The “China-plus-one” narrative and the period of “cinematic strokes” in the Indian equities markets are reaching a structural limit. Global stockbroker Bernstein has formally downgraded Indian stocks to “Neutral” in its recently issued 2026 Strategy Outlook.
Bernstein downgrades India to Neutral
The India tale is being “burdened by its own history” rather than going into a crisis, according to research by Nikhil Arela and Venugopal Garre of Bernstein. According to the Bernstein research, the Nifty objective is set at 28,100, a moderate 7.5–8% increase from present levels, indicating a shift to a “calm year.”
Market outlook and Nifty target
The effect of the US presidential order on the Indian IT industry is among the Bernstein report’s most startling conclusions. According to the study, the H-1B visa costs for new applications have increased to an astounding $100,000, marking a seismic change. Compared to historical levels, this is an approximately 9,000% rise.
According to Bernstein’s analysis, moving mid-level engineers to the US is not financially feasible for Tier-1 companies like Tata Consultancy Services, Infosys, and Wipro due to this charge. The brokerage points out that while the IT industry may provide as a short-term buffer against more general trade volatility, there is no denying the “structural overhang” of these expenses. In order to defend declining margins, Bernstein anticipates that this will lead to a recalibration of the offshore-onshore delivery balance, necessitating a shift toward local US employment and an acceleration of AI automation.
Impact on Indian IT companies
According to the research, the IT industry’s “easy growth” phase is ended, and only those who can separate income from headcount can prosper in a survival-of-the-fittest environment.
💻 Bernstein’s $100,000 H-1B Shock
- Visa Fee: $100,000 for new H-1B petitions
- Increase: ~9,000% vs historical levels
- Most Affected: TCS, Infosys, Wipro
- Key Risk: Structural margin pressure
- Response: Local US hiring and AI automation
Policy fatigue and limits to stimulus
The government’s vigorous fiscal push has been a major factor in India’s bull run, but Bernstein warns that this stage is mostly finished. According to the research, the state has been using “the most formidable instruments in its arsenal to maintain the Indian growth look like a fairytale” in recent years, leaving little room for further advancements. Bernstein cautions that the remaining assistance is now restricted to “the fading benefits of the tax and GST cuts already done in 2025,” indicating that the growth push from significant corporate tax and GST reductions planned in 2025 has already peaked.
“Over the last several years, the government has used the most powerful instruments at its disposal to maintain the impression that India’s progress is unreal. The analysis said that the only things left are the fading effects of the tax and GST cuts already implemented in 2025 and, at most, 50–75 basis points of further rate decreases.
Monetary easing and capex concerns
According to Bernstein’s statistics, there is less and less space for more monetary easing. The brokerage anticipates more rate reductions of little more than 50 to 75 basis points. The central bank may have no further options after this. In addition, the post-pandemic narrative of “accelerate capex while decreasing the deficit” has become stale.
As Bernstein points out, the issue is that private capital expenditures are still on the “back foot.” For the last four years, India’s capacity utilization has been at about 75%. Instead of the “cinematic” acceleration that investors have paid a premium for, the economy faces a “quiet” stagnation in the absence of a strong resurgence in private investment, which Bernstein points out is still hesitant.
📉 India Valuation & Growth Warning
- Market Valuation: 20x+ forward P/E
- Global Average: 15.1x across major economies
- Rate Cut Room: Only 50–75 bps left
- Capex: Private investment still weak
- Risk: Quiet stagnation vs cinematic growth
Valuations and sector strategy
According to Bernstein, India is one of the most costly markets in the world going into 2026, with a price-to-earnings (P/E) ratio that is more than 20 times ahead. A 15.1x average across 15 other major world economies contrasts sharply with this.
The brokerage describes 2026 as a “year of adjustment,” despite what Bernstein refers to as a “optimistic” profits growth estimate of 13.5% (CAGR) through FY28. Although “point trades” or brief rallies might result from a possible US-India trade agreement, Bernstein believes that they are unlikely to be long-term market triggers.
Bernstein’s analysis does not support a complete withdrawal despite the wider downgrading. It implies a tactical rotation instead. As a “catch-up” strategy that can endure the wider market cooling, the brokerage has upgraded the real estate sector to “Overweight.”
Sector preferences and risks
Additionally, Bernstein continues to favor the financial and telecom industries because it thinks they have strong balance sheets and can weather a year of less liquidity and increased operating expenses. On the other hand, the research warns against industries that are highly dependent on government tender flows or those that are very sensitive to trade obstacles that might result from the changing “America First” policy.
India is “one of the most expensive markets internationally” going into 2026, according to Bernstein, who cautions that “years with few catalysts are more of a valuation play and catch-up trades rather than earnings driven.”
India is rated as “Neutral” by the company because “policy levers are mostly exhausted and macro as evidenced by real GDP growth is closer to a peak,” rather than because the narrative has turned negative.
Regarding economic drivers, the paper warns that “an large China+1 exodus from the northern neighbor should be halted” and that “nobody to step in when goverment pulls feet off the pedal” at home, where “the previous few years have seen the government utilize the most formidable instruments in its arsenal.”
Frequently asked questions
1. Why was India downgraded to “Neutral” by Bernstein?
Due to inflated valuations, a lack of left-leaning governmental support, and predictions of a slower growth phase rather than a rapid decline, Bernstein downgraded India.
2. How does the $100,000 H-1B fee affect Indian IT firms?
The sharp increase makes it unfeasible to send mid-level Indian engineers to the US, which puts pressure on margins and forces IT companies to hire more locally in the US and use AI automation.
3. Does India’s economic narrative end with the downgrade?
No. Bernstein makes it quite obvious that there will not be a crisis in India. The downgrade indicates a transition from a high-growth to a more stable, lower-return phase.
4. In India, which industries does Bernstein still favor?
Due to their superior balance sheets and endurance in a lower-liquidity environment, Bernstein prefers Telecom, Financials, and Real Estate (upgraded to Overweight).
5. Which major dangers should investors be aware of in 2026?
High market valuations, limited future rate reduction (50–75 basis points at most), inadequate private capital expenditures, and uncertainty surrounding international trade due to “America First” policies are some of the main dangers.
In conclusion
Bernstein’s downgrading of India to “Neutral” is a reality check rather than a pessimistic assessment. India is going through a period of transition after years of “cinematic” prosperity propelled by robust state backing and international financial flows. The $100,000 H-1B visa cost, high valuations, and depleted fiscal and monetary levers are likely to limit near-term growth. According to Bernstein, gains in India in 2026 will be more driven by catch-up trades and pricing than by rapid earnings growth, and the country is a market for selective sector rotation rather than broad-based returns.
Disclaimer
This article is based on publicly available reports, analyst commentary, and market data at the time of writing. It is intended for informational purposes only and should not be considered financial or investment advice. Market conditions and policies may change.
