What's the mood in the Indian equity market? While many believe the worst is over as near-term volatility seems to have subsided, Kotak Mahindra AMC's MD Nilesh Shah feels a wait-and-watch approach is the right way to assess the final impact of trade deals among major global economies.
"Valuations for markets remain elevated especially for mid and small caps which are much trading above their long-term averages while large caps are at a slight premium," said Nilesh Shah of Kotak Mahindra AMC in an interview to Moneycontrol.
He continues to prefer large caps from a risk reward perspective.
After March quarter earnings, he expects gradual improvement in earnings over the next few quarters for corporate India. There are signs of improvement in rural demand, interest rates have been cut, liquidity has improved, and oil prices have been muted and, in a range, the Managing Director at Kotak Mahindra AMC reasoned.
Further, after a muted FY25, he expects Nifty earnings to improve to 11-13 percent growth in FY26.
Do you think the worst is over for the equity markets after seeing a lot of good news this month?
It is difficult to accurately time the market and the movement of the market would depend on flows, valuations and of course sentiment. Equity markets have been volatile on the back of a host of global and domestic factors. On the global front, the tariff related uncertainty has seen a near term reprieve, and we would now need to wait for the final contours of the trade deals of various nations with the US to ascertain the final impact.
On the domestic front, macro has been holding up better than the rest of the world with low inflation, improving high frequency economic indicators and lower interest rates. Valuations for our markets remain elevated especially for mid and small caps which are much trading above their long-term averages while large caps are at a slight premium. As we navigate near term volatility in equity markets we continue to prefer large caps from a risk reward perspective.
Do you believe the Q1 FY26 numbers will be stronger compared to Q4 FY25? Also, what are your expectations for FY26?
We expect gradual improvement in earnings over the next few quarters for corporate India. There are signs of improvement in rural demand, interest rates have been cut, liquidity has improved, and oil prices have been muted and in a range.
Moreover, the base is low in terms of earnings from Q1FY26 onwards. Having said that, the challenges on urban demand and private sector capex remains along with global uncertainty on trade and tariffs. After a muted FY25 we expect Nifty earnings to improve to 11-13 percent growth in FY26.
Do you believe CDMO and hospitals are the best themes to own for the long term?
The Indian healthcare sector provides a long-term structural opportunity. Over the past decade, India's healthcare landscape has transformed from primarily generic drug manufacturing to encompass innovators, contract service providers (CDMO/CRO), hospitals, and diagnostics. Robust growth has been fueled by increasing affordability, improved access, and medical technology advancements.
Further, India's emergence as a global pharma player has fostered a strong CDMO/CRO ecosystem, leveraging high-quality technical talent. Healthcare (hospitals) companies also appear poised for strong growth, with consensus growth anticipated in the high teens. This is driven by their aggressive expansion of bed capacity across the board. With such multifaceted growth drivers – from pharmaceutical innovation and contract services to expanding hospital networks and a rising focus on diagnostics and prevention – the Indian healthcare sector presents a compelling and promising investment theme for the long term.
Do you expect the Reserve Bank of India to cut the repo rate for the third time this year in June policy meeting? Will the bank revise its inflation and growth forecasts?
We expect RBI to cut policy rates further given that CPI inflation is now well below RBIs targeted rate of 4 percent. The policy objective would likely be to ensure adequate liquidity in the system with a focus on durable liquidity. This is seen in the fact that system liquidity surplus has improved considerably, driven by OMO (open market operation) purchases conducted by RBI.
Are defence stocks overvalued now?
The current geopolitical climate has demonstrated the need for sustained military modernisation which would likely result in accelerating India’s defence capex and further provide push towards indigenisation along with increased replenishment procurement. Moreover, the current situation also opens up further avenues of export led growth.
Post the recent run up, defence stocks have seen re-rating of multiples and hence one would need to incrementally bottom up in terms of stock selection even as the structural theme and growth opportunity remains intact.
Are you confident that FII inflows will remain strong this financial year?
It is difficult to predict the direction of FII flows which are likely to be determined by geopolitical outcomes, US policies, growth and valuations among various factors. on the other hand, domestic flows in India have remained largely stable. Domestic investors have continued their disciplined approach to investing as seen in the strong monthly SIP flows which have helped provide support to the markets.
Do you think the China trade war is unlikely to end anytime soon?
The trade war between US – China does have a bearing on the world economics, flows and markets etc. The good part is that both the countries have seen progress in their negotiations as evidenced in the recent news flows. However, predicting the timelines for a final solution is a difficult if not an impossible task.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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