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- Bernstein, in a report on Monday, said India’s large caps lacked the high growth rates that would justify their “sky-high valuations”.
- The Nifty 50 is one of the worst-performing stock markets in the world this year, and the global brokerage said small and mid-cap companies were not a suitable alternative for large institutional capital.
- After briefly turning net buyers of Indian equities in July and August, foreign investors have sold $1.7 billion worth of direct stocks so far in September.
Fishermen catch fish against a backdrop of windmills in Thoothukudi in India’s Tamil Nadu state on September 9, 2026.R. Satish Babu | Afp | Getty Images
Global brokerage Bernstein on Monday said foreign investors had little reason to invest in the world’s fastest-growing major economy, pinning the blame for their ongoing exodus on India’s large corporates struggling to reinvent their businesses in the face of disruption from new technologies.
“Many of India’s large caps represent a bygone economic era,” Bernstein said in a report, adding that these businesses do not offer “high growth” rates that can justify the “sky-high valuations” of Indian markets.
“Most [large corporates] are not investing in the future, but consolidating their past, often expecting policy to continue shielding them from global competition,” the report said. Large corporates with the “deepest pockets” are reluctant to provide the capital India needs to develop scale in emerging technologies like electric vehicles and semiconductors, it said.
After a brief hiatus in July and August, foreign investors have resumed selling Indian equities in September, data from depository firm NSDL showed. So far this month, foreign portfolio investors have sold direct Indian equities worth $1.7 billion, taking the total amount sold this year to nearly $26 billion, the highest ever.
Weak markets
Since January, India’s large-cap index, the Nifty 50, is down more than 10%, making it one of the worst-performing markets in the world. However, according to the latest data, the Indian economy continues to rank as the fastest-growing major economy.
Earlier this month, experts told CNBC that India’s economic growth story was not reflected in the country’s key stock benchmarks, as many companies in emerging sectors are represented in the mid-cap and small-cap indexes and not the Nifty 50.
Mid-cap and some small-cap stocks have greater exposure to manufacturing, fintech, consumer technology, and other sectors that are capturing a growing share of economic activity. As a result, average earnings growth of Nifty 50 companies was 11% in the June quarter, while mid-caps reported 31% growth from a year ago, as per data from Indian broking firm Ambit Capital.
Bernstein, in its report, confirmed the promise that small and mid-cap companies held but said they were not ideal for large institutional capital deployment as these companies “remain sub-scale, with low free floats, limited liquidity and sparse coverage.”
Several large Indian corporates such as Reliance Industries and the country’s biggest private sector lender HDFC Bank are currently trading near their lowest levels in 52 weeks, as per data from LSEG. Information technology companies, which account for more than 8% weightage in the Nifty 50, are facing revenue and margin pressure amid global AI adoption.
Meanwhile, the Tata Group, one of India’s leading corporate houses, is embroiled in a boardroom battle that could affect its ability to invest in building the country’s first semiconductor fabrication plant.
With no local champions in artificial intelligence and the IT services industry facing the brunt of AI advancements, India is widely seen as an anti-AI trade. However, Bernstein pointed out that even if the global AI trade weakens, India is unlikely to see any major reversal of foreign capital flows.
“It would be a folly to think that it’s just a matter of time, and once the AI trade settles and the Middle East crisis resolves, foreign money is just waiting to be parked into India,” Bernstein said.
