New Delhi [India], April 11 : BofA Securities has cut its earnings growth estimate for the Nifty for FY27 and said markets are "not in a value zone" yet, even as the risk-reward is turning favourable, according to its latest report titled 'Equity Strategy - India: Reasonable or a bargain?'.
"We proactively cut our FY27 Nifty earnings growth further to 8.5% YoY vs 11% in early March and 14% pre conflict," the report said.
The brokerage attributed the downgrade to ongoing geopolitical tensions and rising commodity prices, warning of pressure on both growth and corporate profitability.
"We see potential of a two-fold impact... a) Margin Shock... and b) Growth Shock," it said.
It explained that higher energy and commodity prices could push inflation higher and hurt margins, while delays in government and private investments, along with weaker demand, could weigh on growth.
On valuations, the report said markets are still not cheap despite recent corrections.
"Even on our conservative earnings, Nifty now trades close to LTA valuations... we hence believe markets are still not in a value zone," it noted.
At the same time, it indicated that the risk-reward is improving.
"Risk reward turning favorable; not in deep value yet," the report said.
BofA added that Indian equities continue to trade at a premium compared to other emerging markets.
"On a relative basis, Nifty is still expensive vs EMs," it said.
Looking ahead, the brokerage sees limited upside if global conditions improve.
"A potential resolution of conflict could take valuations beyond LTA providing 15% upside," it said.
However, it cautioned that risks remain if the situation worsens.
"In a bear case... posing a further 8% downside," the report noted, adding that in a worst-case scenario, earnings growth could fall to zero.
On strategy, BofA suggested a selective approach to investing.
"We now see select opportunities within Large caps... & SMID caps (select themes)," it said.
It added that it prefers sectors linked to energy security, banking and premium consumption, while remaining cautious on rate-sensitive sectors and mass consumption.
"We downgrade rate sensitive sectors... and continue to stay cautious on Mass consumption and Capex," the report said.
In the near term, the brokerage advised a defensive positioning amid volatility.
"Near-term, we suggest a portfolio skew" towards sectors like defence, telecom, healthcare and upstream energy, while avoiding areas such as real estate and airlines, it added.
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