BofA Securities Sees 14% Upside For Nifty By Dec 2025

After maintaining a bearish stance since August 2024, BofA Securities has now turned constructive on the Nifty index. The firm expects a 14% potential return on Nifty in 2025, setting a target of 25,000 by December 2025. However, it remains cautious on mid-cap and small-cap stocks (SMID caps), predicting further downside for them.

Nifty Trading at Fair Valuation, Offers Growth Potential

BofA believes that Nifty is now fairly valued based on long-term historical averages. The company’s earnings growth projections for Nifty are 12% for FY26 and 13% for FY27, which are lower than the market consensus of 15% and 14%. The research suggests that six key sectors will drive nearly 85-89% of Nifty’s earnings growth:

Telecom (35%)

Financials (9% YoY growth)

Industrials (18%)

Energy (13%)

IT (12%)

Automobiles (12%)

Since these sectors have already undergone earnings estimate cuts, further revisions are likely to be smaller compared to broader market expectations.

Defensive and Cyclical Sectors in Focus

BofA Securities prefers domestic cyclical stocks, especially those that benefit from a potential interest rate cut by the Reserve Bank of India (RBI). Sectors like Financials and Automobiles are expected to gain from easier credit conditions and stronger consumer demand.

At the same time, the firm remains defensive due to global uncertainties, favoring Healthcare and Telecom stocks. It downgraded the FMCG sector to “Underweight”, citing high valuations and the lack of fresh growth triggers from subsidies and tax cuts.

Key Risks to Nifty’s Growth

Despite its positive stance on Nifty, BofA warns of three major risks that could impact market performance:

1. Global Tariff Wars: Any new trade restrictions could disrupt supply chains and corporate earnings.

2. US Economic Slowdown: A weaker US economy and rising inflation could result in continued foreign institutional investor (FII) outflows, pressuring Nifty. The index has a 97% correlation with the S&P 500, making it sensitive to US market movements.

3. Softening of Domestic Inflows: If domestic investments slow down, market liquidity could be affected.

SMID Caps Still Overvalued, More Downside Expected

While mid-cap and small-cap stocks have already corrected by 21-26%, BofA Securities remains negative on them. It highlights that:

SMID caps still trade at a premium of 52% (mid-caps) and 13% (small-caps) over Nifty, which is unsustainable.

Many mid and small-cap stocks still appear overvalued based on fundamental metrics.

Nifty is now trading at long-term average valuations, while SMID caps are still at +1 standard deviation levels, suggesting further downside.

Conclusion

BofA Securities turns bullish on Nifty but remains cautious on SMID caps. It expects select large-cap stocks to drive most of Nifty’s 14% expected return by December 2025. The firm advises investors to focus on financials, autos, telecom, and healthcare, while being mindful of risks such as global trade tensions, US economic concerns, and domestic liquidity pressures.