Investing.com -- Bank of America (BofA) expects India’s equity benchmark to extend its gains next year, projecting the Nifty 50 to reach 29,000 by the end of 2026. The call implies an 11.4% rise from current levels and reflects the bank’s view that returns will largely mirror earnings growth rather than any further valuation expansion.
Analysts say the index is trading near the upper end of its typical valuation range, at roughly 21 times forward earnings, and note that “Nifty returns would hence mirror its earnings growth” given limited scope for a re-rating.
They add that the market is already at the high end of its historical valuation band, leaving “no scope of valuation expansion” unless earnings upgrades materialize.
“Nifty deserves to trade at valuations slightly above its long-term averages at 19.6x but could sustain its current +1SD valuations led by likely continuation of robust domestic flows," analysts led by Amish Shah wrote.
These conditions, combined with the current earnings cycle, underpin the bank’s view that gains in 2026 will be earnings-driven.
BofA applies a target multiple of 21.5 times earnings for its forecast and anchors its year-end outlook on projected profits of 1,349 for fiscal 2028 (FY28), alongside expectations that steady domestic inflows will continue to provide valuation support.
Analysts expect earnings cuts to moderate after a difficult 2025, when the street trimmed FY26/FY27 estimates by 11% and 6%. With consensus now looking for 6% and 16% growth—close to BofA’s 7% and 14% forecasts—the bank sees earnings recovering into FY27.
Drivers include improving loan growth, GST-related discretionary demand, telecom tariff hikes, and a rebound in metals and IT from a low base.
Macro conditions are also expected to stay supportive. The bank’s economists forecast GDP growth of 6.5% in FY27, with modest upside if Russian crude penalties are rolled back.
Moreover, inflation is likely to normalize after a sharp drop in FY26, while policy rates are projected to fall to 5% as the RBI delivers two additional 25bp cuts by March 2026.
BofA flags several upside risks for equities, including potential rate cuts by both the RBI and Federal Reserve, a lighter state-election calendar, and a possible reversal of foreign outflows as global conditions improve for emerging markets.
A “weaker USD” and the prospect of Nifty outperforming the S&P 500 could help revive foreign institutional investor flows.
Downside risks include delays in U.S.–India trade negotiations, higher crude prices, further rupee depreciation and any sharp correction in global markets.
The bank maintains a preference for large caps over SMID caps, arguing that small and mid-cap valuations remain stretched even after recent volatility. It favors rate-sensitive domestic cyclicals such as financials and real estate, along with defensives like telecom and hospitals.
Well-off consumption categories—from jewelry to travel and durables—are also expected to outperform mass-market segments, where BofA sees the recovery remaining “shallow” as lower-income consumers continue to focus on deleveraging.
