Expert view: Hemant Kanawala, senior executive vice president and head of equity at Kotak Life Insurance, sees selective value in the Indian stock market, as valuations remain full-to-rich across large parts of the market. In an interview with Mint, he expects moderate positive returns over the remainder of 2026 after the West Asia conflict normalises. In the near term, he expects the market to remain choppy and event- driven, with a weak monsoon and elevated crude oil prices as the key risks. Edited excerpts:
Do you see value in this market at this juncture? How do you expect the market to perform for the remainder of this calendar year?
Yes, there’s selective value. On an aggregate basis, valuations are reasonable – the Nifty trades near 19.7 times FY27E earnings, broadly its long-term average, helped by de-rating in banks and IT services.
But the picture is uneven: consumption and investment stocks remain full-to-rich, so value is concentrated rather than broad-based.
With much bad news priced in and earnings improving, we expect moderate positive returns over the remainder of the year once the West Asia conflict normalises.
The near-term path remains choppy and event- driven, with the monsoon and crude as the key risks.
What will drive the next phase of the market recovery?
The next leg will be earnings-led rather than valuation-driven. Corporate profits are set to grow strongly – Nifty earnings nearly 17-18% in FY27 after a muted FY26 – with recovery broadening across sectors, reducing the risk of large downgrades.
A durable end to the West Asia conflict and softer crude would ease inflation and support margins.
Domestically, resilient consumption (aided by tax and rate cuts), a gradual private capex revival, strong credit growth and improving external flows via FCNR and ECB measures provide support.
Steady domestic retail flows remain a structural anchor beneath the recovery.
What are some risks that investors should not overlook?
Several risks warrant caution. First, a prolonged West Asia conflict could push crude above $100, widening the current account deficit, stoking inflation toward 6%, and prompting rate hikes – a materially adverse scenario for the economy.
Second, a deficient monsoon could lift food inflation.
Third, valuations remain full-to-rich across large parts of the market, particularly in consumption and investment stocks, leaving room for derating.
Finally, elevated primary supply – IPOs, promoter and PE selling – could absorb liquidity.
Are foreign investors reassessing India amid changing global allocations?
Positioning is unusually light after an extended selling phase – foreigners were net sellers of nearly $25 billion calendar year till date, and a majority of emerging-market funds are underweight India, at – 0.2ppt versus benchmark, well below the 10-year average.
Flows have begun improving at the margin – roughly $2 billion of equity in July, alongside nearly $9 billion of debt inflows after tax and access reforms, aided by currency stability.
That said, a decisive reallocation likely needs global risk appetite to broaden beyond currently favoured tech-heavy markets, so India’s steady, low-beta growth reasserts its relative appeal. For now, it is a tactical reassessment building.
What sectors are you bullish on for the long term? What makes you bullish about them?
We favour financials – banks and NBFCs – supported by structural financialisation, strong credit growth, troughing margins and benign credit costs, with lenders having solid liability franchises well placed.
Consumer discretionary appeals on rising incomes, lower taxes and premiumisation.
Industrials and domestic manufacturing offer a multi-year opportunity as India builds capacity in electronics, speciality chemicals, defence, data centres and energy, backed by government incentives.
Telecom benefits from tariff-led ARPU gains. These themes tie into India’s durable drivers – demographics, formalisation and an emerging investment cycle – offering compounding earnings growth, though we remain mindful of entry valuations.
How should we approach emerging themes like deep tech and AI? How should retail investors invest in them?
These are powerful structural themes – AI is driving substantial investment in semiconductors, data centres, energy and digital infrastructure across the region.
India’s direct exposure is limited, but it is playing the theme through proxies – data centres, power and the capital-goods and electronics supply chain that feed AI-led infrastructure build-out.
The debate is already weighing on IT services multiples, even if medium-term earnings may hold. For retail investors, avoid chasing hype and steep valuations, since narrative-driven pockets can turn frothy.
A disciplined, diversified approach via SIPs and staggered investing best captures the opportunity while managing volatility.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
