Bank of America (BofA) expects the Nifty 50 to reach 26,500 in 2025, reflecting an upside of less than 9 percent from current levels. The brokerage expects the Nifty to underperform US equities in USD terms, with broader markets likely seeing even weaker performance due to stretched valuations.
On December 2, the Nifty 50 closed 0.8 percent higher at 24,457 but remains 7.5 percent below its 52-week high of 26,277. A confluence of factors, including weaker-than-expected earnings, China's stimulus measures, and optimism surrounding the U.S. economy under Donald Trump's leadership, led Foreign Institutional Investors (FIIs) to sell Indian equities worth Rs 1.1 lakh crore in October. This sell-off also pushed the Sensex 6 percent below its peak of 85,978.
However, with the 'Sell India, Buy China' strategy losing steam, November witnessed a slowdown in FII selling, with net outflows totalling Rs 45,974 crore.
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BofA said that going forward, in 2025, earnings growth will hinge on commodities, capex, and credit growth. The report also warned of potential volatility driven by US trade, immigration, fiscal, and geopolitical policies, which could keep the Indian markets on edge.
FII flows are expected to remain subdued in 2025 amid high US bond yields, while Domestic Institutional Investor (DII) inflows may slow, potentially offset by robust fundraising activities.
Despite the recent correction, BofA said that Nifty continues to trade at expensive levels across valuation metrics, leaving little room for further expansion unless accompanied by stronger reforms or significant capital expenditure.
The brokerage identified any potential fiscal or monetary stimulus and a lighter events calendar creating scope for meaningful policy reforms, as upside risks to the market.
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