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BofA Securities has turned constructive on Indian equities after maintaining a cautious stance for nearly two years, forecasting a potential 12 per cent upside in the Nifty to 26,200 by December 2026 in its base case, as several market risks have either played out or been priced in.
The brokerage said five of the eight risks it had identified as drivers of market volatility have either materialised or been absorbed by markets. The remaining three risks could pose around 7 per cent downside to the Nifty in its bear case, although BofA expects some of these pressures to peak by October 2026. Among the key risks, crude oil prices remain a concern after the recent market correction pushed prices above USD 100 a barrel. However, BofA noted that crude has reversed from the USD 100-a-barrel level seven times over the past seven months since the start of the West Asia conflict. The brokerage expects crude to average USD 81 a barrel in the fourth quarter of calendar 2026. BofA also expects recent foreign inflows of USD 136 billion to help stabilise the Indian rupee, with an appreciation bias. Meanwhile, the current 13 per cent monsoon deficit is already close to its worst-case weather forecast of a 15 per cent deficit. On monetary policy, BofA's economist expects the Reserve Bank of India to raise rates by 25 basis points by December 2026, compared with 45 basis points of hikes currently priced into swap markets. The Federal Reserve remains another risk, with BofA expecting 75 basis points of hikes between September and December 2026, against 35 basis points priced by markets. The brokerage expects primary market issuances worth USD 30 billion between September and December, following USD 36 billion raised year-to-date, with issuances likely to peak in October. BofA said high-frequency macro indicators point to a robust economy, while recent upgrades to macro forecasts and a 230-basis-point year-to-date cut in consensus FY27 earnings estimates suggest that earnings downgrades may have peaked. It expects Nifty earnings growth of 10 per cent in FY27 and 15 per cent in FY28. BofA has also reversed its preference for small and mid-cap stocks in favour of large caps, citing elevated valuations. However, it retained selective opportunities in the segment and highlighted stocks offering either value or strong earnings growth and visibility. AI disruption and its potential impact on Indian employment remain a structural risk, the brokerage added. (ANI)
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