More Stories

Informist, Tuesday, Dec. 16, 2025

 

NEW DELHI – Kotak Institutional Equities on Tuesday said the capital markets are overly focused on companies' financial returns and cash flows when determining appropriate stock multiples. The firm also said select Indian companies are likely deriving "too much" comfort from these high multiples and taking it as an endorsement of their "low-risk" strategy.

 

Companies with higher financial returns and free cash flows are accorded premium multiples, apart from high-growth companies, Kotak Securities said. While this approach may be correct from a technical standpoint, the report suggests it may be less relevant in an era of significant technological disruption and threats. 

 

"It is obvious that companies that are underinvesting in the business will be more susceptible to market and technological changes even if they were to meet (or even beat) the short-term revenue and profit assumptions of the market," the report said.  "In our view, the role of capital markets and investors may also need a change if the private sector were to focus largely on its longer-term strategic objectives instead of being forced to 'comply' with short-term demands of the Street with respect to quarterly revenue and profit targets," the report said.

 

LOW RISK BEHAVIOUR

The brokerage noted that a segment of Indian companies bases their investment decisions on how the stock market will react once such an investment decision becomes public. As for many public sector undertakings, Kotak Securities said many of these companies are not showing any signs of using their extant cash flows from mature businesses, some of which are possibly sunset, in emerging businesses which have better long-term prospects.

 

Those "low-risk" Indian companies that have been awarded higher multiples for many reasons, including the price-agnostic investing of retail investors who purchase stocks at all price points, primarily through domestic institutional investors. "In our view, companies should not confuse the current high multiples for their stocks for any sort of an approval from the stock market. The market can be notoriously fickle in terms of its likes and dislikes," the report warned.

 

Separately, the brokerage firm said Indian companies may need to rethink their long-term strategy for developing globally competitive products or services to deliver decent earnings growth over multiple decades.

End

 

Reported by Anand JC

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.