India’s Stock Market Faces Continued Correction: BofA Analysts Warn of Further Risks

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  Posted by John Deo Feb 18 - Filed in General - #financialmodelingprep  - 13 views
  

  India’s stock market downturn is unfolding as expected, with further risks looming, according to Bank of America (BofA). The firm projects single-digit returns for the Nifty 50 in 2025 and negative returns for small- and mid-cap stocks, citing slowing economic and earnings growth.

  Key Market Trends and BofA Projections

  1. Market Correction & Sectoral Declines

  • The market peaked in September 2024 and has declined since, aligning with BofA’s August 2024 bearish outlook.
  • Steep corrections have been observed in:
    • State-owned enterprises: -26%
    • Low-float stocks: -24%
    • Momentum-driven stocks: -25% to -34%
  • Mid- and small-cap stocks have fallen 18% and 21%, respectively, compared to a 13% decline in the Nifty 50.

  2. Earnings Growth Concerns

  • Nifty EPS growth is projected at 12% for FY26, lower than the consensus forecast of 15%.
  • Key factors contributing to the earnings shortfall (80% impact):
    • Slower capital expenditure growth
    • Weaker credit growth
    • Declining commodity prices

  3. Capital Expenditure Moderation

  • Capex growth averaged 20% in the past three years but is now expected to slow to 13% in FY25-27.
  • In FY25, capex growth could drop to just 9% as the government balances investment with consumption.

  4. Global & U.S. Risks Impacting Indian Markets

  • U.S. policy uncertainty (trade, fiscal, and monetary policies) could increase volatility.
  • Services exports to the U.S. are a potential risk area despite India’s limited direct trade exposure.
  • Foreign Institutional Investor (FII) flows may remain weak due to:
    • High U.S. bond yields
    • Rupee depreciation risks
    • Delayed Federal Reserve rate cuts
    • Strong U.S. equities outperforming emerging markets

  Investor Takeaways: Monitoring Market Sentiment & Earnings

  For investors tracking market trends, these APIs offer valuable insights:

  • Market Most Active API – To track the most actively traded stocks in the Indian market.
  • Financial Growth API – To analyze earnings growth trends across Indian stocks.

  Final Thoughts

  While India’s structural growth story remains intact, short-term volatility and earnings risks persist. Investors should closely watch corporate earnings, capex trends, and FII flows, along with global macroeconomic shifts that may affect sentiment toward Indian equities.