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BofA Securities has reduced its earnings growth forecast for Nifty 50 companies for FY27, citing rising stagflation risks linked to global geopolitical tensions. The brokerage expects earnings growth to slow to 8.5 per cent from its earlier estimate of 14 per cent. Higher crude oil prices, which remain elevated due to the ongoing Middle East conflict, are likely to impact India's import bill and corporate margins. While the index is trading near long-term average valuations, BofA sees limited near-term outperformance but highlights selective opportunities in large-cap stocks and sectors benefiting from higher interest rates.
BofA Securities has lowered its earnings growth forecast for companies in the Nifty 50 index, pointing to increasing stagflation risks driven by global uncertainties. The brokerage now expects earnings to grow at 8.5 per cent in FY27, compared to its earlier projection of 14 per cent before the escalation of tensions in the Middle East. Advertisement
The revision comes as Brent crude prices remain elevated at around USD 110 per barrel, which could increase India's import bill significantly. As one of the world's largest crude importers, higher oil prices are expected to put pressure on corporate margins and overall economic stability. Rising input costs may also impact profitability across multiple sectors, especially those sensitive to fuel prices.
In its base-case scenario, BofA has assumed crude prices at USD 92.5 per barrel and revised India's GDP growth estimate for FY27 to 6.5 per cent, down from 7.4 per cent earlier. The brokerage indicated that continued geopolitical tensions could weigh on economic momentum, with inflationary pressures limiting policy flexibility.
Under a more adverse scenario involving a prolonged conflict in the Middle East, BofA stated that India's GDP growth could fall sharply to 3 per cent. In such a situation, earnings growth for Nifty 50 companies may drop to zero in FY27, reflecting the broader impact of sustained high inflation and weak demand conditions.
The Nifty 50 index is currently trading close to its long-term average valuations. BofA noted that a resolution of the Iran-related conflict could lead to a potential upside of around 15 per cent in the index. However, it also expects Indian equities to continue underperforming other emerging markets due to relatively higher valuations.
The brokerage has set a target of 26,200 for the Nifty by the end of December, compared to its current level of 22,663. Despite near-term challenges, BofA sees selective opportunities emerging after recent market corrections, particularly in large-cap stocks and specific themes within the broader market.
At the sector level, BofA has downgraded rate-sensitive segments such as mid-sized private banks, non-banking financial companies, real estate, and automobile companies to underweight from its earlier overweight stance. The brokerage believes these sectors could face pressure from higher interest rates and tighter financial conditions.
On the other hand, it has shown a preference for sectors and companies that may benefit from elevated energy prices and rising interest rates. This includes large private sector banks and state-owned lenders, which are better positioned to manage margin pressures and capitalise on the current macroeconomic environment.
The current outlook follows a period of steady earnings recovery in India after the pandemic, when corporate balance sheets improved and demand conditions strengthened. However, external risks, particularly from global commodity prices and geopolitical developments, are now emerging as key factors influencing future growth expectations.
Source Reuters
5th Jun, 2025
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