However, elevated valuations in parts of the market and uncertainty around the IT sector remain key concerns, he said.
Prasad said the first-quarter earnings expectations have remained stable over the past several months. He added that the brokerage expects 14% earnings growth next year, supported by a recovery in banks as net interest margin (NIM) pressure eases.
He said the earnings outlook has improved as economic activity remains resilient despite macro uncertainties linked to West Asia and crude oil prices. According to him, consumption and investment indicators continue to hold up, while higher commodity prices are supporting sectors such as metals, mining, and oil & gas. “At least the earnings outlook is looking a lot healthier,” he said.
Despite the stronger earnings outlook, Prasad cautioned that valuations have become stretched, particularly in midcap and smallcap stocks after their recent rally. He said investors should avoid focusing on marketcap classifications and instead evaluate businesses on sector fundamentals and valuations.
Prasad maintained a negative stance on information technology stocks and said Kotak remains in the avoid camp. He argued that historical valuation multiples are becoming less relevant as artificial intelligence (AI) reshapes the industry.
He also warned that slowing growth could put pressure on profit margins, adding that the market is completely ignoring that risk.
Looking at long-term investment themes, Prasad remains constructive on India’s discretionary consumption story and domestic manufacturing. He believes sectors linked to healthcare, hospitality, travel, retail, financial services, capital goods, defence, electronics, electricity and CDMOs stand to benefit from India’s economic growth over the next decade.
However, he stressed that valuations must remain the key filter before investing.
For the full interview, watch the accompanying video
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