FII Selling In Indian Equities To Persist As Valuations Expensive: Kotak Equities

Selling by foreign institutional investors in Indian equities will continue in the near-term, as they still find valuations expensive, said Kotak Institutional Equities Chief Executive Officer and Co-Head Pratik Gupta.

While FII selling may continue in the near-term, foreign investors structurally find value in Indian stocks in the medium-term, according to the brokerage.

This has come on the back of lower earnings expectations, amid an overall slowdown in the economy. While emerging market funds globally are facing redemption pressures, Gupta said that domestic mutual fund houses are driving change among investors, to stick to Indian equities, despite negative returns on one year portfolios.

Kotak Institutional Equities remain cautiously positive on large cap stocks and continue to see further correction in mid and small cap stocks, albeit at a slower pace.

This has come as the nature of mutual fund inflows have shifted towards large cap stocks from mid and small caps. It expects more earnings downgrades in the new financial year, as compared to earnings upgrades.

Given the slowdown expected in 2025-26 (Apr-Mar), the brokerage expects downside risks to corporate earnings and sees earnings growth of Nifty 50 companies at 14-15% on year.

Overall, the sense is that Indian corporates are growing at a subdued pace, with no major rebound in growth expected for fast moving consumer goods and infrastructure sector facing the brunt of a slowdown in government capital expenditure.

While the banking sector looks positive, given that concerns in unsecured and microfinance institutions loans have not spilled over to secured segments, keeping asset quality stable and growth for the sector remains flat.

Outlook for information technology services remains weak, but investors remain hopeful on the back of a pick up in the US economy and pharmaceutical companies are also not likely to see the full impact of US tariffs.

What investors are bullish on are the luxury items, hotel chains and airlines. Auto companies are also likely to do well on the back of premiumisation and expectations of a pick up in rural demand. However, there is still some weakness expected in passenger vehicles and two-wheeler sales.

The income tax rebate by the government during the Union Budget earlier this month is expected to boost consumption and lift lower ticket discretionary spending.

Banks are also expecting some amount of deposits from this move instead of funds flowing into equity markets, Gupta said.