The Indian market has been facing challenges with elevated valuations and rising apprehensions regarding the possible impact of AI on IT services exports and consumption, according to a report by Kotak Institutional Equities.
The sharp rise in tensions between Iran and the US, worries about a broader conflict in the Middle East, and increasing crude oil prices are expected to further stifle investment sentiment for India, as per the brokerage firm.
An increase of US$10 per barrel in crude oil prices, along with a corresponding rise in gas prices, would result in an additional US$22 billion to India’s current account deficit (0.55%), the brokerage emphasized.
The Nifty 50 Index is currently priced at 20 times the estimated earnings per share (EPS) for FY2027 and 17.4 times the estimated EPS for FY2028. Kotak predicts that the net profits of the Nifty 50 Index will increase by 16% in FY2027 and by 15% in FY2028.
Model portfolio
In its strategy report, the brokerage emphasized its Model portfolio, noting several modifications. Kotak has included Groww with a weight of 150 bps and Swiggy with a weight of 150 bps, while the brokerage has eliminated Max Healthcare (160 bps) and Pidilite Industries (170 bps). Additionally, there have been some other minor adjustments to the suggested model portfolio.
The domestic brokerage firm stated that it views Groww’s significant standing in the capital markets sector favourably. The company is strategically placed to take advantage of the expansion of the Indian capital market, despite temporary fluctuations in trading volumes associated with market sentiment and regulatory changes. The brokerage anticipates a phase of regulatory consistency in futures and options following a time of regulatory restraint aimed at minimizing retail involvement in options.
“Groww will likely see strong growth in its upcoming businesses such as cash trading and wealth management. The stock is trading at 37X 12-month forward EPS and offers 18% potential upside to our 12-month FV of Rs190,” said the brokerage.
Additionally, the domestic brokerage firm indicated that Swiggy’s shares have declined by 28% over the last three months due to worries about increased competition in the quick commerce (QC) sector in the near term and doubts regarding the sustainability of food delivery (FD) companies’ business models in the medium term, particularly with the possible emergence of AI-driven FD applications that could eliminate or lessen commissions for FD companies.
The brokerage highlighted that Swiggy’s stock valuation does not incorporate any worth for the quick commerce segment, and we believe that factors such as capital, execution, logistics, and technology serve as solid barriers in the FD sector, suggesting that fears regarding the disruption of the FD business are considerably exaggerated.
“We would note that it is not very difficult to build an FD app (AI-enabled or otherwise) and the FD business could and should have been disrupted by more FD apps if price availability was the only criterion. Our 12-month FV for SWIGGY is ₹415 and we estimate the Fair Value of the FD business at around ₹300,” said the brokerage.
The brokerage has decreased its weight on Central Bank of India from 90 basis points to 130 basis points, on State Bank of India (SBI) from 100 basis points to 750 basis points, and on Sundaram Home Finance from 50 basis points to 150 basis points. They have allocated an increase of 100 basis points to Bharti Airtel, bringing it to 510 basis points, 90 basis points to Bajaj Finance, now at 330 basis points, and 80 basis points to Interglobe Aviation (IndiGo), which stands at 250 basis points currently.
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