Latest news with #PratikGupta
CNBC
2 days ago
- Business
- CNBC
Expect India's corporate earnings to pick up in H2 FY25 with good monsoon and upcoming holidays
Pratik Gupta, CEO and Co-Head of Kotak Institutional Equities, shares his outlook for the Indian equity market and which sectors investors should pay attention to.
Economic Times
4 days ago
- Business
- Economic Times
Avoiding chemicals and cement stocks; new-age consumption stocks long-term bets: Pratik Gupta
Pratik Gupta, CEO and Co-Head, Institutional Equities, Kotak Securities, says Indian markets anticipate a stronger second half, fueled by the festive season and favorable monsoons, particularly benefiting rural demand. However, high valuations in consumer companies raise concerns. Consumer tech leaders like Nykaa and Honasa show promise for long-term growth, despite near-term challenges. Cement faces capacity additions and potential real estate slowdown. In chemcials, a lot of capex is going through. The demand visibility is poor and there is uncertainty about the competition from China. So, chemicals should be avoided. ADVERTISEMENT What is your view on some of these new-age consumption companies. We have seen numbers coming in from Nykaa and Honasa Consumer. There are categories like BPC, fashion, all of them have been doing better compared to the traditional staples categories. What do you think lies ahead for overall consumption given that the festive and wedding season is coming? Where do you think the new-age consumption names are heading from here? Pratik Gupta: Firstly, on the broader consumption space, there is no doubt that we will likely see a better second half of this year. Typically, it has a seasonal uptick. You have the festive season and this year the monsoon has been good. Rural demand should be good and that is there. But the main question to ask is how much of that is priced in and that is the problem with a lot of consumer companies which are trading anywhere between 40 times and 60 times one year forward earnings. And that's why we would rather play companies where sustainably on a longer-term basis, apart from the cyclical second half seasonal uptake, we will see continued sustainable growth in the years ahead and usually these consumer tech companies like some of the ones you mentioned are gaining market share. These companies are pulling further away from some of the weaker competitors in this slow economic environment. Again, we are looking for category leaders. Even within the consumer sector, look at these consumer tech companies which are category leaders. Companies like Nykaa, Honasa are pulling further away from some of the weaker competitors. But again, the next one or two quarters are still going to be somewhat tough. Valuations are elevated. Do not expect any dramatic returns from their stocks in the near term. But on a three- to five-year basis, if you are willing to wait that long, these are the stocks we would like. But Kotak as a firm always comes out with a very nice one liner or the header if I may call it. I am not sure whether you are the mastermind behind it. If you really have to sum up the market condition right now and advise in one line, what will that be? Pratik Gupta: What I would say right now is we are going through a very uncertain global economic environment. Therefore, again, I would say do not try to be a hero, do not try and hit a six in these markets. This is a time to preserve your capital. Make sure you get a return of your capital rather than focusing on return on capital. So, be somewhat cautious. It is okay if you do not get the multibagger or whatever. Investing in equities is a very long-term game. When you are going through a very rough patch…, things may get worse. If for whatever reason, the tariff situation with the US does not work out, our GDP could go down by 60-70 bps. We could fall well below 6% real GDP growth this year. For the next one, one-and-a-half years we could be in for a very tough economic patch. So, do not try to be a hero. Be cautious. This is not the environment where the market environment is going to be supportive of a very bullish sort of environment where almost every stock does very well. So, focus more on quality, do your homework, and be very careful right now. The valuations in some pockets have come down. Case in point being banks after their Q1 earnings, the valuations have come down. Do you believe the corrections that we have seen overall and the earnings rerating that you are indicating, is attractive enough to be an entry point for some of the foreign flows to come in because on the FII front barring one or two sessions, that also largely on the back of block deals. All we have seen is a continuous selling streak. Do you believe the market post this earning season is looking attractive for a fresh buy or do you think there could be other factors at play? Pratik Gupta: So that is a great question. As far as foreign institutional investors are concerned, there are a couple of things going on in their mind. Firstly, India is by and large, most global investors are somewhat underweight India and in fact very negative on India given the growth outlook. Growth has slowed down quite sharply. As I mentioned, we are looking at just 10% earnings growth for the Nifty this year, which is quite low for the elevated valuations which India trades at. ADVERTISEMENT Keep in mind the Indian index is up only about 6-7% this year versus the MSCI EM index which is up about 16-17% this calendar year and to put that in context markets like Korea have grown by 34-35%, Mexico and Brazil have grown by 15-17% this year. So, India is underperforming. But despite that, they are still not very attracted to India. If anything, as you rightly mentioned, we are continuing to see outflows from India. When we speak to a lot of our global clients, they are still not very interested in India mainly because of the weak earnings growth outlook, the high valuations, and the tariff related uncertainty. Unlock 500+ Stock Recos on App We think it will take some more time. Either we get clarity on the growth outlook or our valuations correct a bit more. We could go through a time correction. The other trigger could have nothing to do with India but rather what is going on globally with the US. If the Fed cuts rates, you could see dollar weakness and that in turn could trigger inflows into EM equity funds, which in turn would lead to India getting its own share. ADVERTISEMENT Perhaps we could see geopolitical events like perhaps Trump and Putin striking a deal, a global risk-on rally and again money coming back into global equities and India getting its fair share. But India on a standalone basis as of right now is still not attractive enough for the foreigners and that is unlikely to change for the next few months, the way things are going. Since everything is so tactical and myopic in nature right now, what about earnings from cement and chemicals? Do you think there were any positive surprises there? Pratik Gupta: Yes, there have been some. Cement in particular has done somewhat better than expected, but again there is a lot of capacity addition coming through; every major cement company is increasing capacity by 6-8% per annum. Demand is more or less keeping pace and here the other problem is the real estate sector might seem to be showing signs of slowing down, so that is a bit of a worrying sign. ADVERTISEMENT But on the positive side, the second half government capex is likely to kick in post September-October. Again over here, coming to valuations, most cement stocks are trading at very expensive valuations. Generally for the last six to nine months, we have been somewhat cautious on cement stocks. In chemicals, there is another problem, which is competition from China as well as the tariff related uncertainty. So, we have been extremely negative on chemicals as a space, not just now but for the last two years and that call has largely worked out and even now most of these stocks are trading at anywhere between 25 and 40 times. There is a lot of capex going through. The demand visibility is quite poor and there is uncertainty about the competition from China. So, we would definitely avoid chemicals. Cement is a bit more cyclical and you have to time your purchases. This is a commodity business. You go through periods of extreme weakness in demand and that is when you get a little bit of undervaluation and that is when you sort of jump into these stocks, but not at this point in time. Right now, we would stay away from both these sectors.
Time of India
4 days ago
- Business
- Time of India
Avoiding chemicals and cement stocks; new-age consumption stocks long-term bets: Pratik Gupta
Pratik Gupta , CEO and Co-Head, Institutional Equities, Kotak Securities , says Indian markets anticipate a stronger second half, fueled by the festive season and favorable monsoons, particularly benefiting rural demand. However, high valuations in consumer companies raise concerns. Consumer tech leaders like Nykaa and Honasa show promise for long-term growth, despite near-term challenges. Cement faces capacity additions and potential real estate slowdown. In chemcials, a lot of capex is going through. The demand visibility is poor and there is uncertainty about the competition from China. So, chemicals should be avoided. What is your view on some of these new-age consumption companies . We have seen numbers coming in from Nykaa and Honasa Consumer . There are categories like BPC, fashion, all of them have been doing better compared to the traditional staples categories. What do you think lies ahead for overall consumption given that the festive and wedding season is coming? Where do you think the new-age consumption names are heading from here? Pratik Gupta : Firstly, on the broader consumption space, there is no doubt that we will likely see a better second half of this year. Typically, it has a seasonal uptick. You have the festive season and this year the monsoon has been good. Rural demand should be good and that is there. But the main question to ask is how much of that is priced in and that is the problem with a lot of consumer companies which are trading anywhere between 40 times and 60 times one year forward earnings. And that's why we would rather play companies where sustainably on a longer-term basis, apart from the cyclical second half seasonal uptake, we will see continued sustainable growth in the years ahead and usually these consumer tech companies like some of the ones you mentioned are gaining market share. Finance Value and Valuation Masterclass - Batch 4 By CA Himanshu Jain View Program Artificial Intelligence AI For Business Professionals Batch 2 By Ansh Mehra View Program Finance Value and Valuation Masterclass - Batch 3 By CA Himanshu Jain View Program Artificial Intelligence AI For Business Professionals By Vaibhav Sisinity View Program Finance Value and Valuation Masterclass - Batch 2 By CA Himanshu Jain View Program Finance Value and Valuation Masterclass Batch-1 By CA Himanshu Jain View Program by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Knee Surgeon: Suffering From Pain After Age 50? Do This Every Morning Wellnee Undo These companies are pulling further away from some of the weaker competitors in this slow economic environment. Again, we are looking for category leaders. Even within the consumer sector, look at these consumer tech companies which are category leaders. Companies like Nykaa, Honasa are pulling further away from some of the weaker competitors. But again, the next one or two quarters are still going to be somewhat tough. Valuations are elevated. Do not expect any dramatic returns from their stocks in the near term. But on a three- to five-year basis, if you are willing to wait that long, these are the stocks we would like. But Kotak as a firm always comes out with a very nice one liner or the header if I may call it. I am not sure whether you are the mastermind behind it. If you really have to sum up the market condition right now and advise in one line, what will that be? Pratik Gupta: What I would say right now is we are going through a very uncertain global economic environment. Therefore, again, I would say do not try to be a hero, do not try and hit a six in these markets. This is a time to preserve your capital. Make sure you get a return of your capital rather than focusing on return on capital. So, be somewhat cautious. It is okay if you do not get the multibagger or whatever. Investing in equities is a very long-term game. When you are going through a very rough patch…, things may get worse. If for whatever reason, the tariff situation with the US does not work out, our GDP could go down by 60-70 bps. We could fall well below 6% real GDP growth this year. For the next one, one-and-a-half years we could be in for a very tough economic patch. So, do not try to be a hero. Be cautious. This is not the environment where the market environment is going to be supportive of a very bullish sort of environment where almost every stock does very well. So, focus more on quality, do your homework, and be very careful right now. Live Events You Might Also Like: Which sectors will outperform the market in 2025? Hospitals, airlines, or something else? The valuations in some pockets have come down. Case in point being banks after their Q1 earnings, the valuations have come down. Do you believe the corrections that we have seen overall and the earnings rerating that you are indicating, is attractive enough to be an entry point for some of the foreign flows to come in because on the FII front barring one or two sessions, that also largely on the back of block deals. All we have seen is a continuous selling streak. Do you believe the market post this earning season is looking attractive for a fresh buy or do you think there could be other factors at play? Pratik Gupta: So that is a great question. As far as foreign institutional investors are concerned, there are a couple of things going on in their mind. Firstly, India is by and large, most global investors are somewhat underweight India and in fact very negative on India given the growth outlook. Growth has slowed down quite sharply. As I mentioned, we are looking at just 10% earnings growth for the Nifty this year, which is quite low for the elevated valuations which India trades at. Keep in mind the Indian index is up only about 6-7% this year versus the MSCI EM index which is up about 16-17% this calendar year and to put that in context markets like Korea have grown by 34-35%, Mexico and Brazil have grown by 15-17% this year. So, India is underperforming. But despite that, they are still not very attracted to India. If anything, as you rightly mentioned, we are continuing to see outflows from India. When we speak to a lot of our global clients, they are still not very interested in India mainly because of the weak earnings growth outlook, the high valuations, and the tariff related uncertainty . We think it will take some more time. Either we get clarity on the growth outlook or our valuations correct a bit more. We could go through a time correction. The other trigger could have nothing to do with India but rather what is going on globally with the US. If the Fed cuts rates, you could see dollar weakness and that in turn could trigger inflows into EM equity funds, which in turn would lead to India getting its own share. Perhaps we could see geopolitical events like perhaps Trump and Putin striking a deal, a global risk-on rally and again money coming back into global equities and India getting its fair share. But India on a standalone basis as of right now is still not attractive enough for the foreigners and that is unlikely to change for the next few months, the way things are going. You Might Also Like: We are holding 14-15% in cash in this slightly bearish undertone market: Siddharth Vora Since everything is so tactical and myopic in nature right now, what about earnings from cement and chemicals? Do you think there were any positive surprises there? Pratik Gupta: Yes, there have been some. Cement in particular has done somewhat better than expected, but again there is a lot of capacity addition coming through; every major cement company is increasing capacity by 6-8% per annum. Demand is more or less keeping pace and here the other problem is the real estate sector might seem to be showing signs of slowing down, so that is a bit of a worrying sign. But on the positive side, the second half government capex is likely to kick in post September-October. Again over here, coming to valuations, most cement stocks are trading at very expensive valuations. Generally for the last six to nine months, we have been somewhat cautious on cement stocks. In chemicals, there is another problem, which is competition from China as well as the tariff related uncertainty. So, we have been extremely negative on chemicals as a space, not just now but for the last two years and that call has largely worked out and even now most of these stocks are trading at anywhere between 25 and 40 times. There is a lot of capex going through. The demand visibility is quite poor and there is uncertainty about the competition from China. So, we would definitely avoid chemicals. Cement is a bit more cyclical and you have to time your purchases. This is a commodity business. You go through periods of extreme weakness in demand and that is when you get a little bit of undervaluation and that is when you sort of jump into these stocks, but not at this point in time. Right now, we would stay away from both these sectors.
Economic Times
4 days ago
- Business
- Economic Times
Which sectors will outperform the market in 2025? Hospitals, airlines, or something else?
Pratik Gupta, CEO and Co-Head, Institutional Equities, Kotak Securities, says IT services, consumer sectors, and banks are expected to underperform due to factors like low volume growth, lower NIMs, and higher credit costs. Conversely, hospitals, hotels, airlines, and Bharti Airtel are favoured for their domestic focus and secular growth. While private banks may not outperform in earnings, their attractive valuations make them appealing compared to overvalued sectors like EMS companies. ADVERTISEMENT What is your take on the earning season so far because now that we have finished with all of the Nifty 50 earnings, and particularly the last three have been quite strong. How has the earning season been so far? Any unexpected misses or surprises that you have spotted? Pratik Gupta: As far as the earning season is concerned, it has been broadly in line with somewhat muted expectations ahead of the earning season. For example, for the Nifty as a whole, we were expecting about 5% earnings growth. That has come in at about 6.5-7% for the June quarter. But more important has been the commentary and the guidance which has been weaker than expected and the continuing weakness in the economy. At Kotak, we cover about 300 companies, so for the broader universe and more importantly for the Nifty 50, before the start of the June quarter earning season, we were projecting about 12% earnings growth in FY26. That estimate has now come down to 10% and our analysts still see further downside risks if things do not pick up in the next one or two quarters. So, the earning season has been okay and there are a lot of hopes now on the second half post monsoon recovery, the festive season demand, the impact of the RBI rate cuts. Dipan Mehta highlights capital goods and power as next market leaders Obviously most important is the expectation that the Trump tariffs will somehow come down to more reasonable levels next week or later this month. If those things do not pan out, then as far as earnings are concerned, we could be in for some negative surprises going forward. In this kind of flux of all the news flow, all question marks about what the festive season is going to do, what the government intends to do after the big fillip of 50 bps cut from the RBI, and the big question mark on tariffs, how should investors be positioning themselves now because at best you only have very tactical short-term visibility? Pratik Gupta: You are right, which is why we are recommending a somewhat cautious stance. We do not think this is an environment where you need to take on risks. We would recommend a couple of broad themes. One, look at domestic plays rather than export plays. Second, look at quality versus value momentum, cyclical kind of plays. The third is a corollary of the second one; largecaps versus the small and midcaps, tend to weather an economic slowdown much better. What is clear is we are going through a slow growth patch and this may persist for some more time and who knows it may get worse if the tariff headwinds do not abate. So, we are in for a tough economic environment. We do not see signs of a very strong domestic economic recovery, at least not in the short term. We have not seen any sort of government action as such coming through in terms of reforms. So, until then you have to be somewhat cautious. So, stick to domestic plays, stay away from IT services for example, where even before the US tariff threat, we were concerned about high valuation and the weakness in discretionary IT spending. Then we have got the AI risk coming through, we had ChatGPT 5 being released last week, and that just shows overall how things are moving in that direction. So, generally be cautious, stay away from cyclical or rather high beta plays, be defensive and do not try and be a hero in this environment, that is sort of the broad advice. ADVERTISEMENT You have been mentioning that you have made some tweaks in your earnings estimate which is now down to 10% versus 12% earlier. Help us understand which sectors are you sporting that may outperform this growth number because of late, we have seen some sectors and rather some companies talking about double-digit growth. A case in point is hospitals, the EMS companies and select pharma companies as well. Pratik Gupta: Let me begin with the sectors which are likely to underperform and that is usually typically this year it has going to be the IT services companies, the consumer sector where volume growth is still low single digit, revenue growth in maybe high single digits, and even the banks this year are likely to not show very strong earnings both a combination of lower NIMs as well as higher credit costs. These are the large sectors which will likely underperform. Unlock 500+ Stock Recos on App When it comes to outperformance, as you rightly pointed out, some of the sectors you mentioned we also like them. Hospitals are definitely a space we like. This is a sector which is somewhat unimpacted by the tariff situation or global slowdown, and so that is a secular growth story. Valuations are a bit on the topish side, but nonetheless growth is very strong. So, we like the hospital space. ADVERTISEMENT Hotels, airlines are the other sectors we like. Again, more domestic-focused, less impacted by what is going on globally or with tariffs. In telecom, frankly, there is just one play, Bharti Airtel, and we like that one as well. We also like some of the leading NBFCs where the decline in funding costs should basically help them and the credit cost impact may not be as much. So, we like some of the NBFCs. We do not think private banks will outperform from an earnings perspective but valuations have come off. A lot of these stocks have come down sharply and in the context of the overall market, these stocks are looking relatively more attractive. The Nifty is trading at 21 times. So, we have to look for not just where earnings are very strong like the EMS companies that you pointed out. They have very strong earnings growth, but valuations are off the charts. These stocks are trading at 60 to 80 times one year forward earnings. We like the businesses but not the stocks and which is why we would rather be in businesses which are not doing as well like the banks but where valuations are a lot more attractive. ADVERTISEMENT (You can now subscribe to our ETMarkets WhatsApp channel)
Mint
16-06-2025
- Business
- Mint
Escalation in Middle East may drive correction in overvalued Indian stocks, says Kotak's Gupta
An escalation of hostilities in the Middle East makes India vulnerable to oil price shocks and could result in a correction in stock prices, which already seem overvalued based on earnings estimates for the current fiscal, according to Pratik Gupta, chief executive officer and co-head of Kotak Institutional Equities. Gupta said this could cap market upside over the next few months but expects earnings to pick up in the second half of the current fiscal. Foreign portfolio investors acknowledge India's strong macros and resilience of domestic flows, but await a correction to make large fresh investments, he said. Edited excerpts: We expect net profits of the Nifty 50 Index to grow 12% in FY26 and 15% in FY27, following a modest 6.4% growth in FY25. Diversified financials, metals & mining, oil, gas & consumable fuels and telecom will provide the bulk of the incremental profits for FY26 of the Nifty 50 Index. The sector-wise trends for the broader Kotak coverage universe of almost 300 companies are very similar to the sector-wise trends for the Nifty 50 Index. We estimate that the metals & mining sector will account for 22% and 16% of the incremental profits of FY26 of the Nifty 50 Index and KIE coverage universe, respectively. Also read | Indian markets entering phase of subdued returns, says ICICI Pru AMC's Shah We could have said that the worst is behind us if it weren't for the latest conflict between Israel and Iran, which has the potential to escalate and result in a further spike in global crude oil prices. However, if this conflict doesn't escalate, India's macroeconomic outlook is very strong and corporate earnings should pick up in 2HFY26. Nonetheless, the Nifty is not cheap as it is still trading at 22x FY26 earnings, which is expensive relative to its own history as well as in relation to local bonds or other emerging markets. Hence, it is a bit unrealistic to expect meaningful upside to markets in the next few months, although the long-term India equities' story still remains attractive. Overall, lower interest rates will help, but that alone cannot spur corporate loan growth. Many corporates are holding back on large capex plans due to the weak demand environment, high competitive intensity, low capacity utilisation and/or global trade uncertainty. While the government cannot do much about global factors, there needs to be a fresh push for economic reforms like deregulating and improving ease of doing business (especially for SMEs), land and labour reforms, accelerating government capex on infrastructure, etc. For now, it appears that any strong growth in private sector capex is still some time away. In general, given the risks of a slowing global economy, we would prefer domestic plays versus export-oriented plays. Also, most large caps offer better risk-reward vs small/mid-caps at current valuations. In terms of sectors, we like banks, NBCFs (non-bank financial companies), life insurance, telecom, hotels, and real estate. We would avoid the consumer staples, IT services, oil marketing PSUs, chemicals, and the metals sector in general. Foreign investors have been cautious on India due to our high headline valuations (vs other emerging markets). However, they have been very surprised by the resilience of domestic flows and how Indian markets have managed to sustain high valuations despite weak earnings growth in FY25. FPIs acknowledge the strong medium-term growth prospects for India and the strong macroeconomic position of the country, especially relative to its peers, but they're largely staying away due to our relatively expensive valuations. Most FPIs are awaiting a correction in India to make large fresh investments. It's also worth noting that most FPIs invest in India from their global EM (emerging market) fund allocations, and such funds have not seen meaningful inflows this year as yet. This may change as and when money flows out of the US–possibly due to concerns over a weakening US dollar–and at that time, one may see EM funds getting strong inflows. India would also then get its fair share of strong FPI flows. Also read | If this market veteran had ₹100 now, 70% wouldn't go to equity While there have been many large transactions in the last 4-5 weeks involving the sale of shares by promoters/PE funds, this is not necessarily a negative sign across the board. In many such exits, there were company-specific reasons where the promoters needed to raise cash for some other reason, and it wasn't a reflection on the business or stock price prospects. A sale by a promoter or a PE who is typically better informed about their company's prospects may raise investor concerns, but there have been numerous instances over the years where investors have made money by buying from promoter or PE stake sales. Also, the quantum of such block deals recently (about ₹65,000 crore in the past one month) may seem like a big amount in absolute terms, but it's still small relative to our India market cap of about ₹450 lakh crore. The IPO pipeline is strong as there are many promoters or private equity funds who are looking to monetize a part of their stake given good valuations they can expect in the current environment, and/or companies need fresh equity capital to fund their growth plans. Retail investors should be very careful with any IPO, not just those priced at high multiples. Such companies don't have a public track record of profitability or of their ability to manage tough business downturns. Investing in IPOs requires a sophisticated understanding and analysis of the industry, the company and its management, which most retail investors are typically ill-equipped for. Investing in an IPO just because it is perceived to be "hot" or is trading at a premium in the grey market is a common mistake made by many retail investors. It doesn't mean that one can't make money from IPOs, as many good companies have made money for their IPO investors, and some good businesses will go public this year, too. It's just that the ordinary retail investor should be more careful and get professional advice before investing in IPOs. Also read | 'Slowing earnings growth fails to dent India's image as equity haven' For global emerging market funds, China is certainly back on the radar given that a trade deal with the U.S. is now almost finalized, given how attractive valuations are there vs those in other countries, and given that most global funds are still neutral-to-underweight China. India is seen as a very good market to invest in the long term, but EM investors have not been too keen on investing at current valuations with earnings growth that is still not showing any signs of acceleration. Given the uncertainty over Trump's economic policies, the high fiscal and current account deficits in the U.S., and the risk of a weakening dollar, some global funds have been incrementally moving money to other regions such as Europe, Japan and Asia.
