Kotak AMC's Nilesh Shah: Market Focus Shifts to Resilience and Valuation

Earnings Pressure Mounts as Geopolitics and Supply Disruptions Weigh on Markets

Rising oil prices, supply disruptions, and geopolitical tensions are creating fresh pressure on corporate earnings and markets, according to Nilesh Shah, Managing Director at Kotak AMC. Despite near-term headwinds from the IT sector disruption, monsoon concerns, and limited RBI rate-cut capacity, Shah maintains a long-term conviction in India's growth story.

The current environment has multiple moving parts, including energy availability and disruptions in inputs like fertilizers and sulphur. These pressures, combined with global uncertainties, are affecting interest rates, the rupee, and equities. Corporate earnings are facing an adverse impact from energy shortages and pricing.

Steady inflows from retail investors continue to support markets, creating a positioning paradox. Fundamentally weakening corporate outlook is contrasted with longer-term growth conviction driven by consistent retail investor flows. The market is no longer broad-based, and investors should focus on resilience and valuation rather than making broad market bets.

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Shah's Key Recommendations

Shah suggests that there are opportunities in banking and financial services, supported by strong deposit franchises and steady credit behavior. He also notes that there are select ideas in cement despite operational issues, and in hospitals, where rising incomes and consolidation are supporting growth.

On the IT sector, Shah acknowledges that the impact of artificial intelligence cannot be ignored. However, he notes that Indian IT companies have navigated multiple transitions in the past and can adapt to the changing landscape. Companies that can offer cheaper, better, and faster solutions using AI will stand out.

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Shah also highlights concerns around El Niño, noting that its impact is likely to be felt in August-September, not June-July. He emphasizes the importance of rainfall distribution and the Indian Ocean Dipole in determining the monsoon's impact. Furthermore, he calls for better execution of reforms, noting that implementation on the ground often lags policy intent.

For investors, Shah advises using corrections to buy gradually and keeping return expectations moderate, with large- and mid-cap valuations near historical levels.