4 days ago
Kotak Life Sees Moderate 2026 Returns Amid Valuation Risks
Hemant Kanawala thinks some parts of India’s stock market are reasonably priced, but many others are expensive.
He expects stocks to deliver moderate gains during the rest of 2026 if the West Asia conflict settles down.
In the short term, prices may move up and down because of important events.
A weak monsoon could make food more expensive.
Higher crude oil prices could also hurt India by raising inflation and other costs.
Company profits are expected to grow strongly in the next financial year.
Kanawala likes banks, financial companies, consumer businesses, factories, manufacturing, and telecom.
He says investors should not chase exciting AI-related stocks at very high prices and should invest gradually across different areas.
Hemant Kanawala of Kotak Life Insurance sees selective value in Indian equities, with the Nifty near 19.7 times estimated FY27 earnings.
He expects moderate positive returns for the rest of 2026 if the West Asia conflict normalises, though near-term trading may remain choppy.
Nifty earnings are expected to grow 17–18% in FY27 after muted growth in FY26, making earnings the likely driver of recovery.
Key risks include a prolonged conflict, crude oil above $100, a deficient monsoon, rich valuations, and heavy primary-market supply.
Kanawala favours financials, consumer discretionary, industrials, domestic manufacturing, and telecom, while advising caution on highly valued AI-related themes.
- Who
- Hemant Kanawala, senior executive vice president and head of equity at Kotak Life Insurance.
- What
- He expects selective value and moderate positive Indian equity-market returns for the remainder of 2026, while warning that valuations and other risks remain elevated.
- Where
- The Indian stock market, discussed in an interview with Mint.
- When
- The outlook covers the remainder of calendar 2026; the interview also cites July flows and FY27 earnings expectations.
- Why
- Expected earnings growth, resilient domestic demand, credit growth, and improving flows support the market, while the West Asia conflict, crude oil, monsoon conditions, and rich valuations pose risks.
Reasons for Caution
Reasons for Optimism
Market valuation
Reasons for Caution
Valuations remain full-to-rich in much of the market, particularly in consumption and investment stocks, leaving room for declines.
Reasons for Optimism
Aggregate valuations are considered reasonable because banks and IT services have become cheaper, with the Nifty near its long-term average.
Market outlook
Reasons for Caution
A prolonged West Asia conflict, crude above $100, a weak monsoon, inflation, and heavy IPO or shareholder selling could pressure markets.
Reasons for Optimism
Once the conflict normalises, improving earnings, resilient consumption, private investment, credit growth, and domestic retail flows could support moderate gains.
AI and emerging themes
Reasons for Caution
Narrative-driven AI-related stocks can become excessively expensive, and investors may be tempted to chase hype.
Reasons for Optimism
AI-related investment is supporting opportunities in data centres, power, capital goods, electronics, and digital infrastructure, including through Indian proxies.
Key facts
- Nifty valuation
- The Nifty trades near 19.7 times estimated FY27 earnings, around its long-term average.
- FY27 earnings growth
- Nifty earnings are expected to grow nearly 17–18% in FY27 after muted FY26 growth.
- Foreign equity flows
- Foreign investors were net sellers of nearly $25 billion in calendar year-to-date flows, according to Kanawala.
- Recent July flows
- Around $2 billion of equity inflows and nearly $9 billion of debt inflows were recorded in July.
- Conflict risk
- A prolonged West Asia conflict could push crude oil above $100, raise inflation toward 6%, and potentially prompt rate hikes.
- Preferred sectors
- Financials, consumer discretionary, industrials, domestic manufacturing, and telecom.
Sources
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