Amish Shah, Head of India Research at BofA Global Research, expects Nifty earnings growth to accelerate to 10%, up from 5-7% seen over the financial years 2024-25 (FY25) and 2025-26 (FY26), although still below the broader market consensus of 13%.
Shah also expects small and mid-cap companies to regain their earnings growth premium over large caps between 2025-26 and 2027-28 (FY28).
He said the brokerage has become more constructive on the market after remaining cautious for nearly two years even though it continues to factor in moderate foreign institutional investor (FII) outflows.
“We do think that the pace of outflows of FIIs is going to moderate… but we are not in the camp of seeing big FII inflows yet,” he said, adding that if FII inflows turn positive, it could provide upside to BofA’s current market target.
From a sectoral perspective, BofA prefers a mix of value and growth themes. Among value sectors, Shah highlighted financials, regulated power and gas utilities, upstream energy, power financiers, and regulated power developers.
On the growth side, he favours autos, jewellery, internet companies, aluminium producers, consumer discretionary names, travel and tourism, and selected small and mid-cap stocks.
Shah said BofA has upgraded the IT sector from underweight to neutral after the recent correction linked to concerns over artificial intelligence (AI). While he expects a tactical rebound, he remains cautious on the sector over the longer term due to AI-related disruption risks. Within the sector, he prefers mid-cap IT over large-cap IT because of stronger growth prospects.The brokerage is less constructive on some areas that have outperformed in recent years. Shah expects defence and real estate stocks to move sideways, while renewable energy developers could underperform as investors shift their focus towards return ratios rather than revenue growth.
He also believes power transformers and gensets have become expensive, even as the broader energy transition theme remains intact.
Looking at the long-term opportunity, Shah reiterated BofA’s positive stance on India’s energy transition. “We continue to believe in that theme,” he said, adding that power financing companies, regulated utilities and cables remain preferred ways to play the structural trend.
Shah said BofA expects AI-related capital expenditure to continue despite ongoing debate over returns. However, the brokerage expects 75 basis points (bps) of US Federal Reserve rate hikes, which could weigh on AI-linked stocks in the near term.
For the full interview, watch the accompanying video
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