The Nifty 50 has the potential to rise to 26,200 by December 2026, implying an upside of around 12% from current levels, according to BofA Securities, which has turned constructive on Indian stock market after maintaining a cautious stance for nearly two years.
In a recent strategy report, BofA said it had been cautious on Indian equities since August 2024 and recently argued that markets may stay volatile driven by eight key risks.
Since then, it believes five of these risks have either priced in or have played out. The residual three risks pose 7% downside risk for the Nifty 50 index in its bear case. However, in its base case, BofA sees potential for Nifty at 26,200 by December 2026, implying 12% upside from Friday's close.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
Eight Key Risks
According to BofA, five of the eight key risks it had identified for Indian markets have already played out, while the remaining three are expected to peak by October 2026, offering potential for Nifty 50 rally from November this year.
The first risk was a surge in crude oil prices above $100 per barrel, compared with BofA's fourth-quarter 2026 estimate of $81 per barrel. BofA noted that crude has reversed from the $100/barrel mark seven times over the past seven months.
The second risk was the rupee, although recent inflows of $136 billion are expected to support the currency, with BofA maintaining an appreciation bias.
The third risk was weak monsoons, with the current rainfall deficit at 13%, close to the worst-case forecast of 15%. Fourth, BofA expects no further acceleration in aluminium and copper prices. The fifth was an RBI rate hike, with its economist expecting a 25-basis-point hike by December 2026, compared with 45 bps currently priced by swap markets.
The remaining risks include a surge in primary issuances, with $30 billion expected between September and December and issuances peaking in October; a 75-bps Fed rate-hike expectation versus 35 bps priced by markets; and the longer-term risk of AI disruption and its impact on employment in India.
Earnings Growth
Several high-frequency macroeconomic indicators point to a robust domestic economy, prompting BofA to upgrade its macroeconomic forecasts. After consensus earnings estimates for FY27 were cut by around 230 bps year-to-date, the brokerage believes earnings downgrades have now peaked.
BofA expects Nifty earnings growth of 10% in FY27 and 15% in FY28, compared with Street estimates of 12% and 15%, respectively.
BofA Recommends Switching To Large-Caps
Small-cap and mid-cap indices have outperformed the Nifty by 13-20% year-to-date (YTD), while their valuation premium has narrowed to 43% from a peak of 53%.
Although BofA continues to see selective opportunities in the small- and mid-cap segment, it has reversed its earlier preference for SMIDs and now recommends switching towards large-caps.
The brokerage believes investors will need to remain nimble and selective to generate outperformance in the current market environment.
Sectoral Outlook
For the Nifty, the brokerage is positive on private banks, NBFCs, autos, upstream energy, cement, regulated power utilities, jewellery, quick commerce and EPC contractors. It remains cautious on PSU banks, insurance, steel, downstream energy, staples, telecom, healthcare, industrials and information technology.
Within the Nifty Junior, it favours shipbuilding, gas utilities, airports and cement. It is cautious on OMCs, staples, industrials, real estate, brokerages, exchanges, asset management companies, power transformers, genset manufacturers, airlines and unregulated power utilities.
Among SMID caps, the positive view extends to non-ferrous metals, consumer durables, cement, wires and cables, QSR and genset manufacturers. The brokerage remains cautious on roads, railways, ports, power distribution, water and irrigation, logistics, industrials, unregulated power utilities, footwear, e-commerce, apparel, discount retailers, real estate and power transformers.
Disclaimer: The views and opinions expressed by the investment advisers on NDTV Profit are of their own and not of NDTV Profit. NDTV Profit advises users to consult with their own financial or investment adviser before taking any investment decision.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
