BofA turns bullish on India after two years, sees Nifty at 26,200 as earnings improve

BofA Securities has turned constructive on Indian equities after nearly two years of caution, expecting the Nifty to rise to 26,200 by the end of the year as earnings improve, valuations become more attractive, and the domestic economy remains resilient, according to Arbind Maheswari, Head of India Equities at BofA Securities.
Maheswari said the brokerage expects Indian companies to deliver stronger earnings over the coming quarters despite concerns around crude oil prices, inflation and global uncertainty. BofA now sees 10-15% earnings growth this fiscal year and believes there is upside risk to its estimates after the September quarter.

The brokerage has set a year-end Nifty target of 26,200, implying about 15-16% upside from current levels. Maheswari said the combination of improving earnings and lower valuations has made BofA more positive on Indian equities. He said foreign investors are selling Indian equities largely because capital is flowing towards global artificial intelligence opportunities rather than because of concerns over India's economy.
Maheswari said investors globally are concentrating capital in AI-related companies, particularly in the US, while sectors outside the AI ecosystem have struggled to attract flows. He stressed that India's economic fundamentals remain intact despite global headwinds."There is nothing wrong with the Indian economy.

It's been as resilient as we have seen."According to Maheswari, high-frequency indicators continue to point to healthy economic activity. Government capital expenditure remains strong, tax collections have been robust and credit growth continues to hold up despite pressure from higher crude prices, interest rates, currency movements and a weaker monsoon.
BofA raises market outlookMaheswari said valuations have corrected to levels that support a more constructive view on Indian equities. He noted that the Nifty is trading at around 17-17.5 times earnings, close to one standard deviation below its historical average.

Combined with improving earnings expectations, this has prompted BofA to upgrade its market stance after remaining cautious for nearly two years. The brokerage expects 18% earnings growth in the September quarter after 12% growth in the previous quarter.
It currently forecasts 10% earnings growth for the financial year 2026-27 and 15% for 2027-28 , though Maheswari said there is potential for earnings estimates to be revised higher after the current reporting season."We are constructive now on the Nifty after almost two years of being cautious."Foreign flows remain driven by AI themeMaheswari said foreign portfolio outflows should not be interpreted as a sign of weakening confidence in India.

Instead, he believes investors are allocating money to AI-driven opportunities globally, where returns have been stronger. He also pointed out that India continues to attract investment in emerging sectors that receive less attention in listed markets, including data centers, AI infrastructure, manufacturing, defence and nuclear energy.
According to Maheswari, India has become one of the world's fastest-growing data center markets, and these investments should support economic activity and corporate earnings over time. Rate hikes likely to continueFollowing the Reserve Bank of India's latest policy decision, Maheswari expects the central bank to continue raising interest rates over the next six to nine months.

BofA forecasts another 100 basis points of rate hikes, citing persistent inflation risks from crude oil prices and the weak monsoon. He said the RBI's policy statement reflected greater concern over inflation than the brokerage had anticipated but added that the central bank has maintained an appropriate balance between supporting growth and containing price pressures.
The ‘calibrated’ approach is the right one, Maheswari said, noting that India's fiscal position remains stronger than many emerging markets despite external challenges. Primary market activity remains healthyMaheswari also expects a busy primary market in the coming months, with initial public offerings and block deals likely to increase equity supply.

While this could influence market returns in the near term, he said the strong appetite for new issuances indicates investors remain willing to deploy capital into Indian equities. He added that industry participants continue to engage with the government on policy issues affecting markets and expressed hope that some of these concerns could be addressed in the next Union Budget.
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