Kotak Alternate Asset Managers sees Nifty50 scaling up to 24,600 a year from now, its Chief Investment Strategist, Jitendra Gohil has said.
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To arrive at this target, it has pencilled in a 20 price earnings multiple on a Nifty EPS of 1230 for year ended March, 2026.
Kotak Alternate Asset Managers, has noted the existence of froth in the small and mid-cap space, and hence recommended to investors to apply caution with careful evaluation of fundamentals before investing in this space.
Asserting that there is a high probability of the NDA forming the government with the BJP getting the full majority in general elections 2024, Kotak Alternate, has maintained a constructive stance on equities ahead of the general election results on June 4.
“Our investment committee decided to maintain a neutral stance on equities i.e. to stay invested inline with asset allocation”, Gohil said in a note to investors, ahead of exit poll announcements on June 1.
Elections will be over on June 1, and the market will react to exit polls on June 3 (Monday). “We note that in the past two elections, the BJP got significantly higher seats compared to poll predictions”, he said.
Gohil noted that it is true that anti incumbency, concerns over formal job creation, the perception of hardline hindutva ideology, and allegations of misusing government agencies like ED, CBI etc., may negatively play on the voters mind. However, more support from the women’s voter base, excellent handling of the economy in difficult times with good control over inflation and rupee, assertive foreign policies, and above all, weakened opposition, should outweigh the reduction in vote-share, in our view, he added.
“In our view, +/- 10-20 seats for the BJP compared to the previous seat count of 303, should not make much of a diffence to the market trajectory.
Investors are looking for a stable government, with continuation of policies. Hence, full majority for the BJP will be BAU (Business as usual) for the market, in our view”, Gohil said.
What if the BJP gets less than the full majority mark, and forms a coalition government with NDA partners?
“In this scenario, the market may correct 5-10 per cent, in our view. However, in the medium term, it won’t make much of a difference, and the market may recover. However, in case NDA fails to form the government – probability is thin, though- the market may fall 20 per cent + and will take time to fully recover”, he said.
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This unexpected outcome may trigger a major sell off in PSUs, capital goods, manufacturing (especially PLI scheme related sectors), defence related stocks; but the IT and FMCG sectors, may see buying interest, Gohil said.
“While in the long run, it is difficult to predict the policy shifts between governments, we believe the previous 10 years of reforms, will be difficult to reverse.
Nevertheless, it is prudent to diversify portfolios, and reduce risks ahead of the election results, as the upside could be limited but downside (although the probability of the NDA losing is thin) could be more than 20 per cent”, he said.
In case of a weaker mandate or NDA losing, the INR could also come under pressure, hence, would like to reiterate Kotak’s positive stance on gold as well, he added.
Apart from election related uncertainty, the market will keenly watch further strengthening of the Indian economy, according to Gohil.
“We continue to believe the consensus is still underestimating India’s growth potential, and there could be more upward revisions to growth numbers. Tax collections have surprised on the upside meaningfully, and CAD is well under control. Bond yields, and the INR, has remained remarkably stable, reducing country risk premium for India.
Rural is recovering with FMCG sales in rural areas, now growing faster than urban. Two wheeler sales have recovered meaningfully, which confirms strength returning in the rural segment”, Gohil said.
This coupled with significant improvement in corporate balance sheet, and strong banking fundamentals should help India to command premium valuations, he said.
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Kotak Alternate Advisors, is of the view that valuation in the Indian market, may remain elevated in with strong support from domestic flows.