Despite rising optimism, Amish Shah, head of India research at BofA Global Research, remains unconvinced by the India outperformance story, expecting the country to lag its emerging-market (EM) peers and cutting his earnings growth estimates for Indian companies for the second time in a row.
In an interview with Mint, he said crude prices have risen and that some energy infrastructure assets in West Asia have been affected by the war. Even if tensions ease, supplies are unlikely to return to pre-war levels soon, keeping prices elevated for longer. This is also expected to affect growth and keep commodity prices, including aluminium and copper, elevated.
Brent crude oil prices have shot up by over 42% since the war broke out at the end of February.
Given this, he saw little point in waiting for May earnings announcements and said the brokerage is instead building in more realistic estimates now to arrive at revised price targets.
“So, the first round of cuts we took was immediately after the conflict started. The conflict began on 27 February, and we cut our earnings on 2 March in anticipation that crude and commodities prices would spike. Now, with clear evidence that crude and commodity prices have already increased, we are incorporating that into our estimates and more accurately pricing in the impact, and that is why we have taken a second cut,” he said.
The brokerage has cut its 2026-27 Nifty earnings growth further to 8.5% year-on-year, down from 11% in early March and 14% pre-war. “Consequently, we are now significantly below consensus at 15% on-year,” BofA Securities’ 6 April report said.
Shah said a prolonged war remains the biggest risk factor for equities, even now.
Since the war in West Asia began, the Nifty 50 and S&P BSE Sensex have slumped by around 9% each, while the Nifty Midcap 100 and Nifty Smallcap 250 have fallen by 8% and 6%, respectively.
“If the conflict ends, there is scope for about a 15% upside from current levels. But if it drags on, there could be an 8% downside,” he added.
That said, according to him, an end to this war could quickly turn the sentiment around and trigger an immediate rally in Indian equities.
A large part of the 15% rally will come after the war ends, he said, adding that “around 7% out of the 15% will come straight from valuation expansion immediately when the conflict ends, and the remaining 8% will be gradual through this calendar year”.
Even if the conflict ends by the end of 2026, foreign flows are unlikely to turn meaningfully positive, though persistent outflows could ease, with some reversal, he said.
February was the only month that offered some respite in foreign flows, with foreign institutional investors (FIIs) briefly turning net buyers before resuming selling from March.
On the other hand, he said the AI trade has led many EMs to experience very high growth.
AI capex is ramping up rapidly, and companies in markets like South Korea and Taiwan that are closely tied to the AI trade are seeing strong earnings momentum. Taiwan is clocking around 35% earnings growth, while Korea is delivering upwards of 100%. Even China is offering about 15-16% growth, he pointed out.
So all of these countries are offering much better growth than India, and at cheaper valuations as well, he added.
As a result, on a return-adjusted-for-growth basis, the balance still tilts in favour of these EMs compared to India. That said, if the conflict eases, “India could see a rally; we’re looking at about 15% on the upside. But we do think that other EMs will make even better returns”.
To be sure, since the war broke out, the Sensex has emerged as one of the five worst-performing EM indices. Indonesia’s Jakarta Composite has led the losses, down 15%, followed by South Korea’s Kospi, which has slipped nearly 13%. China’s Shenzhen Composite is down about 10%, while Japan’s Nikkei has fallen over 9%, with the Sensex and the Nifty not far behind, each down close to 9%.
Talking about sectors, BofA Securities said in its latest report that, from a medium-term perspective, the global brokerage has downgraded rate-sensitive sectors—mid-sized private banks, non-banks, real estate and passenger vehicles—to underweight from overweight earlier.
The brokerage remains cautious on mass consumption plays, staples, and retailers, as well as capex-linked sectors such as steel, cement, capital goods, roads, and railways. Instead, it prefers themes around energy security—regulated power utilities, gensets, cables and transformers—along with beneficiaries of rate hikes such as large private and PSU banks, and segments of well-off consumption like travel and tourism, durables, and two-wheelers.
The brokerage remains overweight in upstream energy, aluminium, and pharma, while remaining cautious on IT and downstream energy.