage is to identify stock-specific dislocations across sectors. The portfolio should have some risk from the impacted sectors (to participate in any rebounds) and have some tilt towards sectors such as financials, telecom, a bit of power, and IT.

The report notes that the recent sell-off cleaned up some prices but also exposed how sharply near-term expectations have been reset.