India has been ranked as the most attractive market globally for stock compounders by Bank of America (BofA) Securities, driven by a blend of long-term structural growth themes. In a recent report, the brokerage outlined nine foundational drivers propelling India’s equity story, while also maintaining a cautious stance on near-term market performance due to emerging macro risks and elevated valuations.
The brokerage maintained its year-end Nifty target at 25,000, citing limited upside after the recent rally. It also flagged seven emerging risks, including slowing global growth, volatile domestic flows, high valuations, and political populism ahead of state elections, which together prompt a cautious stance on large caps and a bearish outlook on broader markets.
The brokerage noted that the equity markets appear to be fully pricing in the upside from an imminent India–U.S. trade deal, and consequently, the scope for further re-rating is limited unless fresh growth triggers emerge. Moreover, BofA believes markets are ignoring the risk of a global trade slowdown, which could impact export-oriented sectors and challenge the earnings resilience of large-cap names.
Nine Structural Themes Driving India’s Compounder Potential
According to BofA Securities, India’s dominance in the global market for stock compounders is underpinned by nine enduring growth engines: infrastructure build-out, digitisation, financialisation, productivity gains, household savings resilience, shift to discretionary consumption, formalisation of the economy, potential current account surplus, and decarbonisation. These themes, the report says, are instrumental in fostering a sustained pipeline of quality businesses that can compound shareholder value over the long term.
BofA highlighted that over the past three decades, India delivered the second-best market returns globally after the United States, clocking a 7 percent CAGR in dollar terms. Importantly, these gains were primarily driven by earnings growth rather than valuation expansion — a trait that supports the case for long-term compounders.
Modest Economic Revival, Downside Risk to Earnings
On the macro front, BofA Securities expects India’s economic revival to remain modest, despite supportive monetary policy. It projects GDP growth at 6.3 percent in FY26, below the RBI’s 6.5 percent forecast, and capex growth at 11 percent during FY25–27, well under consensus expectations of 16 percent. On the earnings front, the brokerage has lowered its FY26 Nifty EPS growth estimate to 9 percent from the Street’s 13 percent, following an 8 percent cut in consensus earnings. The forecast for FY27 remains conservative as well.
Flow Dynamics Turning Cautious; Populism Risk Looms
While foreign institutional investors (FIIs) returned with $3.5 billion in April–May 2025, following $13.5 billion in outflows in the previous quarter, BofA remains wary. It cautioned that relative returns of Indian equities have diminished compared to U.S. Treasuries, where yields are hovering around 4.3 percent. The equity risk premium has also compressed, reducing India’s appeal to global investors.
On the domestic side, DII flows have moderated after peaking at $8.6 billion in October 2024. April 2025 saw flows ease to $6.1 billion, indicating that peak inflows may be behind us. “Volatility in domestic flows could continue, and with valuations stretched, future FII inflows could be limited,” the report added.
Adding to the caution, BofA flagged risks from upcoming state elections, which could revive populist measures. Six states, accounting for nearly a quarter of total state expenditure and a significant share of subsidies and capex, are headed to the polls. “A spike in subsidies could compress market valuations,” BofA Securities warned.
Global Spillover Risks from U.S. Economy and Policy
BofA further pointed out that India’s market remains tightly linked with the S&P 500, with a correlation of 96 percent. As such, any correction in the U.S. market — driven by weaker-than-expected growth, policy uncertainty, or fiscal slippages — could spill over into Indian equities. The brokerage forecasts U.S. GDP growth to slow to 1.5 percent in 2025–26 from 2.8 percent in 2024, citing tax cuts, rising deficits, and global macro headwinds.
While Bank of America Securities sees India as the premier destination globally for stock compounders, supported by nine robust structural drivers, it remains guarded on the near-term outlook. Elevated valuations, macro uncertainties, and flow-related concerns temper its enthusiasm for the broader market. For investors, the message is clear: India’s long-term potential remains intact, but near-term caution is warranted amid a complex global and domestic landscape.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
