Bernstein stays cautious on India exposure, prefers low volatility, large-caps

Investing.com -- Bernstein maintained a cautious stance on India exposure despite early signs of market inflection, advising against chasing small/mid-caps and high-volatility stocks.

The firm reiterated its preference for large-cap and low-volatility stocks, which it views as the “cheapest” styles relative to the market and beneficiaries of strong earnings tailwinds.

Large-caps and low-volatility stocks have outperformed the market by 4%-6% YTD, while high-volatility and small/mid-caps (SMIDs) have lagged, down 12%-14%.

“We still don’t find reasons to add risk to India exposure and recommend to not chase small/mid-caps or high vol stocks,” analyst at Bernstein said.

Although valuations across most sectors have normalized, the firm said that small/mid-caps and high-volatility stocks remain expensive, trading above +1 standard deviation levels.

Bernstein observed early signs of the earnings downgrade cycle bottoming out, particularly in materials, energy, and staples.

Only large-caps, low-volatility, and quality stocks are in a clear earnings recovery cycle, the note added, highlighting that these segments show strong tactical earnings support.

While Foreign Institutional Investor (FII) outflows have stabilized after pulling out $16.3 billion YTD, slowing domestic SIP flows remain a concern.

While, FII outflow seem to have bottomed-out, the slowing SIP flow remains a concern as that has typically aligned with market drawdowns

Bernstein emphasized that despite the recent market rebound, style positioning remains a relative valuation call, favoring large-cap and low-volatility stocks over high-risk segments.

“We maintain our preference toward large-caps and low vol stocks as they remain the ‘cheapest’ styles relative to market and are seeing the strongest earnings tailwind,” analyst said.