BofA Securities stays bearish on Indian equities, sees rupee at 88.5/$ in the near term

BofA Securities has held a bearish view on Indian equities since August 2024 and continues to maintain its cautious stance, said Amish Shah, Head of India Research. He expects single-digit returns for Nifty and negative returns for mid and small-cap stocks in 2025.Shah explained that despite recent market corrections, Nifty is still trading 4% above its long-term average. “Ideally, that 4% should become zero. So, you are talking about negative 4% from a valuation standpoint, and you probably put 10 to 8% of earnings compounding through this year. There you are talking about the single-digit returns that I spoke about,” he said.

According to Shah, weaker earnings and high valuations are key reasons for the cautious outlook.

On currency trends, he stated that the Reserve Bank of India (RBI) will allow the rupee to adjust naturally. BofA Securities expects the rupee to depreciate to 88.5 per US dollar in the near term. “The 9% overvaluation of the rupee, we think, will only close in gradually over a couple of years’ times, not immediately,” he said.

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Shah also highlighted that capital expenditure (capex) growth is expected to slow down, leading to mid-teens earnings growth, which is below market expectations. As a result, BofA Securities is bearish on capex-related sectors such as cement, steel, and power utilities. However, they are optimistic about rate-sensitive sectors like autos, real estate, internet, and financials. “Given that our views on markets are cautious, we are also defensively positioned in healthcare and telecom,” he said.

He pointed out selective consumption trends, favouring industries such as jewellery, travel, tourism, cigarettes, and autos but not the entire consumption sector.

Also Read: ‘Nifty could fall another 5-6%’: Vineet Sambre’s advice on making the most of it

For the entire interview, watch the accompanying video

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