“Banks still remain our favourite area, both from a valuation perspective, as well as growth prospects,” Gupta said. He added that as economic activity improves, banks are likely to be among the biggest beneficiaries because they are leveraged to economic growth.
Foreign investors have shifted their attention to global technology and artificial intelligence (AI) opportunities, leaving India largely outside their immediate focus, according to Gupta.
Gupta said investor interest has moved toward semiconductor companies in Japan, Taiwan, China and Korea, while upcoming US technology listings such as SpaceX, OpenAI and Anthropic are also attracting capital. As a result, India is completely off the radar for many global investors.
Despite the weak foreign investor sentiment, Gupta believes policy measures announced by the Reserve Bank of India (RBI) and the government could improve capital flows and support the rupee over the coming months. He said the market should see fairly strong inflows over the next 12 to 18 months from FCNR deposits, external commercial borrowings (ECB) and potential bond index-related inflows.
Beyond banking, Gupta sees opportunities in telecom, domestic pharmaceutical companies and hotels. However, he is cautious on several segments of the small-cap and mid-cap market, particularly power equipment and transmission-related stocks.
While he acknowledged the long-term growth potential of these businesses, he said that valuations are expensive and added much of the positive outlook is already reflected in share prices. He also highlighted execution risks despite strong industry demand.
Gupta expects near-term challenges to continue for the information technology services companies. He said the June quarter and much of the financial year 2026-27 (FY27) could remain weak, with the possibility of further earnings downgrades.
However, he believes recent corrections have improved valuations. Many IT stocks have fallen between 30% and 50%, creating opportunities for investors with a longer investment horizon.
At the same time, he noted that AI adoption could create long-term opportunities for IT services companies as they help clients implement AI solutions.
Kotak Institutional Equities projects Nifty earnings growth of around 15% compounded annual growth rate (CAGR) across 2026-27 and the financial year 2027-28 (FY28), though Gupta cautioned that the estimates depend on oil prices, geopolitical developments and monsoon conditions. He said downside risks remain, and earnings growth could moderate to 11-12% if external conditions deteriorate.
He also expressed caution on government-led capital expenditure, citing pressure on both central and state finances. While sectors such as railways, defence and transmission continue to receive support, Gupta believes that stretched government finances could lead to delays in payments and longer working-capital cycles for contractors.
For the full interview, watch the accompanying video
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