Best to enter 2024 with low return expectations from markets, says Kotak. Which sectors to avoid?

On the earnings side, the domestic broking firm expects the net profits of the Nifty50 index to grow 18 percent in FY24 and 11 percent in FY25

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26 Aug, 2025 12:21

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Circa 2024 may be tricky for investing given the conflict between fundamentals (value) and sentiment (price), according to analysts at Kotak Institutional Equities. "There is very little value in the market across the capitalisation spectrum after the recent run-up in the megacap names, the last bastion of value in the market until recently," Sanjeev Prasad wrote in a recent report.

In the last two months, Nifty has rallied over 14 percent with heavyweights like Reliance Industries and HDFC Bank surging 16 percent. Prasad and his team believe that the Indian market is richly valued both on a top-down and bottom-up basis.

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The Nifty50 index is trading at one standard deviation above the long-term average price-to-earnings (P/E) multiple. Stocks like Bajaj Auto, HeroMoto Corp, Asian Paints, UltraTech Cement, Hindustan Unilever and Varun Beverages among many other largecaps are also trading above pre-COVID valuations, pointed out Kotak analysts.

On the earnings side, the domestic broking firm expects the net profits of the Nifty50 index to grow 18 percent in FY24 and 11 percent in FY25. Auto sector's earnings growth is seen moderating from 107 percent in FY24 to 4 percent in FY25. Similarly, the capital goods sector's earnings is expected to moderate from 36 percent to 25 percent in the same period. Banks, financials, oil and gas segments are also expected to see earnings growth moderate.

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"We see limited scope for earnings upgrades in the context of our benign profitability and volume assumptions across sectors," the report added. That said, the brokerage also sees a scenario where price-value disconnect might be sustained given the inflows from domestic as well as foreign investors in the past few months.

Sectors to avoid

Kotak's 2024 strategy questions the exuberance surrounding various sectors, notably IT services, automobiles and electric utilities.

"In our view, these sectors have the biggest distortion in price-value proposition irrespective of incremental developments. It would appear that investors are taking their cues from incremental developments and events and ignoring the fact that absolute valuations may already be pricing in the positive developments," the report said.

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Commenting on the IT services sector, Prasad and his team note the market's overemphasis on near-term positives, like expected lower US interest rates, despite potential challenges ahead. The unpredictability of AI's impact on Indian IT services also remains a lingering concern.

When it comes to autos, what's keeping them at bay is the muted volume growth in the industry for the past few years, changes in two-wheeler and four-wheeler sectors on the back of ongoing EV transition and all-time high profitability, especially in the case of 2W and tyre companies.

For electric utilities, Kotak says that there are several anomalies with the underlying narrative of a possible deficit in electricity generation capacity in India over the next few years.

"The electricity generation roadmap is still unclear, the economics of solar electricity generation are not very good currently and India has still not addressed the issue of distribution reforms and unremunerative electricity tariffs in several states," it said.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.