Bernstein flips tactical on India as US trade deal slashes tariffs; sees short-term Nifty rebound to 26,500

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• Bernstein predicts short-term rise in Indian stocks post India-US trade deal.
• India cuts effective US tariff rate to 18% from 50% under new deal
• Nifty may rebound to 26,500, but year-end target remains unchanged at 28,100

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Global brokerage Bernstein has turned tactically bullish on Indian equities, calling a short-term trading rebound after the India-US trade treaty sharply cut effective US tariffs on Indian goods to 18% from 50%, even as it kept its year-end Nifty target unchanged at 28,100, flagging that the policy-driven rally could fade within weeks.

In it's latest research note dated February 3, Bernstein said the long-anticipated India-US trade treaty has arrived at a time when Indian equities are already sharply corrected year-to-date, creating conditions for a sentiment-led bounce rather than an earnings-driven rally.

“We were anticipating the US-India trade treaty to get signed and believed it would trigger a short-term rebound for Indian equities. We are now at that moment,” the brokerage said, adding that while the immediate upside looks attractive, the durability of the move remains limited.

Under the deal, India’s effective tariff rate is expected to fall to 18%, with the removal of the 25% punitive, sanctions-style duty, though some sectors such as autos and metals may still face sector-specific tariffs in the 20 to 25% range. Bernstein noted that the reset puts India broadly on par with ASEAN peers and strengthens its relative positioning versus China.

The brokerage believes the pace of the agreement was accelerated by the India-EU trade treaty, which likely forced the US to reassess the relevance of maintaining elevated tariffs on India.

On the concessions side, Bernstein flagged that India is expected to remove tariff and non-tariff barriers on US goods to zero, while committing to USD 500 billion worth of purchases across agriculture, technology, energy and other products over a multi-year period. The fine print, however, is still awaited and could have uneven sectoral implications.

From a market standpoint, Bernstein expects Nifty to rebound towards 26,500 in the near term before stabilising, as sentiment improves even though earnings momentum remains sluggish and the recent Union Budget failed to provide a meaningful growth kicker.

“With markets weakened by soft earnings and a lacklustre budget, improving sentiment — not earnings — should drive the move,” the note said.

Despite the near-term optimism, Bernstein kept its full-year rating at Neutral, warning that significant fund-raising, limited scope for earnings upgrades, and still-elevated valuations could cap returns after the trading bounce. India’s USD returns, it noted, remain among the lowest globally in 2026 so far, partly due to market weakness and a sharp rupee depreciation, though the trade deal could lend near-term stability to the currency and open room for over 50 basis points of rate cuts.

Sectorally, Bernstein continues to favour Financials, IT and Telecom as the preferred ways to play the rebound. IT, in particular, stands to benefit from improved US-India relations, which could reduce regulatory scrutiny and the risk of further punitive actions, even though services are not directly covered under the trade pact. Manufacturing-linked and trade-facing stocks could also see a recovery, while autos and defence remain watch areas as deal details emerge.

Bernstein said India’s valuations have corrected meaningfully from the start of the year but still remain expensive, making the rebound sentiment-led rather than valuation-driven.