The markets are taking a breather this week with the Nifty and Sensex trading in a tight range after the big cuts earlier in February. While some brokerage houses like Nomura have given a Nifty December target of 26,000 Kotak Institutional Equities expect the Index to remain rangebound this year. They do not expect any “meaningful upside to the Nifty in the short-term either.” Moreover, they believe that FIIs continue to worry about strong dollar and capital gains tax.
According to Pratik Gupta of Kotak Institutional Equities, the Nifty “is still somewhat expensive trading at 19x March 2026 P/E, which is significantly higher than historical averages and still at about a 90% premium to the MSCI EM Index. This is especially high considering earnings CAGR of 14% in FY26 and FY27, with downside risks to such estimates.”
Kotak on Nifty: No meaningful upside seen
Pratik Gupta explains that though a meaningful upside is unlikely, “the downside to the Nifty is protected by India’s strong medium-term growth prospects which should keep valuations elevated, and a likely better foreign and domestic liquidity environment in H2FY26.”
According to him, the “key downside risks include a sharper-than-expected global slowdown, or a bad monsoon that can adversely impact farm incomes, food inflation and construction activity, or a sharp slowdown in domestic retail inflows into equities, especially into small/mid-cap funds.” However, it’s not all gloom and doom. “A weaker US dollar that may drive flows into emerging market (EM) funds, and a quicker-than-expected private capex upcycle,” is a key upside risk as per Kotak Institutional Equities.
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Kotak had raised the red flag on midcaps and small caps earlier this month calling for a sharper correction due to valuation concerns. Even on a flat session like today, the broader market sees deeper cuts. The BSE Smallcap Index is down over 2% while the BSE Midcap is down over 1%. Gupta stated that they “remain cautious on the outlook for small/mid-caps in general due to expensive valuations in many cases. We have been negative for a while and despite the 13% YTD correction in the NIFTY MidCap Index and 18% YTD correction in NIFTY SmallCap Index.
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