BNP Paribas sees cloudy outlook for equities, projects single-digit returns

BNP Paribas projects the Nifty 50 to reach 25,500 by the end of 2025, representing a 10 per cent gain from Wednesday's closing level

The equities outlook for this year remains cloudy with growth slowing and high-frequency indicators moderating, BNP Paribas said on Wednesday. The France-headquartered brokerage believes 2025 will be another year of single-digit returns with rising US bond yields and strengthening US dollar diminishing foreign portfolio investor (FPI) appetite for expensive emerging markets (EMs) like India.

 

BNP Paribas expects the Nifty 50 to end at 25,500 by the end of 2025, 10 per cent above Wednesday's close. Amid the weak outlook for FPI flows, the brokerage believes domestic institutional investors (DIIs) will continue to be the key to market resilience and also to absorb the strong supply of new paper through initial public offerings (IPOs).

 

"So, for all of this to get absorbed, the domestic flows need to be very strong,” Kunal Vora, director and head of India equity research at BNP Paribas, told  reporters after BNP Paribas released its India Strategy report titled ‘The pricey paradise; cloudy skies.’

 

Vora said the continuously rising supply of equities will be negative as most of the DII flows will go into absorbing supply. The outlook for FPI flows is not looking great as the US market is more attractive amid rising bond yields, potential policy changes, and possible stimulus measures in China to revive its economy.

 

The report said that rising US bond yield decreases the relative attractiveness of Indian markets for foreign investors. Although India's dependence on FPIs has reduced due to strong domestic flows, they continue to hold $800 billion worth of Indian equities, and their continuing selling remains a key risk.

 

The brokerage expects Nifty's FY25 earnings growth to moderate to 4-5 per cent as some large sectors, particularly oil refining, should see earnings declines. The brokerage prefers largecaps as mid and smallcaps are trading at rich valuations compared to their long-term averages.

 

On sectoral preferences, BNP Paribas said it preferred banking stocks as the FY26 earnings growth outlook was strong, with no significant credit-cost spikes on the anvil. The risk-reward balance also looks favourable at below-median valuations. BNP is also bullish on IT services as the macro environment is far more favourable than in the last two years. Telecom, as the industry's free cash flow, should continue to improve.