Bank of America Securities has turned cautious on Indian equities in the near term, warning that escalating geopolitical tensions and rising commodity prices could trigger fresh earnings downgrades across sectors. In a strategy note, BofA India strategist Amish Shah said markets may face increased volatility due to a combination of higher energy prices, currency fluctuations and potential disruptions from artificial intelligence-driven shifts in business models.
Despite these risks, BofA expects Nifty earnings per share to grow about 11% in FY27, down from an estimated 16% growth in FY26, highlighting a moderation in corporate profit expansion. The brokerage outlined two potential scenarios depending on how geopolitical tensions evolve.
Scenario 1: Time-Bound Resolution
If the conflict is resolved relatively quickly, sectors that have already corrected due to rising energy prices could see a rebound.
These include downstream energy companies, tyres, paints, gas utilities and fertilisers, which tend to be sensitive to crude and natural gas costs. Other cyclical sectors such as capital goods, logistics, ports, airlines and airport operators could also benefit from improved sentiment.
In addition, BofA said capital market plays such as asset management companies, brokerages, exchanges and custodians could rally if foreign investor outflows stabilise. The brokerage noted that recent corrections in private banks and cement stocks appear to be driven more by macro uncertainty than by deterioration in fundamentals. However, the report cautioned that if tensions persist, these sectors could continue to face pressure.
ALSO READ: Middle East Conflict: How Crude Oil Spike Can Hurt India's Banks — UBS Explains
Scenario 2: Prolonged Standoff
If geopolitical tensions drag on, BofA recommends tilting portfolios toward more defensive sectors.
Within infrastructure and industrial segments, the brokerage prefers defence-oriented EPC contractors over conventional infrastructure plays. It also favours cables and wires, and data centre-related themes over railways, logistics, ports and industrial stocks.
Among defensives, BofA prefers telecom, hospitals and pharmaceutical companies over utilities, renewable energy, consumer staples and retail. In the energy and materials space, the brokerage recommends upstream oil and gas companies and non-ferrous metals rather than downstream energy players and steel.
Within discretionary consumption, BofA sees stronger prospects for quick-service restaurants, quick commerce platforms, jewellers and two-wheeler manufacturers, while remaining cautious on sectors such as airlines, hospitality, real estate and alcohol.
Likely Winners Regardless of Outcome
Regardless of how the geopolitical situation unfolds, BofA maintains a constructive view on several structural growth sectors.
The brokerage sees transformers, data centres, two-wheelers, banks, exchanges, non-ferrous metals, jewellers, hospitals, chemicals, pharmaceuticals, defence, telecom and coal as likely outperformers due to strong earnings visibility and reasonable valuations.
At the same time, it remains cautious on railways, capital market plays, hotels, housing finance, real estate, renewable energy, consumer staples, building materials, electronics manufacturing services and fintech firms, where risk-reward appears less favourable in the current environment.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.