Sanjeev Prasad turns mildly positive on markets, says FY27 profit growth could hit 17% as earnings stabilise

Kotak Institutional Equities’ head Sanjeev Prasad has turned “neutral to positive” on Indian equities after nearly a year of caution, saying the market may be approaching the end of its earnings-downgrade cycle and that valuations, though still expensive, could be better supported by stabilising profits. He expects Nifty 50 earnings to rise about 17 percent in FY27, compared with less than 10 percent growth this year.

Prasad said his stance had shifted over the past month as corporate earnings began to show signs of resilience. “At least now it looks like earnings are stabilising after a period of very heavy downgrades over the last 12-15 months,” he said in an interview with CNBC-TV18. “FY27 looks like a decent year for earnings growth.”

FY26 returns expected to be moderate as valuations still elevated

Prasad cautioned that investors should temper expectations, working with modest 5-10 percent market returns over the next 12-18 months. “Valuations have stayed high through this period because of the earnings downgrades,” so multiples never really corrected, he said. Prices softened in line with earnings cuts, leaving the overall valuation picture largely unchanged.

Even now, “the valuation challenge remains” as most consumption-driven sectors -- especially consumer staples and discretionary -- continue to trade at 45-60 times earnings despite delivering only mid-single-digit growth, he said. High valuations and weak earnings momentum together mean returns will likely stay moderate in the near term, he said, adding that fragmentation and competition in consumer markets could further pressure profitability.

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Sectors to watch: banks, autos and manufacturing

Prasad expects banks to stage a meaningful rebound in FY27. Weak loan growth, decline in NIMs and higher credit costs should all improve going forward, he said, adding that the sector could move from a profit decline this year to solid growth next year.

The automobile sector, he added, should also perform better because of the GST rate cut and possible implementation of the Eighth Pay Commission toward the end of FY27, which could boost consumer spending.

Beyond these, Prasad highlighted a “major domestic import-substitution story” set to unfold as India deepens its manufacturing base. He cited manufacturing, electronics and electrification as structural themes poised for “massive growth” over the next decade, supported by government production-linked incentives and large-scale capacity expansion.

“The opportunity set is humongous,” he said. “Anything to do with electronic-manufacturing services, the electricity supply chain, transformers, rectifiers, storage solutions or batteries will see huge growth.”

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IPOs and foreign flows

On the primary-market boom, Prasad said IPOs priced sensibly -- such as LG Electronics India -- have found strong demand. “When quality issues come at a 30-40 percent discount to listed peers, why wouldn’t people want to participate,” he said. On the other hand, smaller and mid-sized IPOs priced at aggressive valuations have struggled in recent months.

Foreign fund managers have remained neutral to negative on India over the past year, largely because of steep valuations relative to other Asian markets. “The valuation is still high,” he said.

According to him, global investors see cheaper opportunities in countries such as China and South Korea, where valuations are lower and corporate exposure to new global themes -- AI, biotech and robotics -- is greater. “A lot of companies in Asia play on all the right themes or the emerging themes such as AI, biotech, or robotics,” he said. While foreign sentiment may improve as earnings recover, valuations still need to “come off” through time or mild price correction.

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