Banks To Telecom, Valuation Across Sectors 'Expensive', Says Kotak's Sanjeev Prasad

Amid the current market volatility, Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities, has expressed serious caution around current equity market valuations, highlighting an unfavourable risk-reward scenario.

Valuations across most sectors are described as “supremely expensive”, Prasad told NDTV Profit. Cement stocks are trading at P/E ratios between 35x and 70x — levels which Prasad finds unjustifiable given weak and historically overestimated earnings growth.

Similarly, consumer staples are trading above 45x P/E despite delivering low single-digit revenue growth and stagnant profitability, far removed from their stronger past performance. Prasad believes the market is clinging to historical valuation multiples without recognising the significant deceleration in growth.

Even traditionally more reasonably valued sectors such as banking, telecom, and pharmaceuticals — which had been “hiding places” — have now seen significant price increases.

Stocks like Bharti Airtel Ltd. are trading at 35–37x forward earnings, even after assuming a large tariff hike, which makes identifying value increasingly difficult.

The overall market, according to Prasad, now requires either a price correction or prolonged time correction to bring valuations back to rational levels. Drawing a parallel with consumer behaviour, Prasad said just as one wouldn’t buy a product at an unreasonable price in a shop, investors shouldn't feel compelled to buy overvalued stocks.

He also warned that some market participants were ignoring valuation metrics and promoting a narrative that lacked grounding in actual fundamentals.

From a fundamental standpoint, earnings for fourth quarter have also not provided much cheer. Nifty 50 EBITDA growth stood at 9.4%, about 0.7% below Kotak’s expectations, with most outperformance driven by isolated cases like State Bank of India and oil marketing companies.

Broader earnings growth was flat when OMCs were excluded, suggesting widespread weakness. April’s auto sales also disappointed, and high-frequency macro indicators do not reflect a rebound, he added.

Kotak is modelling 10% earnings growth for Nifty 50 in financial year 2026, but even that fails to justify current prices, he said. There is no strong evidence yet of a broad-based earnings surprise that could support stretched valuations.