Kothari’s argument is fairly simple: when all three improve together, corporate earnings tend to follow.
“Whenever there is a trinity of credit, consumption, and capex, corporate earnings growth improves,” Kothari said in an interview with CNBC-TV18.
But the improvement in these three areas is not the only reason for his optimism. Kothari also believes some of the macro pressures that weighed on markets over the past year are beginning to ease, while valuations remain reasonable.
Here are the three factors behind his bullish view.
1. Credit growth has accelerated
The first change Kothari points to is credit.
Credit growth, which was running at around 9-10% last year, has now accelerated to nearly 18%, according to him.
For Kothari, that is an important shift because it shows that the credit cycle is gaining momentum after a period of relatively subdued growth.
He sees this improvement as part of a broader economic recovery rather than just a positive development for banks and financial companies.
The key, in his view, is that credit is improving at the same time as consumption and capex. That is what makes the current cycle different.
2. Consumption is beginning to recover
The second factor is consumption.
Kothari says consumers had remained under pressure for about four years after COVID. He is now seeing signs that this phase is changing, with several consumer companies reporting healthier numbers.
That is important for his market outlook because a sustained improvement in consumption can feed into corporate earnings.
More importantly, Kothari is not looking at consumption in isolation. He sees it improving alongside credit growth and capital expenditure.
That combination is what gives him confidence that the earnings cycle can strengthen.
3. Capex is picking up
The third part of Kothari’s argument is capital expenditure.
He points to the order intake reported by capital-goods companies, which he says has been reasonably good.
For investors, this is significant because a stronger capex cycle can have implications well beyond the companies actually undertaking the investment. Demand can also increase for the products and services needed to build and equip those projects.
Kothari is particularly positive on building materials, even though he remains cautious on real-estate developers.
He expects demand for products such as tiles, plywood, sanitaryware, wires and cables to remain strong over the next two to three years.
His reasoning is based on the large number of homes registered over the past four years. Those projects are now moving towards delivery, which should translate into demand for building materials.
“Those homes which got registered in the last four years are coming up for delivery starting from this year for the next three years,” he said.
Why does he think the worst is over?
The three factors explain much of Kothari’s bullishness, but there is another part to the story: the macro environment.
He points to a difficult period that began with the tariff war and US policy uncertainty in early 2025. This was followed by the US-Iran conflict, a spike in oil prices and supply-chain concerns.
Kothari believes the situation has now started to stabilise.
“So, I think the worst is probably over, and hopefully, things should improve from here,” he said.
If crude prices stabilise, he also expects foreign investor outflows to reduce. That, in turn, could provide another support to Indian equities.
Valuations are still reasonable
Kothari’s argument is not simply that the economy is improving.
He also believes valuations are still reasonable, even after the market’s recovery from its lows in March.
That combination — better credit growth, healthier consumption, improving capex and reasonable valuations — is why he sees the market broadly positive over the next six to 12 months.
His optimism, however, does not extend to every stock or every sector.
Kothari says his approach remains highly selective, particularly when looking at smaller companies and recent IPOs.
He prefers businesses that are either market leaders or operate in genuinely niche areas, but there is another condition: they must be scalable.
Scale matters, even in a niche business
Kothari says his rule of thumb is to look for businesses that can eventually generate net profits of ₹100 crore or more.
That, according to his calculations, would require roughly ₹125 crore of profit before tax, around ₹200 crore of EBITDA and at least ₹1,000 crore in revenue.
The reason is India’s highly fragmented market. There are thousands of small businesses across cities and towns, and simply operating in a niche does not necessarily give a company a durable competitive advantage.
Kothari is therefore looking for a combination of scale, a niche business and high return on capital employed.
That approach applies to healthcare as well as the broader IPO market.
Gold finance is attractive, but Kothari prefers diversification
Gold finance is another area Kothari finds interesting.
The opportunity is large, he says, because gold-backed lending is secured and therefore carries lower credit risk than unsecured lending.
Competition has increased as banks have entered the segment, which has pushed lending rates lower. But Kothari still expects gold-finance growth to remain significantly higher than overall credit growth in the country.
His preferred way to play the opportunity is not necessarily through a pure gold-finance lender.
Instead, he favours diversified financial institutions where gold finance is one of several businesses.
The reason is simple: if gold finance slows, other parts of the business can help cushion the impact.
Kothari also stresses the importance of lending discipline, particularly loan-to-value norms and keeping slippages under control.
The big global risk is still the US bond market
Kothari’s positive view on India comes with a clear global risk: the US bond market.
He believes the rise in US long-term yields is a warning sign for global investors. The issue, in his view, is no longer simply whether the US has too much debt, but how long it can continue to carry that debt.
“The market is no longer asking whether America has too much debt or not. It has started to ask how much longer it can afford it,” Kothari said.
In his view, this could signal the end of an era of cheap and unlimited borrowing, with US yields potentially staying higher for longer.
But he does not see the same problem in India at present.
India’s inflation and bond yields, Kothari says, are broadly in line with expectations. That means the global bond-market concerns do not necessarily translate into the same level of risk for Indian equities.
What does it mean for Indian investors?
Kothari’s bullish case rests on an economic cycle that is beginning to look more synchronised.
Credit is growing faster. Consumption is recovering. Capex is picking up.
If those three trends continue together, Kothari expects corporate earnings to improve and believes Indian equities can remain positive over the next six to 12 months.
But his message is not to buy everything.
His preference remains for businesses with scale, a strong competitive position, niche characteristics and high returns on capital. At the broader market level, however, he believes the difficult phase may be behind India.
That is the central reason for his more bullish stance: the three engines of the domestic economy are beginning to move in the same direction at the same time.
