Nifty's 25,000 Target Remains, But FII-DII Flows, Global Slowdown Are Key Risks: BofA

While ongoing monetary stimulus is expected to help India revive growth in GDP, capex, and consumption, the acceleration could very well be shallow, according to Bank of America. Owing to the recent rally, the brokerage sees no change in its year-end Nifty target of 25,000.

Post the announcement of US President Donald Trump's global tariffs on April 2, NSE Nifty 50 has rallied 6%. India was the first market to break out of the tariff-induced rout.

Though constructive on the India story long term, the brokerage remains cautious on markets in the near term, led by weakening global macroeconomic conditions.

In the near term, these are the risks that BofA flagged which allows it to stay bearish on the broader markets:

Despite the ongoing monetary stimulus, BofA expects India's economic revival to remain shallow. It forecasts capex growth at 11% over FY25–27E, considerably below the 16% consensus. On the earnings front, BofA sees Nifty earnings growth at 9% in fiscal 2026, compared to 6% in fiscal 2025. Notably, this year's earnings have already been cut by 8%, a trend BofA expects to persist.

According to BofA, markets are fully pricing in an imminent India-US trade deal. This optimism stems from India being perceived as a key beneficiary of global supply chain realignment. However, the note cautions against overlooking related risks.

While hopes for a bilateral trade pact is buoying sentiment, BofA warns that markets are ignoring broader trade-related risks. In particular, it flags a potential global slowdown triggered by ongoing trade tensions, which it believes remains underappreciated.

In the US, a proposed tax bill aimed at extending earlier tax cuts and introducing new eliminations could add to the fiscal deficit, already at 6.4%. BofA's economists suggest that lower-than-anticipated revenues from tariffs and tax cuts may offset any stimulative effects, leading to weaker growth. They expect US GDP growth to moderate to 1.5% in 2025 and 2026, from 2.8% in 2024. Given the Nifty's 96% correlation with the S&P 500, any correction in US equities could spill over to Indian markets, as per the note.

BofA flags the risk of rising populism, especially as six states accounting for 23% of state-level expenditure, 16% of subsidies, and 17% of capex head into elections in the second half of fiscal 2026. A spike in subsidies could lead to valuation compression in equity markets.

Domestic institutional investor flows, which peaked at $8.6 billion in October 2024, have started to moderate, falling to $6.1 billion in April 2025. BofA sees the peak in DII flows as likely behind us, suggesting continued volatility and moderation ahead.

Foreign investor inflows rebounded to $3.5 billion during April-May after $13.5 billion in outflows in the first quarter. However, BofA sees risks to FII flows, citing an unattractive relative return for the Nifty compared to US treasuries (currently yielding 4.3%) and the overall equity risk premium.