Market Outlook Amid Geopolitical Uncertainty
Shibani Kurian, Senior Fund Manager and Head of Equity Research at Kotak Mahindra AMC, has signaled that investors should brace for continued market volatility due to ongoing geopolitical tensions in the Middle East and rising global crude oil prices. Speaking to ET Now, Kurian emphasized that while the broader economic environment remains difficult to maneuver, Kotak AMC is maintaining a strategy rooted in bottom-up, stock-specific selection, prioritizing companies with clear growth visibility and strong domestic structural drivers.
Contextualizing Current Market Valuations
The current market landscape is characterized by a Nifty index trading slightly below its long-term average multiples, suggesting that some value persists despite recent turbulence. While headline earnings growth for Q4 FY26 remained in the mid-single digits, the underlying resilience of the broader market has encouraged fund managers to maintain a tilt toward large-cap stocks and select mid-cap opportunities. Experts note that while mid-cap valuations appear elevated at a headline level, they continue to offer potential for investors willing to perform granular, stock-specific analysis.
Sectoral Winners and Watch-List Areas
Kotak AMC has identified specific sectors—namely banking, healthcare, industrials, and metals—as the primary drivers for earnings in the coming year. Financials, particularly large private banks, are viewed with a constructive outlook due to broad-based loan growth, stable margins, and improved deposit market shares. Despite recent underperformance, the sector is supported by robust credit cost management and substantial contingency buffers, making them attractive as valuations hover below long-term averages.
Conversely, the industrial sector remains a strategic focus due to the ongoing domestic capital expenditure cycle, though analysts warn that valuations in this space are inconsistent and require a disciplined, selective approach. Meanwhile, sectors heavily reliant on imported inputs, such as automobiles and oil-linked businesses, face immediate pressure as rising input costs threaten to compress profit margins in the short term.
The IT Sector: Navigating Structural Headwinds
The information technology sector continues to face significant challenges, with Kotak AMC maintaining a neutral to slightly underweight stance. Kurian pointed to two primary hurdles: weak discretionary spending by enterprise clients and the disruptive influence of artificial intelligence. While management commentary has yet to signal a meaningful recovery in demand, the firm remains skeptical of the narrative that AI will render IT services obsolete.
Instead, the industry is grappling with pricing pressures as clients increasingly demand productivity-linked cost benefits. Increased competitive intensity, exacerbated by the rapid adoption of AI tools, has begun to reflect in thinning margins across the sector. Consequently, analysts characterize IT stocks as a segment better suited for tactical trading rather than long-term structural bets in the current climate.
Implications for Future Earnings
Looking ahead, the market’s trajectory for FY27 hinges heavily on the duration of current geopolitical conflicts. While current estimates project mid-teen earnings growth, these forecasts are subject to downward revisions if global instability persists beyond the next two months. Investors should monitor the interplay between domestic demand cycles and global supply-side costs as the primary indicators for potential shifts in portfolio strategy throughout the remainder of the fiscal year.
