India is set to witness a steady but earnings‑reliant market, with Nifty likely to reach 29,000, implying an upside of 11.4 per cent, a report said on Thursday.
The data compiled by Bank of America said that large‑cap stocks will outperform small and mid‑caps, though parts of the small‑and‑mid‑cap universe are beginning to show selective opportunities in financials, information technology, chemicals, jewellery, consumer durables and hotels.
Risks are skewed to the upside, owing to broader events calendar, anticipated policy continuity and the potential reversal of foreign institutional outflows, the report said.
However, the report warned that any downside would hit small and mid‑caps disproportionately because of higher valuations and higher relation to risk sentiment.
Bank of America forecasted little scope for valuation expansion as the Nifty currently trades around 21 times one‑year forward earnings, about one standard deviation above long‑term averages.
The brokerage noted that such elevated multiples have historically been sustained only during phases of robust earnings upgrades.
The brokerage forecasted earnings growth to accelerate into fiscal 2027, supported by stronger loan growth for financials, improved discretionary spending from expected goods and services tax cuts, telecom tariff hikes, robust performance in non‑ferrous metals and a favourable base in information technology and staples.
The report maintained an overweight position in rate-sensitive sectors including financials, real estate, passenger and commercial vehicles, and regulated power utilities. It expects affluent consumption to surpass mass consumption, driven by stronger balance sheets and more resilient spending power.
However, the firm maintained that capital expenditure growth is expected to slow significantly for both central and state governments due to limited fiscal headroom.
This led to the firm maintaining an underweight position on Industrials and Cement, while favouring select capex-linked companies with clear growth potential.
