US-Iran Tensions Prompt Adjustments in Kotak Equities' Model Portfolio

Indian Market Outlook: Elevated Valuations and Rising Apprehensions

The Indian market is facing challenges with elevated valuations and rising apprehensions regarding the possible impact of AI on IT services exports and consumption, according to a report by Kotak Institutional Equities. The brokerage firm expects the sharp rise in tensions between Iran and the US, worries about a broader conflict in the Middle East, and increasing crude oil prices to further stifle investment sentiment for India.

Macroeconomic Impact

An increase of $10 per barrel in crude oil prices, along with a corresponding rise in gas prices, would result in an additional $22 billion to India's current account deficit (0.55%). The brokerage emphasized that this could have a significant impact on the country's economy.

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Market Valuations

The Nifty 50 Index is currently priced at 20 times the estimated earnings per share (EPS) for FY2027 and 17.4 times the estimated EPS for FY2028. Kotak predicts that the net profits of the Nifty 50 Index will increase by 16% in FY2027 and by 15% in FY2028.

Model Portfolio

Kotak has made several modifications to its Model portfolio, including the addition of Groww with a weight of 150 bps and Swiggy with a weight of 150 bps. The brokerage has eliminated Max Healthcare (160 bps) and Pidilite Industries (170 bps). Additionally, there have been some minor adjustments to the suggested model portfolio.

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Stock Picks

• Groww: The brokerage views the company's significant standing in the capital markets sector favourably, anticipating strong growth in its upcoming businesses such as cash trading and wealth management. The stock is trading at 37X 12-month forward EPS and offers 18% potential upside to the 12-month FV of ₹190.
• Swiggy: The brokerage highlighted that Swiggy's stock valuation does not incorporate any worth for the quick commerce segment. Despite concerns about increased competition and the emergence of AI-driven food delivery applications, the brokerage believes that factors such as capital, execution, logistics, and technology serve as solid barriers in the food delivery sector.

Weightage Adjustments

• Central Bank of India: Decreased weight from 90 bps to 130 bps
• State Bank of India (SBI): Decreased weight from 100 bps to 75 bps
• Sundaram Home Finance: Decreased weight from 50 bps to 150 bps
• Bharti Airtel: Increased weight to 510 bps
• Bajaj Finance: Increased weight to 330 bps
• Interglobe Aviation (IndiGo): Increased weight to 250 bps