India’s earnings recovery priced in; Venugopal Garre explains why markets now need upgrades, not optimism

Indian equities may deliver positive returns over the next year, but the scope for sharp outperformance looks limited due to a lack of clear earnings upgrade drivers, according to Venugopal Garre, Managing Director at Bernstein.

Speaking to ET Now, Garre said markets have already priced in an earnings recovery after a weak growth phase last year. What is missing now, he argued, is visibility on factors that can drive sustained earnings upgrades, prompting Bernstein to cut India to a “neutral” stance earlier this year.

Earnings growth expectations already baked in

Bernstein is building in earnings growth of over 12% for FY27 and assumes a best-case earnings per share (EPS) CAGR of around 13.5% over the next two years. However, Garre cautioned that this recovery is already reflected in valuations.


“Markets are not looking for recovery anymore—that is priced in. What they are waiting for are drivers of earnings upgrades, and at this point, visibility on those remains limited,” he said.

He added that FY28 growth is expected to be stronger than FY27, but even that assumes favourable outcomes on margins and macro stability.

Margins, not revenues, driving earnings assumptions

Garre highlighted that a large portion of consensus earnings growth projections for the next two years are driven by margin expansion rather than a strong topline recovery. This, he said, is a concern because corporate margins are already close to peak levels in several sectors.

“For earnings to surprise meaningfully on the upside, we would need a much stronger lift in overall economic growth. That could come from fiscal stimulus, a pickup in private capex, or large FDI inflows—but these are still uncertain,” he said.

Limited macro levers left

On the macro front, Garre noted that incremental data points are weakening. With interest rates already close to the peak of the rate-cut cycle and the government having delivered several consumption-focused measures last year, the scope for fresh policy stimulus appears limited.

He also pointed to delays around the India–US trade agreement and uncertainty over its durability as another overhang for investor confidence.

Sector stance: selective, not broad-based

Bernstein remains relatively positive on consumption compared to industrials but is taking a selective, stock-specific approach rather than a broad sectoral bet. Within financials, Garre said private sector banks remain preferred over PSU banks over a 12-month horizon, while NBFCs rank lower after strong performance last year.

Budget watch: fiscal math in focus

Looking ahead to the Union Budget, Garre said the fiscal deficit number will be a key variable to track, along with the balance between capex and subsidies. He does not expect further personal tax cuts and believes the government’s room for aggressive spending is constrained by weak tax buoyancy and nominal GDP growth.

“The challenge is to maintain growth momentum without pulling back too sharply on spending. Flattening the fiscal glide path may be more effective than aggressive consolidation at this stage,” he said.

Overall, while Bernstein expects Indian markets to deliver positive returns, Garre warned that without a strong macro or earnings catalyst, upside may remain capped in the near term.