Nifty's Implied Long-Term Growth Rate Hits Decade Low at 10.5%

Indian Equities Fall 15% This Year, Nifty-50 Index Prices in 10.5% Long-Term Free-Cash-Flow Growth Rate

The Indian equities market has faced significant challenges this year, with a 15% decline in value. The Nifty-50 index is now pricing in a long-term free-cash-flow growth rate of 10.5%, marking the third-lowest level in the past decade. This valuation level matches exactly what the market priced in during the troughs of March 2020, March 2021, and March 2017.

However, Bernstein notes that comparing the current market to 2021 is misleading due to the vastly different backdrop. In early 2021, India was emerging from a pandemic with a strong earnings surge ahead, crude oil was coming off historic lows, and fiscal deficit worries were not on the radar. In contrast, the current market is facing geopolitical conflict, fuel supply risks, and fiscal pressures.

Near-term valuation measures have become less reliable due to the genuine risk to earnings if the conflict drags on through the year. The street's mindset has shifted from "bottom-fishing" mode to focusing on "how to ride through a period of prolonged conflict." Geopolitics has become the dominant variable.

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Large-Caps Discounted to Mid-Caps for Longest Stretch Since 2019

Large-caps have been trading below their 10-year average relative to mid-caps since May 2023, marking the longest continuous stretch since 2019. This may appear to be a historic low in relative valuations, but Bernstein notes that it is part of a regular pattern rather than something entirely new.

Bernstein has mapped near-term EBITDA growth expectations against longer-term assumptions for the 94 stocks. A year ago, most companies sat neatly in the middle band where short-term reality and long-term hopes lined up. However, the middle band has now emptied out, and stocks have fled to the extremes. A large crowd has gathered in the bottom-left quadrant: low near-term EBITDA growth but still-optimistic longer-term assumptions.

The Good-Base-Year, Bad-Follow-Through Mismatch

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The reason for this polarisation is simple: "a good base year (FY25) followed by a bad year (FY26)." Across the 94-stock sample, the expected FY25-27 EBITDA CAGR has collapsed from around 35% (as of March 2025) to just 19% today. Nine of the 14 sectors 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 2024, and the downgrades have not stopped.

Revision Winners and Losers

The biggest winners in the revision game are in energy and power:

• Power Grid saw its FY27 free-cash-flow estimate jump +161.2% from March 2025 levels.
• HPCL got a +116.1% upgrade.
• IOCL was revised up +95.4%.
• Even Tata Motors (auto but with energy exposure in some models) saw a +73.7% lift in its FY27 FCF number.

On the other hand, consumer-facing names have been punished with some of the heaviest cuts:

• United Breweries saw its FY27 FCF estimate slashed by -91.9%.
• Aditya Birla Fashion was cut -55.4%.
• Trent dropped -56.7%.
• Devyani International (a QSR chain) was revised down -14.8% (after already big cuts earlier).
• Sapphire Foods saw a -32.2% downgrade in the same period.

Power: Implied Long-Term Growth Expectations Fall Sharply

Power has also quietly moved into interesting territory. Its implied long-term growth expectations have fallen sharply from 14% to 9% — enough, Bernstein says, to make it "meaningfully cheap" versus its own 3-4 year history.

A few names show truly extreme moves:

• Nykaa (consumer tech/e-commerce) had its FY27 FCF revised upward by an eye-popping +3,604% — from a very low base, but still a massive swing.
• On the downside, some consumer discretionary names like Westlife and Marico also saw 20-30% cuts.

Bernstein points out that nine of the 14 sectors overall had FY27 free-cash-flow estimates lowered over the past year. The dispersion is not random — it is concentrated in certain pockets.