Who will sell in this market? Look for IPOs, OFS & QIPs; Nifty EPS seen at Rs 1,160 in FY26: Nilesh Shah

Nilesh Shah, MD, Kotak AMC, says FY25 Nifty EPS is projected around Rs 1,050. It could reach Rs 1150-1160 in FY26 and cross Rs 1300 the following year. Earnings trajectory looks positive despite uneven sector performance. Consumption in urban India is likely to improve. India is well-supported by earnings and flows.

Shah further says global investors will realise how maturely India has responded and how it has put Pakistan in its place, and that should also result in some amount of lowering of geopolitical risk in Indian valuation, which means there is a chance that our valuation can get rerated.


Where do we go from here? Indian markets of late have underperformed global markets for the right reasons. There was nervousness because of geopolitical tensions. Now that they have eased out, can we catch up with the rest of the world?
Nilesh Shah: There is a reasonably good chance that we should be able to catch up on the underperformance. The March 25 quarterly earnings growths have come reasonably ahead of expectation. Now, one can argue good results come first, bad results come later, but so far so good.

Second, the geopolitical tension has been reduced significantly. If at all, global investors will realise how maturely India has responded and how it has put Pakistan in its place, and that should also result in some amount of lowering of geopolitical risk in Indian valuation, which means there is a chance that our valuation can get rerated.

Finally, the market needs flows to move and FPIs were buyers even when geopolitical risk was high. I am sure they would like to buy more when these risks are reduced. So, from a fundamental point of view, from a flow point of view, the Indian market is well supported and we should see some amount of catchup in the Indian market in the days to come.

One is the sentiment and second is the reality check which is earnings, valuations, and the scope of macro improvement. So, once the excitement about what is happening on the tariff front, what is happening on the border front gets adjusted, then what about the reality of the market which is centred around earnings and valuations? Where do we stand on that front?
Nilesh Shah: This quarter we should be having Nifty 50 EPS at anywhere between Rs 260 and Rs 275, and that should take us somewhere around 1050 Nifty EPS for FY25. In FY26, we could be somewhere around 1150, 1160 Nifty 50 EPS and year after that, we should be crossing somewhere around 1300. So, the earning trajectory looks quite reasonably solid.

There are sectors which are doing well. There are sectors which are not doing well. But overall, the earnings trajectory looks on the positive side. Undoubtedly, we have areas to cover, for example, private sector investment, but consumption which was a little bit on the subdued side in urban India, is likely to get supported. Overall, my feeling is that both from an earnings point of view as well as flow point of view India is well supported. Our valuation to a great extent discounts that growth and hence the returns will be moderate.

ICICI Bank, HDFC Bank, and BEL are some of the top holdings of Kotak. FIIs are back, DIIs are buying, HNI are feeling left out and retail is saying we should not cancel our SIPs. That means there’s no seller in the market?
Nilesh Shah: The selling will have to come from the IPOs and OFS and QIPs. There is a large lot of promoter lock-in that is getting expired or which will become free. My feeling is that at a price, sellers will emerge and at a price, buyers will emerge and that is how the market functions. Undoubtedly, from the flow point of view, institutional and retail investors are likely to be buyers and hence supply will come from the primary or secondary issuances from the promoters’ stable.

What do you make of the FIIs coming back? Is now the time for FIIs making a strong comeback and are they here to stay? While the markets were a little choppy and volatile, the FIIs did turn positive in the month gone by and in this month itself, the majority of their action is on the buying side.
Nilesh Shah: In March, we saw passive funds turning buyers. April was largely passive funds continuing to buy. There was one particular day when Rs 11,000 crore worth of FPI buying came, and that was primarily driven by passive flows. Active funds started buying in May and despite this geopolitical risk they continued to buy. My feeling is that FPIs will be buyers of Indian equity. Of course, they are here to make money. They will look at valuation. They will look at potential return trajectory. But my feeling is that ultimately, they will come back.

You have been bullish on IT. You were bullish on cement and consumers. Has that view changed after numbers and what is happening in the world?
Nilesh Shah: On IT, our call has not worked yet. We were probably a little ahead of getting into the IT sector. The commentary as well as the results are a little bit in line with market expectation or below market expectation. We think there is no downside in the IT sector right now because the dividend yield is between 2% to 3%.

But undoubtedly the upside is also missing right now as there is no clarity about the future. The confidence about future volume growth, future margin is not there and hence I do not see it sector outperforming the market in the near term. As an institutional investor, we have to catch a falling knife, otherwise we would not get the quantity I have to accumulate in this period of underperformance on cement.

Clearly, the March 25 quarter, thanks to government order and government spending on infrastructure, was quite a record quarter in terms of volume. We expect that focus to continue going forward. Consumer is one sector where we believe there is a reasonable highway. The Rs 1 lakh crore tax cuts given to taxpayers will be effective this year and thereafter. There is a potential petrol-diesel price cut as international crude prices have come down. There is also reduction in EMI burden as interest rates have come down by half a percent and it can come down by more and finally, somewhere in 2027, two years down the line, 8th Pay Commission will put money in the pockets of government employees.

Put together, the consumption sector, especially the consumer discretionary sector should benefit from income tax cuts, EMI burden reduction, potential petrol-diesel price cuts, and finally 8th Pay Commission recommendations.

Are banks looking slightly overbought because everyone is saying buy banks. By the way your top holdings are also banks.
Nilesh Shah: Our top holdings are banks because index is heavyweight towards the banking sector, but we are not overweight banking sector as a whole. We are overweight private banks, underweight public sector banks, and overall marginally underweight banking sector. Now, generally experiences have taught that consensus could go wrong and today as you very correctly mentioned banks was the favourite consensus and it has worked out also.

Going forward, it will be a stock-specific game. Banks which have a good liability franchise will do well and banks which have good credit culture will do well. Ultimately banking is a business where you try to earn two rupees or three rupees by putting Rs 100 at risk and hence getting it at the cheapest rate and lending it more securely is very critical. Banking is a business which tells us that return of principal is more important than return on principal.

The other thing that I wanted to understand was this whole debate that is going on that India will be a beneficiary of China plus one, what these global brokerages are highlighting that given the tariff tantrums and the likely implication on China's GDP, India could stand to benefit out of this. How do you read which sectors could be the key to watch out for.
Nilesh Shah: US and China are reaching out to some sort of agreement on trade that will help them reduce their deficit with China. Undoubtedly, China is the global manufacturing hub. Their speed of execution, their cost of manufacturing is very competitive and we have to learn a lot from them. In mobile phones, we have been able to create a viable mechanism. In generic medicines, we have been able to create a viable alternative. But we need to replicate this in many sectors. The most important thing for India to capture China plus one is to focus on ease of doing business. We have improved the ease of doing business to a great extent. We have built infrastructure, but we still have to increase the speed of execution.

We really need to empower our entrepreneurs as they are busy tackling opportunities rather than worrying about compliance and other regulatory burdens. So, we have an opportunity, but I cannot say that we have already captured it. We have a lot of work to do before we can become competitive to China. In our defence equipment, we have shown that we are second to none. Our missiles have shown that it can penetrate and it cannot be stopped by any other system in the world. So, clearly, there is capability, there is talent.

We need to create an ecosystem so that we can go and capture China plus one. The Indo-UK FTA does create opportunities for our ready-made government industry. It does create opportunities for our electricals and electronics industry. The US is a far bigger market than the UK and there will be many more opportunities depending upon how the FTA has been negotiated.