The Nifty 50 correction continues to unfold as Bank of America (BofA) predicts single-digit returns for 2025, citing multiple headwinds.
1. Nifty 50: Sharp Correction Since September 2024 Peak
? Market Performance
Since peaking in September 2024, the Nifty 50 has seen a broad-based decline.
State-Owned Enterprises (SoEs), low-float stocks, momentum plays, and mid/small caps have fallen 13% to 34%, according to Morgan Stanley.
? Bank of America’s Nifty 50 Outlook
Single-digit returns in 2025 with high volatility—“bond returns with equity risks.”
Mid & small caps expected to underperform, facing negative returns due to valuation contraction.
2. Key Risks Keeping Nifty Under Pressure
? 1. Corporate Earnings Downgrades
Morgan Stanley projects Nifty EPS growth at 12% for FY26, below the 15% consensus estimate.
Slower capex growth, weak credit expansion, and commodity price risks are major headwinds.
? 2. Policy Uncertainty & Global Risks
US trade, immigration, and fiscal policies could impact India’s economy.
While India’s trade exposure to the US is lower, service exports remain vulnerable.
? 3. Weak FII & DII Flows
Foreign Institutional Investor (FII) inflows remain weak due to:
High US bond yields ?
Delayed Fed rate cuts ?
Potential rupee depreciation ?
Strong US equities drawing capital away ??
Domestic Institutional Investor (DII) flows have also declined since peaking in October 2024.
? 4. Slowing Capex Growth
India’s capex growth is moderating from 20% CAGR (FY22-24) to 13% CAGR (FY25-27).
The government’s shift toward consumption balance may weigh on economic expansion.
? 5. Valuation Concerns
Nifty trades near its long-term average, making further valuation expansion hard to justify.
Mid & small caps remain expensive and could see further valuation contraction.
3. Market Strategy: What Should Investors Do?
? Remain Cautious on Mid & Small Caps – Valuation risks persist.? Monitor Corporate Earnings – Downgrades could drag sentiment lower.? Track FII & DII Flows – Weak inflows may cap market upside.? Watch Fed & US Policy Trends – Key driver for global risk appetite.
? Stay Updated on Market Trends with FMP’s APIs? Full Financials API – Analyze company fundamentals & earnings reports.? Sector P/E Ratio API – Assess valuation trends across market sectors.
Final Thoughts
? Bank of America expects single-digit Nifty 50 returns in 2025 due to high volatility.? Earnings downgrades, weaker capex growth, and global risks remain key concerns.? Mid & small caps could face further valuation contraction.
? Investors should adopt a selective approach and monitor key macroeconomic trends closely.
