Hard to justify market-cap of 95% of stocks, says Sanjeev Prasad

Hard to justify market-cap of 95% of stocks, says Sanjeev Prasad

With the Nifty testing the 25,000 mark this week, stalwart strategist and MD & Co-head of Kotak Institutional Equities Sanjeev Prasad questioned the fundamental strength of the recent rally and warned that gains could be limited from here on, especially given stretched valuations. “Valuations are expensive. That is a struggle as of now,” he said in an interview with CNBC TV18.

He noted that most large-cap stocks are already trading close to their fair value, and in many cases, prices are well above market worth. “On any bottom-up first-principal basis, it's tough to justify the current market caps of 95% of the market,” he added.

Earnings growth for the current fiscal is expected to be around 10%, raising doubts over whether the Nifty can sustain or build on its gains in the remaining months.

Prasad also highlighted global headwinds, including US-China tariff tensions. While tariffs were around 11% at the beginning of 2025, a recent deal pushed them up to nearly 39%. “This is still a lot,” he said. “The prices will go up in the US, and inflation will be there. But some of the investors are simply not bothered about any of this.”

He cautioned against premature optimism. “People assume that all problems are solved, which is what worries me,” he said, adding that the Trump administration has merely paused tariff actions rather than resolving them. “Even though incremental news might sound positive if taken from early April, just before the local tariffs were suspended, when compared with the situation at beginning of the year, it is still very negative.”

Expectations that global turmoil would boost India inflows may be misplaced. “The US market has performed strongly, with the S&P 500 up about 19% since early April, compared to India’s 11-12% rise,” Prasad said. “Ultimately, foreign investors do look at the valuations, which is high. I think there is no debate on this. Anybody who is saying the valuation is cheap, needs to get his or her examination, in my view.”

Retail investor behaviour also presents a conflicting picture. Prasad noted that there were increased redemptions from mutual funds and direct equity selling, even as SIP contributions continued, and retail interest remains high in “narrative” stocks. “Retail investors, till recently, were price agnostic buyers. Their sentiment has started to weaken for sure,” he said. “If I look at the data of direct equities, that is, activity of retail investors in the market, that number has been negative for the last three months now,” he said.

Although both FPIs and DIIs have been net buyers, mutual fund inflows are slowing. “Look at mutual fund flows. They have started to slow down compared to, let's say, the six-month average of October 2024 to March 2025. The April number was about one-third lower,” he said.

The split in sentiment among retail investors makes it difficult to draw firm conclusions. “The whole point is the section of the retail investor community getting a bit concerned about the market. For whatever reason the market has gone up sharply. Maybe some of them are using that to exit, etc. At the same time, we are seeing a lot of action once again, in what I call the narrative stocks,” he said. “They seem to be pretty bullish… very bold. Obviously, you know, retail investors are not one uniform mass. But, I don't know how to reconcile the two things,” Prasad said.