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Informist, Wednesday, Dec. 4, 2024

 

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--Kotak MF bullish on private banks, auto, telecom, pharma, IT stocks 
--CONTEXT: Kotak MF details its market outlook for 2025 
--Kotak MF: Expect limited PE expansion, should moderate return expectations 
--Kotak MF: Bk credit, deposit growth gap narrowing, may ease margin pressure 
--Kotak MF: Public, private bank valuations close to long-term averages 
--Kotak MF: Shift to organised retail sector to drive consumption 
--Kotak MF Shah: China-US tariff war to benefit India manufacturers 
--Kotak MF: High valuations partly justified due to lower corporate leverage 
--Kotak MF: Money has not moved from India's market to China 
--Kotak MF: Money has likely moved from India to developed markets 
--Kotak MF: Indian market valuations justified by high RoE 
--Kotak MF: Earnings momentum is broken for mid-, small-cap cos
--Kotak MF: Saw major earnings slowdown in mid-caps, small-caps in Jul-Sept  
--Kotak MF: Valuations are high, expect FY26 to be better than FY25 
--Kotak MF: Investors should take 'neutral' stance on Indian equities 
--Kotak MF: Price-earnings multiple of 50 is an expensive multiple 
--Kotak MF: Hardly any sector is at valuation lower than 10-year average 
--Kotak MF: High returns from equities in past few years driving sentiment 
--Kotak MF: Investment theme is 'capex cycle is reviving' 
--Kotak MF: Looking at consumption revival, rural consumption pickup evident 
--Kotak MF: Bank valuations comfortable, banks are adequately capitalised 
--Kotak MF: Equities are likely to be volatile due to high valuations 
--Kotak MF: Large-cap earnings may grow 7% Oct-Mar, tad better than Apr-Sept 
--Kotak MF: Equity mkts may consolidate in near term, positive in medium term 

 

MUMBAI – Equity investors should curtail their expectations from the equity markets considering that the current valuations are still high and provide limited opportunity for expansion in price-to-earnings, said Harsha Upadhyaya, chief investment officer of equity at Kotak Mutual Fund. While speaking at an event in Mumbai where the fund house detailed its outlook for 2025, Upadhyaya advised investors to take a neutral stance on equities and prefer large-cap companies over mid- and small-caps.

 

He said there is hardly any sector which is available at valuations lower than 10-year average. Owing to such valuations, equity markets may consolidate in the near term before treading higher, he said. Upadhyaya, who believes price-to-earnings multiple of 50 is expensive, said high valuations may even lead to volatility in the coming years and test investors' patience.

 

Having said that, Upadhyaya was still bullish on the market in the medium term. He said high valuations are partly justified due to lower leverage and high return on equity by Indian corporates. 

 

He acknowledged that earnings growth in the first half of this financial year was disappointing, but also expects things to be better going forward. Large-cap companies may report earnings growth of 7% in Oct-Mar, which he said will be slightly better than that seen in Apr-Sept. Further, he expects earnings growth in 2025-26 (Apr-Mar) to be better than the current financial year, driven by higher capital expenditure by the central government and corporates.

 

However, such optimism was missing for mid-caps and small-caps, where the fund house was underweight. Upadhyaya said earnings slowdown was significant among small-caps and mid-caps. 

 

For 2025, the fund house is bullish on five major themes: capex cycle revival, penetrating financial services, new age service offerings in technology, consumption and rural revival, and healthcare. Apart from these themes, they are bullish on private banks, automobile, telecommunication, pharmaceutical, and information technology. Although, valuations are high, there are opportunities in terms of specific stocks in these themes and sectors, fund managers said at the event.

 

"India is already into a crucial multi-year capital expenditure cycle, which is expected to drive significant economic growth," the fund house said in a press release, which extended on the above-mentioned themes. They expect capex by central government and listed corporate to increase, while the same by state governments is likely to lag. Indian manufacturers may also benefit from a possible tariff war between China and the US after US President-elect Donald Trump takes charge.

 

The fund house said valuations of private banks are still reasonable as these traded close to long-term averages, compared with higher valuations in the broader market. They said the gap between banks' credit and deposit growth is narrowing, which is likely to help ease pressure on margins. "The banking sector has seen healthy return ratios and improving capital adequacy levels reducing the need for fresh capital," they said.

 

They are also bullish on consumption in India and expect rural demand to keep growing after lagging behind urban demand post COVID-19 pandemic. "The shift from unorganised retail to organised retail is another key underlying driver for the sector," the fund house said.

 

Among other themes, they expect higher spending on cloud services to aid Indian IT companies. They also expect spending on healthcare to increase as GDP per capita rises. "India is emerging as the best alternative outsourcing destination as companies look to de-risk supply chain away from China and in the area of Contract Development and Manufacturing Organisations," the release said.

 

Commenting on the recent outflows by foreign investors, the fund house said money from India has likely moved to developed markets rather than China. They were positive that foreign investors will come back soon as US equity markets have already seen significant gains in the previous month. A fund manager with Kotak MF said on the sidelines of the event that foreign investors are unlikely to return till January as they may look for more clarity over policy decisions by Donald Trump.  End

 

Reported by Anshul Choudhary

Edited by Akul Nishant Akhoury

 

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