Equities research firm Bernstein has flagged the upbeat commentary around the financial performance of Indian listed companies in the first quarter of fiscal 2027 as a sign of a durable improvement, arguing that some temporary factors have been “treated as permanent achievements.”

The report ‘India Strategy:The distortion economy and the beneficiaries’, authored by Venugopal Garre, head of research at Bernstein India, highlights eight factors that, according to the firm, present a more nuanced picture of corporate performance when viewed against underlying ground realities.

On earnings, Garre said the positive commentary around Q1 results often overlooked profit after tax (PAT) excluding oil marketing companies (OMCs). The country’s three largest OMCs reported combined losses of about ₹18,000 crore, he noted, making headline PAT growth appear stronger than the underlying performance.

Bernstein also attributed some of the demand improvement following the GST cuts to a combination of pent-up demand and the front-loading of purchases ahead of anticipated price increases. In the passenger-vehicle segment, for instance, companies did not raise prices despite “weak industry margins”, Garre noted.

The firm said the improvement in earnings of manufacturing companies and rural income was also supported to a large extent by government transfers, raising questions about the sustainability of the gains.

Garre further pointed to the impact of production-linked incentive (PLI) schemes, noting that only a limited number of companies have benefited from them. Auto companies with a higher electric-vehicle mix, he said, were reporting margins above their historical levels, with PLI benefits providing support. The report described this as a benefit ultimately funded by the “average taxpayer.”

The report also takes a critical view of income-support schemes, arguing that such measures amount to “free money” and could create a “moral hazard” by affecting labour productivity. Bernstein attributed the decline in labour productivity partly to workers opting for income-support benefits and moving towards lower-productivity service-sector jobs.

Taken together, these factors suggest that India’s recent growth trajectory is not being driven entirely by market forces, Bernstein argued. The firm cautioned that growth supported by such distortions may not necessarily translate into strong equity-market returns. Bernstein has therefore retained its Nifty target at 26,000 points