Bernstein says that after the decline, the Indian stock market no longer looks expensive relative to its own historical range, but compared with global peers, valuations remain elevated.

Analysts Venugopal Garre and Nikhil Arela wrote in an October 19 research note: "Market valuation digestion is a lengthy process, and at this stage we do not believe Indian valuations have entered an entirely new paradigm."

"When compared against global peers, a valuation advantage is hard to establish: the Nifty is still the third most expensive equity index in the world, higher than many Asian markets with stronger medium-term growth potential."

However, the brokerage believes that after this year's sharp decline, mean reversion could allow the index some room for a modest rebound.

Taking into account a weakening macroeconomic environment, high oil prices, high yields and persistent geopolitical risks, Bernstein cut its Nifty target from 26,000 to 25,000 points. The index currently trades at 18 times forward earnings for fiscal 2028.

Market hopes for a cut in the long-term capital gains tax and a reversal in the AI trade are merely narratives, not substantive catalysts. The Nifty has fallen 12.5% so far this year.