Mumbai: BofA Securities has turned constructive on the Nifty after nearly two years of caution, projecting the index to reach 26,200 by December 2026. This implies an upside of about 12% from current levels. The brokerage, which has maintained a cautious stance since August 2024, said five of the eight risks it had previously flagged have either materialised or are now reflected in valuations.
BofA said the two key near-term risks facing the market are potential US Federal Reserve rate hikes and heavy primary-market issuances. It expects both risks to peak by October, creating room for a Nifty rally from November. The impact of artificial intelligence on Indian employment remains a longer-term structural risk.
The brokerage expects about $30 billion in primary-market issuances between September and December, with activity peaking in October. It also expects the Federal Reserve to raise rates by 75 basis points during the period, compared with roughly 35 basis points currently priced in by markets.
BofA believes the earnings downgrade cycle may have peaked after consensus FY27 earnings estimates for the Nifty were cut by 230 basis points year-to-date. It forecasts Nifty earnings growth of 10% in FY27 and 15% in FY28, compared with Street estimates of 12% and 15%, respectively.
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The brokerage has shifted its preference from small- and mid-cap stocks to large caps after broader market indices outperformed the Nifty by 13-20% year-to-date. The valuation premium for small- and mid-cap stocks currently stands at 43%, down from a peak of 53%.
Within the Nifty universe, BofA is positive on private banks, NBFCs, automobiles, upstream energy, cement, regulated power utilities, jewellery, quick commerce and EPC contractors. It remains cautious on PSU banks, insurance, steel, downstream energy, consumer staples, telecom, healthcare, industrials and information technology.