Latest news with #KotakInstitutionalEquities
Economic Times
18 hours ago
- Business
- Economic Times
Positive macro already priced in, market needs fresh earnings trigger: Sanjeev Prasad
So, at this point in time, we still have to wait for the good macro to transmit into micro. We have a lot of positive stuff going on over there. "Just to give you some more data over here, for the Nifty 50 Index for example we are looking at about 12% growth as far as earnings is concerned for FY2026, but almost 60% of the incremental profits for FY2026 is coming from either the commodity sectors or sectors which are very specific facts, for example tariff increase," says Sanjeev Prasad, Kotak Institutional Equities. What is your market view right now based on where we stand in terms of the risk and the reward ratio? Sanjeev Prasad: Market view pretty much remains the same here. We are stuck looks like in a narrow band which has been the case for a while now. If you look at the last one-year performance, the market has not done really much. It has been in that 24 plus-minus band for a while now. So, on the one side you have valuations which are pretty expensive and on the other side you have a decent macro, clearly things are looking better over there, hopefully that translates into earnings growth and better earning growth, but let us wait on that because you still have a lot of challenge with respect to domestic growth, we have a lot of issues on global front which we still do not know fully as to exactly how they pan out. So, yes, so that is where we are. You have I guess equal mix of positive on the one side and very high valuation which will probably make the market stay range bound for some more time. The macros have turned favourable and do you think that could lead to further earning surprise given that liquidity is back, interest rates are headed lower, crude is down, inflation is down. Are we in for positive earning surprise because of good macros? Sanjeev Prasad: This is the whole challenge with the construct of the market actually. There is a big disconnect between what is good for the economy need not necessarily be good for the market. If you look at the earnings composition of the market, a lot of earnings actually come from commodity sectors, a lot of earnings come from exporters and at this point in time you clearly have a lot of challenges on the earning numbers of exporters for sure, that is, IT services, parts of pharma, some of the auto companies and also because of lower commodity prices which is good for the economy in general, it is not good for the earning numbers. Just to give you some more data over here, for the Nifty 50 Index for example we are looking at about 12% growth as far as earnings is concerned for FY2026, but almost 60% of the incremental profits for FY2026 is coming from either the commodity sectors or sectors which are very specific facts, for example tariff increase. So, if you have any risk associated with any of the global factors, that is lower commodity prices and so on and so forth, a decent portion of the earning numbers on incremental basis could get cut. For example, in our numbers about 20 odd percent or 22% to be precise of the incremental profits of the Nifty 50 has actually come from the metal and mining sector, that has got nothing to do with economy to be honest with you, it is more to do with the fact that we have safeguard duties on steel, we should improve the profitability of the steel companies and higher aluminium prices. Same way 16% incremental profit is coming from ONGC which again got nothing to do with the economy, it is coming because of higher gas prices. There are some risks with lower crude prices over there. Same way between Reliance and Bharti, about 17-18% of the incremental profits of Nifty is actually coming from these two companies tariff increases, again very-very sector and company specific factors. So, at this point in time, we still have to wait for the good macro to transmit into micro. We have a lot of positive stuff going on over there. Your note says, the first line says that the Indian market seems to be stuck. Help us understand that what can actually get Indian markets out of this particular zone because on the macro front, like even you have been highlighting a couple of these things are changing, the inflation coming down, we are in the rate cycle and from the earnings as well though the earnings were not that great, but not big disappointment indeed. Sanjeev Prasad: A lot of good news to be honest with you because a lot of the good news is already priced in, whatever we are talking about macro is a very well-known fact, whether with respect to rate cuts, the market has more or less assumed another three to four rate cuts of 25 basis point each, so that is known; lower inflation; is known; lower commodity prices, at least oil does help a lot, so all that is known. The question is whether we see any earnings upgrades on the back of a decent macro and that is where the challenge is coming. The immediate impact of this so-called improvement macro is actually a negative impact for large section of the market. Interest rate cut means it is actually negative for parts of the banking sector and depending on how much interest rates get cut, it could be negative to negative especially for some of the private banks or private bank in general who have a very large portion of their loan book linked to external benchmark rate. Same way if you look at lower crude prices, fantastic for the economy as a whole and just to give you the math, every dollar per barrel is about 1.7-1.8 billion dollar saving for the economy, so that is a lot compared to last year average price of more like 79, but obviously the negative for something like ONGC. So that is the whole issue over here, this good macro we all know, fine, it is a given and which is in a way supporting the market, but ultimately we are not seeing any great movement on the earnings part and if you look at earnings have been getting cut only for the last, if I look at from let us say the end of third quarter result season and the fourth quarter result season, we have seen about three odd percent earnings cut and so far it does not look like we are seeing any earnings upgrades for sure.
Time of India
18 hours ago
- Business
- Time of India
Positive macro already priced in, market needs fresh earnings trigger: Sanjeev Prasad
"Just to give you some more data over here, for the Nifty 50 Index for example we are looking at about 12% growth as far as earnings is concerned for FY2026, but almost 60% of the incremental profits for FY2026 is coming from either the commodity sectors or sectors which are very specific facts, for example tariff increase," says Sanjeev Prasad , Kotak Institutional Equities. What is your market view right now based on where we stand in terms of the risk and the reward ratio? Sanjeev Prasad: Market view pretty much remains the same here. We are stuck looks like in a narrow band which has been the case for a while now. If you look at the last one-year performance, the market has not done really much. It has been in that 24 plus-minus band for a while now. So, on the one side you have valuations which are pretty expensive and on the other side you have a decent macro, clearly things are looking better over there, hopefully that translates into earnings growth and better earning growth, but let us wait on that because you still have a lot of challenge with respect to domestic growth, we have a lot of issues on global front which we still do not know fully as to exactly how they pan out. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Formigamento nos pés? Teste esse novo aparelho que vem ajudando pessoas aartedoherbalismo Undo So, yes, so that is where we are. You have I guess equal mix of positive on the one side and very high valuation which will probably make the market stay range bound for some more time. The macros have turned favourable and do you think that could lead to further earning surprise given that liquidity is back, interest rates are headed lower, crude is down, inflation is down. Are we in for positive earning surprise because of good macros? Sanjeev Prasad: This is the whole challenge with the construct of the market actually. There is a big disconnect between what is good for the economy need not necessarily be good for the market. If you look at the earnings composition of the market, a lot of earnings actually come from commodity sectors, a lot of earnings come from exporters and at this point in time you clearly have a lot of challenges on the earning numbers of exporters for sure, that is, IT services, parts of pharma, some of the auto companies and also because of lower commodity prices which is good for the economy in general, it is not good for the earning numbers. Live Events Just to give you some more data over here, for the Nifty 50 Index for example we are looking at about 12% growth as far as earnings is concerned for FY2026, but almost 60% of the incremental profits for FY2026 is coming from either the commodity sectors or sectors which are very specific facts, for example tariff increase. So, if you have any risk associated with any of the global factors, that is lower commodity prices and so on and so forth, a decent portion of the earning numbers on incremental basis could get cut. For example, in our numbers about 20 odd percent or 22% to be precise of the incremental profits of the Nifty 50 has actually come from the metal and mining sector, that has got nothing to do with economy to be honest with you, it is more to do with the fact that we have safeguard duties on steel, we should improve the profitability of the steel companies and higher aluminium prices. Same way 16% incremental profit is coming from ONGC which again got nothing to do with the economy, it is coming because of higher gas prices. There are some risks with lower crude prices over there. Same way between Reliance and Bharti, about 17-18% of the incremental profits of Nifty is actually coming from these two companies tariff increases, again very-very sector and company specific factors. So, at this point in time, we still have to wait for the good macro to transmit into micro. We have a lot of positive stuff going on over there. Your note says, the first line says that the Indian market seems to be stuck. Help us understand that what can actually get Indian markets out of this particular zone because on the macro front, like even you have been highlighting a couple of these things are changing, the inflation coming down, we are in the rate cycle and from the earnings as well though the earnings were not that great, but not big disappointment indeed. Sanjeev Prasad: A lot of good news to be honest with you because a lot of the good news is already priced in, whatever we are talking about macro is a very well-known fact, whether with respect to rate cuts, the market has more or less assumed another three to four rate cuts of 25 basis point each, so that is known; lower inflation; is known; lower commodity prices, at least oil does help a lot, so all that is known. The question is whether we see any earnings upgrades on the back of a decent macro and that is where the challenge is coming. The immediate impact of this so-called improvement macro is actually a negative impact for large section of the market. Interest rate cut means it is actually negative for parts of the banking sector and depending on how much interest rates get cut, it could be negative to negative especially for some of the private banks or private bank in general who have a very large portion of their loan book linked to external benchmark rate. Same way if you look at lower crude prices, fantastic for the economy as a whole and just to give you the math, every dollar per barrel is about 1.7-1.8 billion dollar saving for the economy, so that is a lot compared to last year average price of more like 79, but obviously the negative for something like ONGC. So that is the whole issue over here, this good macro we all know, fine, it is a given and which is in a way supporting the market, but ultimately we are not seeing any great movement on the earnings part and if you look at earnings have been getting cut only for the last, if I look at from let us say the end of third quarter result season and the fourth quarter result season, we have seen about three odd percent earnings cut and so far it does not look like we are seeing any earnings upgrades for sure.
&w=3840&q=100)
Business Standard
2 days ago
- Business
- Business Standard
Markets stuck between rich valuation, tepid growth; SMIDs at risk: Report
Stock Market Outlook: The valuations of the Indian market and of most sectors and stocks are quite rich and well above fair values, cautioned Sanjeev Prasad of Kotak Institutional Equities Nikita Vashisht New Delhi Market outlook: The consolidation in the Indian stock markets may continue for the next few months as rich valuations, weak domestic consumption and investment, along with global uncertainty cap any meaningful upside, believe analysts at Kotak Institutional Equities. In a report titled 'Indian Markets: All dressed up and nowhere to go'', Sanjeev Prasad of Kotak IE pointed out that the stock market (primarily the benchmark indices) is ignoring risks from a sluggish domestic outlook and a challenged global macroenvironment underscored by a likely low growth and possibly high inflation. "In this context, the valuations of the Indian market and of most sectors and stocks are quite rich and well above fair values. This suggests that investors, both institutional and retail, are yet to reconcile with the new reality," Prasad said in a co-authored report with Anindya Bhowmik and Sunita Baldawa. On the bourses, the stock markets were highly volatile in trade today, swinging between gains and losses. The BSE Sensex index tumbled 1,199 points from the day's high to hit a low of 80,575 level in the intraday trade. The NSE Nifty50, on the other hand, crashed 343 points from the day's high to hit a low of 24,502. The market has been moving sideways since May 12, 2025. Stock market outlook: Key risks According to analysts at Kotak Institutional Equities, there is a disconnect between the valuations of the Indian stock markets and the fundamentals of the domestic and global economic growth. On the domestic front, Prasad anticipates a slowdown in the Indian economy on the back of lower growth in investment, which would overshadow any potential recovery in consumption. "While there could be a gradual recovery in the domestic consumption demand, any major upside to demand recovery is ruled out due to muted growth in income of low-income and middle-income households and a possible slowdown in consumption demand of high-income households," it said. Additionally, the brokerage projects moderation in central government capex, coupled with a modest pickup in state capex, despite a significant increase in state budgets for FY2026, likely slowdown in residential real estate demand, and no meaningful pickup in private capex, to curtail demand growth. Globally, Kotak analysts said the flip-flop policies of the US administration on the tariff issue have created a great deal of uncertainties with respect to global growth and inflation. While the markets, global and Indian, have already priced in the best-case scenario of the US and its major trade partners concluding trade agreements before the July 9 deadline, leading to moderate import tariffs and subsequent uptick in inflation, the reality is that only one trade deal (with the UK) has been signed for far. "In a realistic scenario of dragged-out trade negotiations, the market could be volatile based on news (good, bad or ugly) but struggle to break out of a certain range," it said. Stock market valuations In this backdrop, the brokerage believes valuations of the Indian stock market have stayed at high levels in several sectors and stocks despite meaningful earnings downgrades. This, it said, highlights a scenario where either the market does not care about valuations and/or the market does not care about earnings. "In our view, this nonchalant attitude perhaps reflects the market's confidence in retail investors sustaining their hitherto price-agnostic purchase of stocks through mutual funds, and FPIs staying positive on Indian equities based on a 'narrative' of a lack of alternatives in emerging markets," it said. Data, however, points out that retail investors have been reducing new investments into mutual funds. FPIs, on the other hand, are "value-sensitive" investors. As the Indian market has not performed in the recent global rally, investors should acknowledge that "Indian exceptionalism" may not be enough. Largecap vs mid, smallcaps: Where to invest? Kotak Institutional Equities believes the large-cap indices may find some support from continued optimism among investors about India's long-term growth prospects and lower interest rates, but the small and mid-cap stocks (SMID stocks) have a long way to correct to their fair values. According to the brokerage most large-cap and mid-cap consumption stocks (FMCG and durables), capital goods and EMS stocks, and outsourcing stocks (information technology) are trading at expensive valuations.
Mint
2 days ago
- Business
- Mint
Indian stock market may stay range-bound amid rich valuations and global uncertainty, warns Kotak
The Indian stock market has been trading in a consolidation range for the past few weeks, and this range-bound movement is expected to persist in the coming months. According to domestic brokerage firm Kotak Institutional Equities, rich valuations, ongoing weakness in domestic consumption and investment demand, along with global geopolitical and macroeconomic uncertainties, may keep the Indian stock market range-bound over the next few months. The brokerage notes that expensive valuations across sectors and stocks, domestic growth headwinds across consumption, investment, and outsourcing sectors, and global growth and inflation challenges are likely to act as headwinds for the Indian stock market. Kotak finds that valuations have remained elevated across several sectors and stocks despite meaningful earnings downgrades. This, as per the brokerage, suggests that the market does not care about valuations and/or the market does not care about earnings. "In our view, this nonchalant attitude perhaps reflects the market's confidence in retail investors sustaining their hitherto price-agnostic purchases of stocks through mutual funds and FPIs staying positive on Indian equities based on a 'narrative' of a lack of alternatives in EMs," said the brokerage. At a broader level, Kotak's analysis shows that valuations are higher than pre-pandemic levels despite significantly elevated risks to global growth and inflation, higher global interest rates and bond yields, domestic growth and profitability challenges for most sectors in the short term, and significantly higher medium-term disruption risks arising from increased competition and structural changes. Kotak sees a few positives for the Indian economy in the form of lower interest rates and low commodity prices, which could support higher government and/or household savings. Nonetheless, it ruled out a strong economic recovery due to ongoing challenges to consumption demand from inadequate creation of good-quality jobs, a slowdown in investment demand (likely flat government capex, weaker residential real estate sales, and no signs of recovery in private capex), and headwinds to exports/outsourcing from an uncertain global environment and slowing global growth. According to the brokerage, the net income of the Nifty-50 Index in the March quarter grew 3.7%, which was 3.8% above its expectation. Net income of its coverage universe grew 8.2%, compared to its expectation of a 0.8% increase. Kotak identified that the beat was led by banks (notably SBI), downstream oil marketing companies (due to unexpectedly high gross refining margins), and higher-than-expected other income. The EBITDA of the Nifty-50 Index during the quarter improved by 9.2%, compared to its expectation of 10.2%, while EBITDA of its coverage universe grew 11.2%, versus an expected 8.3% increase. For FY2025, net income and EBITDA of the Nifty-50 Index grew by 6.4% and 4.5%, respectively. Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
Time of India
2 days ago
- Business
- Time of India
US yields are America's headache, but DXY may be world's concern: Kotak Equities
Live Events Surging US bond yields signal economic fragility, elevated risk perception US faces broader consequences from a weakening dollar Dollar slide could reshape global investment and capital flow trends Indian monetary policy trajectory may not be influenced by high US yields (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel The recent surge in US bond yields and a weakening US dollar index DXY ) have brought to light the diverging consequences of these two critical macro indicators. While rising bond yields are often seen as a reflection of monetary policy expectations, domestic brokerage firm Kotak Institutional Equities argues that in this case, they are more symptomatic of the United States' weakening fiscal and macroeconomic to the brokerage firm's report, the sharp uptick in yields is being driven not by growth optimism but by concerns over an expanding fiscal deficit , heightened policy uncertainty, and a growing risk premium. These developments, Kotak notes, could remain largely a domestic concern, impacting the US's debt servicing costs and future borrowing outlook, without necessarily spilling over into other the picture is quite different when it comes to the US dollar. A weakening DXY, Kotak contends, carries far more global implications. As the cornerstone of international trade and finance, fluctuations in the dollar's strength ripple through currency markets, capital flows, and sovereign reserve report highlights that a sustained decline in the DXY could prompt non-US investors to reassess their holdings of US assets, reorient global capital movements, and potentially trigger asset repricing across effect, while 'US yields are US's problem,' the DXY is 'everybody's problem,' given its influence on investor behavior, financial stability, and the broader structure of global capital markets According to Kotak, the recent sharp rise in US bond yields primarily reflects concerns around deteriorating US macro fundamentals. The report attributes the movement to market pricing in '(a) continued weakness in US macro (higher fiscal deficit) and (b) greater macroeconomic and policy uncertainty,' which in turn has led to increased risk premiums demanded by brokerage notes that elevated bond yields 'for an extended period of time will also affect the US's fiscal and debt position with new bonds likely at higher rates versus old bonds,' exacerbating the fiscal burden. Kotak Equities warns that a decline in the US dollar index (DXY) could have far-reaching consequences for the US itself.'The true value of the USD may have been masked by its haven status,' the report said, despite the 'steady deterioration of US economic fundamentals over the past decade.'The brokerage pointed to the past funding of the US's excess consumption by the excess savings of Asia and Europe, which had led to rising capital flows into the US and growing ownership of US assets by non-US entities. However, further weakening of the DXY may 'change the status quo and require a shift to (1) lower US consumption and/or higher US production (higher US savings), (2) higher consumption (lower savings) elsewhere and (3) higher yields (risk premium) for US assets.'While higher US bond yields may remain a domestic concern, the weakening dollar could influence asset allocation strategies stated, 'A weakening DXY may have several long-term implications for countries and global capital markets.'The report highlighted that 'non-US holders of US assets may review their ownership of US assets on both stock and flow basis versus their earlier position of unconcerned ownership of US assets given low currency concerns.'With everything said, the report was cautious about whether this shift would directly benefit emerging markets such as India. It flagged the possibility of a 'reset' in global capital flows , though the direction remains to the report, the rise in US yields is unlikely to significantly impact the Reserve Bank of India's monetary policy. Indian bond yields continue to offer a healthy premium over US yields, and India's macroeconomic fundamentals have improved compared to the US over factors such as (1) a likely low current account deficit and a healthy balance of payments, (2) manageable inflation levels, and (3) a 'fair' INR valuation based on the REER offer a cushion against external shocks, allowing the RBI to maintain its focus on domestic the domestic brokerage firm noted Key risks from such a reset could include: (1) higher yields (lower bond and equity prices) in the US for non-US entities to stay invested in the US, (2) greater investment in home markets although this runs the risk of asset bubbles in those countries and (3) change in consumption-saving behavior of 'saver' countries.': Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
