Out of Kotak Mahindra AMC’s overall AUM of ₹5.26 trillion, equity is ₹3.12 trillion.
It’s a classic fear versus Fear of Missing Out (Fomo) scenario: if FPIs spook DIIs, the fear will win; if DIIs create Fomo among FPIs, they may turn buyers, pushing the market up, he explained.
“Currently, the market is in a sideways phase with no major upswings, which may continue unless there’s a big correction.”
Over the longer term, fundamentals will prevail, he believes, adding that the biggest driver for India’s equity market is earnings growth. He added, “If earnings rebound to double digits—supported by a US tariff deal, domestic stimulus, and a revival in private capex—the market will move up”.
Edited excerpts:
Last Samvat wasn’t exactly a blockbuster for the Nifty; it lagged most global markets. What’s your reading for the year ahead, and is India still the go-to investment story?
FPIs selling India aren’t disputing its growth; they’re confident India will contribute to global growth alongside the US and China. Their concern is valuation. FY27 Nifty 50 EPS is expected to be around ₹1,200, with Nifty at 24,000—a Price to Earnings (P/E) ratio of 20. Sellers believe EPS will continue to grow and, in a few years, reach ₹2,000, but the question is whether the P/E will remain at 20 or drop to 12, as seen in China. If it drops, Nifty could still be 24,000 even after earnings move up—meaning no returns.
FPIs are cautious for three reasons: earnings growth in the last six quarters has been single-digit, while valuations are double-digit; US tariffs are hurting the economy; and IPO supply is high, with promoters, insiders who know their companies best, selling.
On the other hand, DIIs (domestic institutional investors) are buying, seeing India as expensive in the short term, but the cheapest emerging market over a five-year horizon. The growth story and governance remain intact. While investors may invest in markets like China, Korea, or Brazil today, they can return to India if we maintain earnings growth.
India is a market where exit is easy, but entry is tough. One can book profits easily, but buying in requires sellers. It’s a classic fear versus Fomo scenario: if FPIs spook DIIs, the fear will win; if DIIs create Fomo among FPIs, they may turn buyers, pushing the market up.
Are there any investment themes or ideas that you may have underestimated or not given enough weight to over the past year?
We were bullish on consumption last year, and that played out well, while our IT bets didn’t perform as expected. Short-term, you can be right or wrong, but what matters is how much exposure you take when you are right or wrong.
We remain bullish on consumption because the government is putting money in citizens’ pockets. Taxpayers, consumers, borrowers and government employees will have more money to spend. If this money is spent domestically, it will boost demand, create jobs, and support the consumer theme.
We remain bullish on consumption because the government is putting money in citizens’ pockets.
IT hasn’t worked out as well, but opportunities remain. Many mid-cap IT firms are leveraging AI to deliver faster, cheaper, and better solutions. While US policy adds some uncertainty, enterprise AI presents a significant long-term opportunity. We believe the IT sector in correction will provide some bottom-up opportunities.
Despite the H-1B visa fee hike?
The H-1B changes are affecting more American companies, but a loophole exists that allows the Department of Homeland Security to grant exemptions. So, it is unlikely to have a material impact on Indian IT firms. They have a much bigger problem with AI evolution and the US economic situation.
So what would be the principal growth engine for Indian equities, according to you?
In the near term, it’s all about fund flows. FPIs are selling; their selling can create fear among buyers, while retail investors through SIPs (Systematic Investment Plans) are buying regularly. Their buying can trigger Fomo among FPIs.
Over the longer term, fundamentals will prevail. The biggest driver for India’s equity market is earnings growth. If earnings rebound to double digits—supported by a US tariff deal, domestic stimulus, and a revival in private capital expenditures (capex)—the market will likely move up.
Currently, the market is in a sideways phase with no major upswings, which may continue unless there’s a big correction. At a forward P/E of 21, India is already a premium market globally. We’re standing on Mount Everest—difficult to go further up. Returns won’t come from valuations expanding from 21x to 25x or 30x, but from earnings growth.
Earnings growth may range from high single digits to low double digits, resulting in similar returns. Stocks may fluctuate, but the broader market will progress slowly, like a turtle.
Are there any tail risks that you are most worried about?
The biggest risk, to me, is complacency. We’re accustomed to a 20x PE, but to justify it, we must continue to deliver superior earnings growth. Like Virat Kohli is expected to hit centuries, we will have to deliver superior performance. India earns a premium valuation because its earnings growth and return on equity outperform those of its peers. Maintaining that edge is crucial—stocks remain slaves to earnings power, as Warren Buffett famously said.
India earns a premium valuation because its earnings growth and return on equity outperform those of its peers.
Are there any sectors or themes that you are excited about in the new Samvat year?
We still believe the consumer theme has a lot of potential.
But remember, these consumers aren’t spending on basic essentials, and their savings aren’t enough to buy a house. The question is where will they spend?
It could be on discretionary experiences—for example, choosing airlines over trains. It could be on home improvement, using some savings to upgrade their homes. It could be in health and education, where seeking more value-added services is a priority. Or it could be on travel and tourism. Wherever this money flows, that part of the consumer discretionary sector is likely to perform well in the coming days.
What about sectors like defence?
Defence businesses are set to grow—there’s no doubt about that.
Earlier, we had issues with two neighbours; now, it’s four. So, investment in defence is essential. However, valuations are demanding.
In our view, the companies best positioned are those serving both domestic and global markets, so they aren’t solely dependent on India’s defence budget. Second, their products need to be futuristic—making tanks may not add as much value, but drones and missiles are far more valuable. Third, operating leverage matters: firms with spare capacity can tap export markets, and if their products meet the demands of modern warfare, they’re likely to perform well.
I have noticed that lately, investors are viewing gold and silver not just as hedging tools but as growth assets.
Commodities can’t be valued like bonds or equities. Gold pays no dividends, no bonus, no cash flow. So, how have gold and silver changed in the last five years? Following the 2022 Russia-Ukraine war, $500 billion of Russia’s foreign exchange reserves were frozen, and the interest on that amount is being allocated to Ukraine. Now, central bankers worldwide are questioning the safety of their reserves, because if a powerful country like Russia can have its money frozen, what can happen to smaller nations?
This has led many to diversify part of their foreign exchange reserves into gold, and some are considering silver. As long as central banks continue to buy, prices can rise. But when they stop or start selling, prices will fall. Therefore, it is essential to monitor the central bank’s buying activity when investing in gold and silver.
