BofA Raises FY27 Earnings Estimates, Turns Positive On Autos, Cement And Power

Bank of America Global Research has raised its FY27 earnings estimates for sectors accounting for 71% of the Nifty's market capitalisation, citing better-than-expected June-quarter results and resilient underlying growth trends.

The brokerage has raised its Nifty FY27 earnings growth estimate to 10% from 8.5% earlier, while retaining its expectation of 15% earnings growth in FY28.

BofA's earnings upgrades follow stronger-than-expected early Q1 results, with companies representing roughly half of the Nifty's market value showing resilience despite multiple macroeconomic headwinds.

High-frequency indicators including GST collections, direct tax receipts, credit growth and power demand have also remained firm, supporting the brokerage's more constructive earnings outlook.

Sector Strategy Sees Major Rejig

Within financials, BofA now prefers mid-sized private banks and NBFCs over large private banks and public sector lenders.

The brokerage said loan growth remains healthy and asset quality is stable across financials. Mid-sized private banks and NBFCs are seen as better positioned to sustain growth while maintaining stable net interest margins.

Large private banks, meanwhile, lack near-term catalysts and face management transition concerns at some names. Public sector banks could face higher-than-expected expected credit loss impact, a potential 10-20 basis points increase in credit costs and the prospect of capital raising.

BofA has also upgraded autos, cement and regulated power utilities to overweight, while moving healthcare, telecom, industrials and real estate to underweight. Information technology has been upgraded to neutral following its sharp correction this year.

Autos have been upgraded on stronger-than-expected demand, with industry volumes growing 15-20% year-to-date across segments. Lean channel inventory, an expected margin recovery and rising electric vehicle penetration have also supported the brokerage's view.

Cement has been upgraded as cost pressures from the West Asia situation have been lower than initially feared, while volumes grew 7.5-8% in Q1 and realisations improved. Regulated power utilities are favoured on expectations of stronger project execution and attractive valuations.

BofA Sees 9% Nifty Upside

BofA remains cautious on healthcare after its strong year-to-date performance, while telecom faces pressure from delays in the next expected tariff hike.

Industrials have been downgraded due to modest volume growth expectations, margin pressure from higher commodity prices and elevated valuations. Real estate has also been tactically moved to underweight following its sharp re-rating, although the fundamental outlook remains constructive.

The brokerage continues to see 9% upside for the Nifty to 26,200 by December 2026 in its base case, assuming no further expansion in valuations.

In its bear case, factoring in higher crude prices, a weaker monsoon, rate hikes, rupee depreciation and AI-related disruption, BofA sees the Nifty falling 8% to 22,000.