'Tariff Uncertainties Loom; Q4 Not Looking Strong': Kotak’s Sanjeev Prasad Cautious On Markets

The uncertainties over the US tariffs still may have some impact on the stock markets, though the worst phase is over and the optimism should be assessed with caution, Sanjeev Prasad, MD and Co-Head of Kotak Institutional Equities, has suggested.

While the worst of trade tensions may have ended, uncertainties remain over Trump tariffs that are likely to impact markets more than expected, Prasad cautioned. He also predicted that the market optimism could be premature, as elevated valuations and subdued earnings pose challenges despite external shocks appearing to ease to some extent.

Speaking to NDTV Profit, Prasad said, “I hope the worst is over. On the trade front, the situation is currently on hold, but by July 9, we should have more clarity with the US and other countries…. I don't quite understand the market's excitement, assuming that most tariff-related issues are behind this is clearly not the case. Hopefully, the situation won’t be as bad as what we saw on April 2, but tariffs are likely to be higher.”

He further challenged the prevailing market sentiment, noting that the valuations have been quite high for several months now. “Even in sectors where we see some value, such as banks, NBFCs, and telecom, most are trading at near full valuations. Other parts of the market, including consumer stocks, are extremely expensive, and industrial stocks are similarly overpriced,” he emphasised.

According to Prasad, historical numbers don’t indicate a broad-based earnings recovery. "The real beat has come from oil marketing companies (OMCs), which reported significantly stronger refining margins. These margins tend to fluctuate and are hard to rely on consistently. Outside of these few exceptions, there’s not much excitement across most sectors or companies,” he explained.

In his view, the overall earnings landscape remains muted, which sets the context that the valuations are expensive.

“On one hand, we have a decent macro backdrop, which will hopefully translate into some earnings growth as we move forward. But on the other hand, we face the harsh reality of a very uncertain global environment,” he said.

Warning investors against relying on historical trends, he suggested, “I think people have forgotten the fundamentals of valuation. They’re simply leaning on historical multiples, but back then, these companies were growing much faster. Today, those growth numbers are nowhere close. That’s the real challenge.

Prasad emphasised that for him to turn constructive on the Indian markets, either value must emerge through a correction (price or time) or earnings growth must significantly surprise on the upside.

While the low base from Q1 and Q2 of FY25 may result in some optical earnings growth in the first half of FY26, there’s no evidence of a meaningful recovery in underlying economic or sectoral indicators, he said.