Global brokerage Bernstein has issued a critical report on India's large-cap corporates, stating that many represent a 'bygone economic era' and are failing to reinvent themselves in the face of technological disruption [1]. The report highlights that these companies do not offer the 'high growth' rates necessary to justify the 'sky-high valuations' seen in Indian markets, and accuses large corporates of consolidating their past rather than investing in future technologies such as electric vehicles and semiconductors [1]. Bernstein also notes reluctance among the largest firms to provide capital needed for India to scale in emerging sectors [1].
Foreign investors have resumed selling Indian equities in September after a brief pause in July and August, according to data from NSDL. So far this month, foreign portfolio investors have sold $1.7 billion in direct Indian equities, bringing the total for the year to nearly $26 billion—the highest ever recorded [1]. This exodus has contributed to weak market performance, with India's large-cap index, the Nifty 50, down more than 10% since January, making it one of the worst-performing markets globally [1].
Despite the poor performance of large caps, India's economy remains the fastest-growing major economy, but this growth is not reflected in key stock benchmarks. Experts told CNBC that companies in emerging sectors are more prevalent in mid-cap and small-cap indexes, not the Nifty 50 [1]. Mid-cap stocks, with greater exposure to manufacturing, fintech, and consumer technology, reported 31% earnings growth in the June quarter compared to 11% for Nifty 50 companies, according to Ambit Capital [1]. Bernstein acknowledges the promise of small and mid-cap companies but cautions that they are not suitable for large institutional capital due to their sub-scale nature, low free floats, limited liquidity, and sparse coverage [1].
Several major Indian corporates, including Reliance Industries and HDFC Bank, are trading near their lowest levels in 52 weeks, as per LSEG data. Information technology companies, which make up over 8% of the Nifty 50, are facing revenue and margin pressures amid global AI adoption [1]. Additionally, the Tata Group is currently involved in a boardroom battle that could impact its ability to invest in building India's first semiconductor facility [1].
CONCLUSION
Foreign investors are rapidly exiting Indian large-cap equities, citing outdated business models and unsustainable valuations. While mid-cap and small-cap companies show stronger earnings growth, their limited scale and liquidity restrict institutional investment. The market outlook remains cautious, with large caps underperforming despite robust economic growth.