BofA Sees Nifty 50 Rising Up To 26,500 In Calendar Year 2025; Says Indian Equities May Underperform US Stocks

The NSE Nifty 50 can rise up to 26,500 in calendar year 2025, which implies less than 9% return, BofA said in a note. The Indian benchmark is at BofA's year–end forecast of 24,000 for this year, delivering a 12% return.

The Nifty 50 can underperform US equities in US dollar terms. Broader markets may deliver some muted returns because of their rich valuation, BofA said.

BofA sees Nifty 50 companies' earning growth between 6% and 15% compared to consensus between 7% and 10%, the brokerage said. Concern of commodity prices, capital expenditure, and credit growth drive 80% of the earning estimate miss of the Indian companies.

Welfare spends are expected to increase in India as most policies of India are turning populist. Citing RBUNIPFF study, BofA said that capital expenditure may result in less than 3 times of GDP multiplier for welfare spends.

BofA sees India's capital expenditure may imply just 9% growth for financial year 2025, missing street estimates of 13%. It grew at 10% in financial year 2024.

There are chances that the Government of India may implement reforms like GST and income tax simplification. However, it could be tough to introduce legislative reforms . "Slower reforms would make it difficult to justify India's premium valuations."

Inflows from foreign institutional investors will remain weak for calendar year 2025 because of strengthening US bond yields. Meanwhile, domestic institutional inflows could moderate because of continued fundraise.

Moreover, higher for longer policy rates in India and US, weak urban consumption are also headwinds.

US trade, fiscal, immigration and geopolitical policies have significant impacts for India. The recent uncertainty may keep the domestic equities volatile.

BofA's US team expects that the GDP growth in the world's largest economy will remain stable at 2.4% in 2025. Inflation will range from 2.6% to 3.0%. For the S&P 500 index, the investment banker expects 11% upside potential.

BofA sees 250–basis–point rate cut by the US Federal Reserve in the 2025.