Bank of America (BofA) Securities has identified India as the world’s most attractive market for stock compounders, driven by nine structural growth factors, including rapid infrastructure build-out, digitisation and financialisation.
The other factors cited by the brokerage in its report are productivity gains, household savings resilience, discretionary consumption shift, formalisation, current account–deficit to potential surplus, and decarbonisation.
“India ranks as the second country after the US to deliver the best market returns globally over the past three decades (7% CAGR in dollar terms), with growth driving a large share of its stock returns rather than valuation expansion,” the BofA report said, adding that this makes India the top country to provide a high number of stock compounders, a trend it expects will continue.
However, it also had a cautious stance on near-term markets. Citing elevated valuations, it said the markets are ignoring risks of likely slowing global growth.
“Besides, given the recent rally, we see no upside to our Nifty year-end target of 25,000,” it said, noting seven emerging risks incrementally for its cautious stance on Nifty/large caps and bearishness on the broader markets.
According to the report, the markets are now fully pricing in an imminent India-US trade deal, leading to India being a key beneficiary of shifting global supply chains, but trade-related risks like a potential global slowdown amid ongoing trade wars is not priced in.
“We believe that the ongoing monetary stimulus would help India revive its GDP/capex/consumption growth, but we expect a shallow revival and thus remain conservative on GDP growth at 6.3% vs 6.5% (RBI),” the report said.
It also noted that domestic inflows peaked at $8.6 billion in October 2024 and have seen a moderation since then — $6.1 billion in April this year. “While DII flows could remain volatile, we believe peak DII inflows are behind us and we could continue to see moderation,” the report said, adding that foreign flows in April-May stood at $3.5 billion vs $13.5-billion outflows for January-March 2025. But with the recent market rally, the relative return potential for Nifty has become unattractive for FIIs vs US treasuries (4.3%) and equity risk premium, it added.
Moreover, with six states likely to face elections around the second half of next year, the brokerage sees risk of reacceleration of populism. These states form 23%/16%/17% of total states’ expenses/subsidies/capex, BofA Securities said, adding that subsidy spikes could lead to valuation contraction for markets.
The US equity market corrections could also weigh. It said that lower-than anticipated revenues from tariffs, tax cuts and resultant higher deficit could overwhelm any stimulative effects from policy changes, resulting in weaker economic growth in the US and any resultant correction for S&P is a risk, as Nifty has 96% correlation with S&P.