Bank of America has increased its FY27 earnings growth forecast for Nifty companies to 10% from 8.5%. The brokerage now favors mid-sized banks and NBFCs, while upgrading sectors like autos, cement, and power utilities to 'overweight'.
Bank of America (BofA) Global Research has improved its earnings outlook for Indian equities, raising its earnings per share (EPS) growth projection for the Nifty for the 2026-27 financial year (FY27) to 10% from the previous estimate of 8.5%. The brokerage also anticipates a 15% growth rate for the following fiscal year, FY28.
This shift in sentiment follows a strong performance in recent corporate financial results for the June quarter. The firm also highlights that resilient domestic indicators, such as steady credit growth and consistent GST collections, provide a stable foundation despite challenges in the global economy.
Financials: Mid-Caps Over Large-Cap Giants
In a notable change to its portfolio strategy, the brokerage now prefers mid-sized private banks and non-banking finance companies (NBFCs) over large-cap private and public sector banks. The rationale is that mid-sized lenders appear better placed to maintain strong loan growth and stable net interest margins, which represents the difference between the interest earned on loans and interest paid on deposits.
Conversely, the report flags challenges for larger financial institutions. For public sector banks, potential risks include the adoption of the Expected Credit Loss (ECL) framework, which may lead to higher provisioning for possible loan defaults. For some large-cap private banks, the brokerage noted a lack of immediate growth catalysts and specific risks associated with management transitions.
Sector Upgrades and Shifts
The brokerage has recalibrated its stance on several key sectors. Autos, cement, and regulated power utilities have been upgraded to 'overweight', a term indicating the brokerage expects these sectors to perform better than the broader market. The auto sector, in particular, is supported by strong demand, with industry volumes rising 15-20% year-to-date, alongside improving profit margins and higher electric vehicle adoption.
Cement companies are also viewed positively due to better-than-expected price realizations and volume growth of 7.5-8% observed during the June quarter, while cost pressures have remained manageable. Regulated power utilities are highlighted for their attractive valuations and the expectation of faster project execution.
Meanwhile, the brokerage maintains an 'underweight' view on sectors including healthcare, telecom, industrials, and real estate. The information technology sector has been moved to 'neutral', marking a shift from its previous 'underweight' rating, following a significant correction in stock prices year-to-date.
What Investors Should Track
The brokerage has set a base case target of 26,200 for the Nifty index by December 2026. While the outlook is optimistic, investors may monitor several factors that could influence these projections. Key areas to watch include the actual implementation of credit loss norms for public sector banks, the sustainability of profit margins in the auto and cement sectors, and how global macroeconomic conditions might impact domestic demand. The resilience of high-frequency indicators, such as consumer spending and credit demand, will remain central to whether these growth forecasts materialize.