BofA turns bullish on Nifty after 2 years, cautious on small, midcaps. Here's what it expects now

After two years of maintaining a cautious stance on the Indian stock market, Bank of America (BofA) Securities has shifted to a more constructive outlook on the Nifty index, anticipating a 12% upside potential to reach 26,200 by year-end. The brokerage firm had initially flagged eight risks, of which five had already materialized, and the remaining three could pose a 7% downside risk in a bear case scenario.

In its latest note, BofA highlighted that soaring crude prices, rupee depreciation, weak monsoon, commodities, and RBI rate hikes were among the risks that have already been priced in. The bank sees a pattern of crude reversing from $100 per barrel, with seven reversals in the past seven months since the start of the West Asia conflict.

Additionally, the recent inflow of $136 billion should aid the rupee's appreciation, with a bias set for its strengthening. BofA also expects the RBI to hike its policy repo rate by 25 basis points by December 2026, which is lower than the 45 basis points that are already priced in by the swap markets. However, the bank still anticipates significant risks, including big primary offerings, Fed rate hike expectations, and AI disruption.

While the firm expects small and mid-cap indices to outperform Nifty by 13-20% this year, it has reversed its preference for small and mid-cap stocks, suggesting a shift towards large-cap investments instead.