What could drive India’s Nifty higher? BofA outlines key risks
India’s benchmark Nifty 50 could gain a further 4.7% by the end of 2026 as improving corporate earnings and easing macroeconomic risks support valuations, although potential El Nino-related disruptions and higher government spending pose risks to the outlook, Bank of America analysts said.
BofA maintained its December 2026 Nifty target of 26,200, implying 4.7% upside from its current level of 25,044.
The brokerage said most of the risks that had weighed on Indian equities, including higher commodity prices, currency weakness, potential Federal Reserve and Reserve Bank of India rate increases, and large fundraising activity, were now better understood and reflected in valuations.
Analysts said earnings growth was recovering, with Nifty companies reporting estimated earnings growth of 18% in the second quarter of fiscal 2027, compared with 5% in the fourth quarter of fiscal 2026.
The brokerage said the index traded at 18.3 times one-year forward earnings, below its long-term average of 18.8 times, leaving room for valuation expansion.
However, BofA cautioned that a potential El Nino weather pattern in 2027 could weaken agricultural output and economic growth, particularly with reservoir levels already 18% below normal.
Higher spending linked to the Eighth Pay Commission could also increase fiscal pressures and potentially crowd out government capital expenditure, analysts said.
BofA maintained its preference for large-cap stocks over small- and mid-caps, citing weaker earnings revisions and limited deleveraging in margin trading positions. It upgraded hospitals and telecommunications, while turning cautious on two-wheelers.
