Expert view on Indian stock market: Shrikant Chouhan, the head of equity research at Kotak Securities, says weak earnings and US tariffs are weighing on the market. He also sees a mismatch between valuations and earnings growth. In an interview with Mint, Chouhan shared his views on the current market trajectory, sectors he is positive about, proposed government reforms, and the factors that can push the Sensex to the 1,00,000 mark. Here are edited excerpts of the interview:
What are the key factors behind the current correction in the market?
The markets have been experiencing a downtrend due to the ongoing weak performance of Indian corporates over the last four quarters. This quarter, the results were similarly muted.
It is important to remember that valuations are closely tied to earnings, and that’s where we have fallen short.
Additionally, reciprocal tariffs are putting extra pressure on the Indian markets, with negotiations still pending.
The impact is especially noticeable in labour-intensive sectors such as textiles, gems and jewellery.
This situation is affecting our currency, which is on a weakening trend and is currently valued at 87.55.
Is the current market valuation unsustainable? Have weak earnings created a valuation and growth mismatch?
Of course, there is a mismatch between valuations and earnings growth.
Currently, we are at 19 times the FY27 earnings, which is on the expensive side.
Earnings could improve by Q3FY26 due to the previous quarter’s low base, the festival season’s effect, the good monsoon, and the rationalisation of GST rates.
However, we must remember that the market often discounts many factors well in advance. We should remain cautiously optimistic in this situation.
Do you see any structural weaknesses in the Indian economy?
No. We are in the midst of a strong structural growth phase, and by 2027–2028, we anticipate the market reaching robust levels, underpinned by a significantly expanding and dynamic economy.
What could reinvigorate the Bulls? Is it time for the government to introduce some reforms because regular policy measures are not charging the Bulls up?
On Independence Day, Prime Minister Narendra Modi announced a series of forward-looking GST reforms aimed at supporting consumption, built on three key pillars: (1) structural reforms, (2) rate rationalisation, and (3) ease of living.
According to unconfirmed media reports, the government is considering a simplified two-rate GST structure—5 per cent and 18 per cent—with goods currently taxed at 12 per cent and 28 per cent likely to be redistributed into the new slabs.
This rationalisation is expected to benefit mass consumption and aspirational goods, potentially leading to rate reductions in sectors such as automobiles, cement, consumer durables, and staples.
While the full benefit pass-through may be staggered or incomplete depending on company-level strategies, the overall impact could translate into an estimated economic boost of around ₹2.4 lakh crore.
However, the cement sector may see more limited benefits due to low price elasticity and the relatively small share of cement costs in real estate pricing, where land costs dominate.
Beyond taxation, PM Modi also emphasised the government’s commitment to strategic self-reliance, with bold initiatives including:
(i) Indigenous manufacturing of jet engines and semiconductor chips under the Make in India mission.
(ii) The launch of Mission Sudarshan Chakra Kawach.
(iii) The announcement of National Deep-water Exploration.
(iv) The introduction of next-generation reforms across key sectors.
(v) Continued efforts to build a resilient defence ecosystem.
We believe these reforms, along with a monetary policy stance that remains supportive of managing inflationary expectations, should act as strong tailwinds for markets.
These measures reinforce the structural growth narrative and are likely to help sustain bullish momentum in the medium term.
What should be our equity investment strategy for the next one to two years?
The current environment calls for a strategic and disciplined investment approach, focused on the long term. Investors should maintain a minimum horizon of two to three years, aligning expectations with the evolving market dynamics.
While the past three years delivered exceptional returns, it’s important to recognise that such performance may not be repeated soon. Moderating return expectations is essential as markets transition into a more normalised growth phase.
A diversified portfolio is essential. Investors should look beyond single-product strategies and prudently use the wide array of instruments available, such as SIPs, mutual funds, alternative investment funds (AIFs), and ETFs.
These tools offer different risk-return profiles and can help optimise their portfolio performance.
And asset allocation remains non-negotiable. A well-balanced portfolio across asset classes is fundamental to managing risk and navigating volatility effectively.
In essence, the strategy is clear: stay invested, stay diversified, and stay patient.
What are the sectors that can potentially generate alpha in the next one year?
We are optimistic about sectors primarily related to BFSI, healthcare, hospitality, and capital markets for the next 12 to 18 months. We believe these sectors can generate alpha over the coming year.
When do you see the Sensex hitting the magical 1 lakh mark? What factors will have to come into play for this to happen?
We believe the Sensex has the potential to cross the symbolic 1,00,000 mark within the next 12 to 24 months, provided global macroeconomic conditions continue to support it.
In the short term, domestic earnings are expected to remain stable without significant revisions.
However, the government has taken proactive fiscal steps, including a GST rate cut ahead of Diwali, which could aid consumption. The extent of the benefit will depend on the pass-through to end consumers.
On the monetary side, the RBI has taken decisive actions, including a 100-basis-point repo rate cut and a CRR reduction starting September, to infuse liquidity and support growth.
From a macroeconomic standpoint, India remains on a solid footing, with key indicators such as inflation, current account, and fiscal metrics under control.
However, market valuations are stretched, with the index trading at around 19 times FY27 earnings (one-year forward), which calls for moderated return expectations in the near term.
For the market to scale the 1 lakh mark, we would need supportive global liquidity conditions. This could be triggered by:
(i) A decline in the US dollar index (DXY).
(ii) A drop in the US 10-year bond yield.
(iii) A possible—though currently low-probability—aggressive rate cut by the US Federal Reserve.
Should such a global scenario unfold, it would likely lead to strengthening of the Indian rupee and a renewed inflow of foreign capital, providing the external support needed for the next leg of the rally.
Domestically, we anticipate that corporate earnings could see a meaningful revival by Q3FY26, which would further reinforce investor confidence and drive the next upward move in the markets.
In summary, while valuations suggest a degree of caution, a combination of global tailwinds and domestic earnings revival could help the Sensex breach the historic 1 lakh mark in the next 12 to 24 months.
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Disclaimer: This story is for educational purposes only. 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.
