BofA turns constructive on Nifty after 2 years; sees 12% potential upside to 26,200 by Dec 2026
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BofA Global Research has turned “constructive” on the Nifty after remaining cautious on Indian markets since August 2024, expecting a potential 12% upside to 26,200 by December 2026 in its base case.
The brokerage said five of the eight risks it had previously identified have either been priced in or have played out. The remaining three risks pose a 7% downside risk for the Nifty in its bear case.
In its base case, BofA sees the Nifty at 26,200 by December 2026, implying 12% upside from the current level of 23,477. It has kept its December 2026 Nifty target intact.
The foreign brokerage said two of the residual risks - Federal Reserve rate hikes and India’s lumpy primary issuances - could peak by October 2026, offering potential for the Nifty to rally from November.
“Meantime, several high-frequency macro indicators suggest a robust economy,” BofA said, adding that its economics team has recently upgraded its macro forecasts.
After 230 basis points of consensus earnings cuts year-to-date for FY27, BofA believes earnings cuts have now peaked. It sees Nifty earnings growth at 10% and 15% for FY27 and FY28, respectively, compared with Street estimates of 12% and 15%.
“Currently, Nifty’s valuations are below long-term averages, providing scope for some valuation expansion,” BofA said.
Five of the eight risks have played out
BofA said five of the eight risks it had identified have played out, while the remaining risks are expected to peak by October. The eight risks identified by BofA are crude oil prices, the Indian rupee, weak monsoons, commodity prices, an RBI rate hike, primary market offerings, Federal Reserve rate hikes, and AI disruption and its impact on India’s employment.
On crude, the brokerage said the recent market correction was led by crude prices above $100 a barrel, compared with its estimate of $81 a barrel in the fourth quarter of calendar year 2026. It said crude has reversed from $100 a barrel seven times in the past seven months since the start of the West Asia conflict.
On the rupee, BofA said recent inflows of $136 billion should help stabilise the currency, with a bias towards appreciation.
On weak monsoons, it said the current 13% deficit is already close to its worst-case weather forecast of a 15% deficit.
On commodities, BofA expects no further acceleration in aluminium and copper prices.
On the RBI, its economist expects a 25-basis-point rate hike by December 2026, compared with 45 basis points of hikes already priced in by swap markets.
As per the report, primary offerings are expected to total $30 billion between September and December 2026, compared with $36 billion raised year-to-date, with issuances expected to peak in October.
BofA expects 75 basis points of Fed rate hikes between September and December 2026, compared with 35 basis points priced in by the market.
AI disruption and its impact on India’s employment remains a structural risk, it said.
Large caps over SMIDs
BofA has reversed its preference for small- and mid-cap companies (SMIDs) and suggested switching to large caps. SMID-cap indices have outperformed the Nifty by 13-20% year-to-date, while their valuation premium is now at 43%, compared with 53% at the peak, it said.
“Although we continue to see select opportunities within SMID caps, we reverse our preference for SMIDs & suggest switching to large caps,” BofA said.
The brokerage said its preferred stocks across market capitalisations are those that offer value or high earnings growth and visibility.
Its sector view largely remains unchanged. BofA is overweight on Financials, Autos, Upstream, Energy, Cement, Utilities, Consumer Discretionary, Travel & Tourism and Non-Ferrous Metals.
It is marketweight on Healthcare, Industrials, Real Estate and Information Technology, among other sectors.
Within Nifty, BofA is positive on private banks, NBFCs, Autos, Upstream Energy, Cement, regulated power utilities, jewellery, quick commerce and EPC contractors.
Within Nifty Junior, it is positive on shipbuilding, gas utilities, airports and cement.
Within SMID caps, it is positive on non-ferrous metals, consumer durables, cement, wires and cables, QSR and genset manufacturers.
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