India's benchmark indices are expected to remain weak in the rest of the year, as global and domestic headwinds continue to weigh the market, according to Bank of America.
The brokerage cut the target for the key gauge NSE Nifty 50 to 25,000 for December 2025 from 26,500 earlier, implying a 9.5% upside from the previous close. The correction is playing out as expected, and 2025 is expected to stay weak, analysts at BofA said.
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As investors ponder on whether the correction has hit a bottom, BofA brings a sour outcome. The brokerage continues to expect single-digit returns for Nifty in 2025, with reasonably high volatility, and expects small and mid-caps to see negative returns.
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Continued earnings downgrade, US policy uncertainty, moderating capital expenditures, weak foreign institutional flows, risk to domestic flows and rich valuations are key risks for the market, it said.
Nifty fiscal 2026 earnings per share growth at 12% is still below consensus at 15%, despite consensus cuts of 360 basis points already seen since September 2024. "Our bottom-up estimates suggest weaker capex, credit growth and commodities would drive 80% of this miss."
Benchmark indices — Nifty 50 and the Sensex — have fallen 13.3% and 11.7%, respectively, from the previous peak. During the same period, the small and mid-cap indices fell as much as 22.5% and 18.4%, respectively. India stocks' overall market cap has plunged nearly $1.2 trillion since its peak last year to $3.99 trillion, according to Bloomberg data.
On the global trade tensions, the United States fiscal and trade policies have a significant impact for India and could keep markets volatile, BofA said.
With commentary coming in that outflow by global funds could reverse, BofA expects flow to stay weak on strong US bond yields, likely rupee depreciation, delayed fed cuts and likely strong US equities.
Slowing corporate earnings growth would make it hard to justify valuation expansion for Nifty, the brokerage said. "Small and mid-caps would continue to see valuation contraction as their earnings growth versus Nifty could shrink."
BofA's 2025 India Strategy
BofA prefers select domestic cyclical and defensives over global cyclical names.
Prefers financials on further likely rate cuts — positive for non-banking financial companies and remains overweight on staples on likely recovery in rural consumption.
Overweight on autos on recovery in mass consumption and uptick in exports.
Remains overweight on telecom on stable competition, margin improvement and higher free cash flow generation.
Has an uncertain and volatile outlook on global cyclical, such as energy and metals, given the tariffs on China and higher supply of crude.
Remains underweight on upstream energy on lower crude prices and likely shift from discounted Russian crude.
Remains underweight on industrials, steel and cement, given the muted growth in capex.
Further, BofA remains underweight on utilities on execution issues and likely lower capacity adds than market expectations.
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