Nifty target at 26,200 as BofA tweaks India strategy; upgrades hospitals, telecom, downgrades two-wheelers
Bank of America (BofA) Securities has retained its year-end Nifty target of 26,200, indicating a further upside potential of 4.7% from current levels, as it sees India's equity market risks gradually receding and corporate earnings showing signs of recovery.
In its latest India strategy report, the brokerage said most of the major uncertainties that had weighed on markets are now better understood and largely factored into valuations. These include elevated crude oil and commodity prices, a weaker monsoon, rupee depreciation, potential interest rate hikes by the US Federal Reserve and the Reserve Bank of India, and large fundraising activity.
BofA turned constructive on Indian equities in September 2026 after maintaining a bearish stance on the Nifty since August 2024. The brokerage believes the recent market rally has room to extend, although it expects volatility amid geopolitical developments, US Federal Reserve decisions and emerging concerns around El Niño and the Eighth Pay Commission.
It also reiterated its preference for large-cap stocks over small- and mid-cap stocks, citing relatively stronger earnings revisions and concerns around valuations, leverage and the potential impact of weather-related risks.
BofA believes Indian equities can extend their recent gains as earnings momentum improves and valuation concerns become less restrictive.
The brokerage noted that the Nifty has outperformed small- and mid-cap stocks as well as large emerging markets over the past two months. It expects this trend to continue, supported by improving earnings visibility and the moderation of several macroeconomic risks.
According to BofA, the Nifty is currently trading at around 18.3 times earnings, close to its long-term average. The brokerage believes there is room for valuation multiples to expand as corporate earnings recover.
Earnings growth has also started to improve. BofA highlighted that earnings growth picked up to around 13–18% in the first half of FY27, compared with just 5% in Q4 FY26. It believes the phase of consensus earnings downgrades is now largely behind the market, providing further support to its positive outlook.
However, the brokerage cautioned that the market may experience bouts of volatility due to geopolitical developments, monetary policy decisions and concerns around domestic growth.
While BofA remains positive on the near-term market outlook, it flagged El Niño and the implementation of the Eighth Pay Commission as important factors that could influence India's economic trajectory and market performance.
The brokerage pointed out that in 11 of the 50 El Niño years historically, rainfall was 15% below average. During these periods, GDP growth was lower by around 190 basis points, while agricultural gross value added contracted by approximately 220 basis points.
The starting point is also relatively weak this time, with reservoir levels already 18% below normal, according to the report.
BofA warned that a weak monsoon could put pressure on rural demand and agricultural activity. It also highlighted the potential fiscal implications of the Eighth Pay Commission.
Pay Commission-related salary and pension increases could add around 60 basis points of GDP to government expenditure in FY28. If combined with drought-related subsidies, this could increase fiscal pressures or lead to cuts in central government capital expenditure.
Against this backdrop, the brokerage remains cautious on rural consumption and capital expenditure-linked investment themes.
However, it believes greater clarity on these issues will emerge only after May 2027 and is unlikely to materially affect the Nifty's near-term upside.
BofA has reiterated its cautious stance on small- and mid-cap stocks despite their recent underperformance against the Nifty.
The brokerage had downgraded its view on the SMID-cap segment in September 2026 and believes the underperformance could continue due to three key factors.
First, earnings revisions for small- and mid-cap companies remain weaker than those for large caps. Second, the extent of deleveraging through margin trading funding (MTF) has been relatively limited compared with previous market corrections.
BofA noted that MTF-led deleveraging has been around 4.8%, against 10–20% during earlier correction cycles. Small-cap stocks account for approximately 45% of MTF exposure, leaving the segment vulnerable to further pressure if investors reduce leveraged positions.
Third, the brokerage believes an El Niño-related squeeze on capital expenditure could disproportionately affect small- and mid-cap companies linked to rural demand and investment activity.
Given these risks, BofA continues to favour large-cap stocks over their smaller peers.
As part of its latest sectoral strategy changes, BofA has turned cautious on two-wheeler stocks while upgrading hospitals and telecom.
The brokerage's preference for hospitals and telecom is driven by their relatively defensive earnings profiles and improved valuations.
The hospital sector offers greater earnings resilience, while telecom companies could benefit from more stable business prospects and valuations that have become more attractive, according to the brokerage's assessment.
On the other hand, BofA has adopted a more cautious stance on two-wheelers, reflecting its revised sectoral preferences amid the evolving market and economic outlook.
Overall, BofA remains constructive on Indian equities, with its unchanged Nifty target of 26,200 reflecting expectations of further gains. However, its preference for large caps, defensive sectors and companies with stronger earnings visibility highlights a more selective approach to investing amid emerging macroeconomic risks.
Dhanya Nagasundaram works as a Content Producer at LiveMint, specializing in news related to financial markets, stocks, and business. With over eight years of experience in journalism and content creation, she has honed her skills in data-driven reporting and market analysis. Her focus is on monitoring stock trends, initial public offerings (IPOs), corporate news, policy shifts, and larger economic trends that affect investors and market players. <br><br> At LiveMint, Dhanya consistently writes and produces articles that make complex financial topics accessible to readers. She keeps a close eye on equity markets, commodities, and macroeconomic indicators, assisting audiences in comprehending how global and domestic events influence investment perspectives. Her stories frequently underscore emerging trends within sectors, the IPO market, company earnings results, and market strategies pertinent to both retail and institutional investors. <br><br> Before her tenure at LiveMint, Dhanya accumulated a wealth of professional experience at various companies, including MintGenie, Informist, Cogenics, Chary Publications, KPMG, and the Royal Bank of Scotland. These positions allowed her to establish a solid foundation in financial research, reporting, and content creation. <br><br> Throughout her career, she has explored numerous subjects such as trading strategies, commodities, IPOs, wealth generation, corporate profits, and macroeconomic indicators. Her background in both financial journalism and corporate settings has given her the ability to tackle stories with analytical rigor while ensuring clarity for her audience. Through her contributions, Dhanya strives to deliver insightful, trustworthy, and investor-centric financial content.
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