Kotak's Sanjeev Prasad sees value in largecap banks, ONGC and Bharti after market correction

Sanjeev Prasad, Managing Director and Co-Head of Kotak Institutional Equities, believes the recent correction has made several largecap sectors attractive despite near-term macro uncertainty.

He expects India's macro position to improve if crude oil prices ease and traffic through the Strait of Hormuz normalises over the coming months. At the same time, he does not expect a slowdown in AI spending to materially improve the outlook for Indian IT services companies.

Prasad said the market is navigating several short-term challenges, including oil prices, inflation and global bond yields. However, he believes the medium-term picture remains favourable if crude settles in the $70-$80 per barrel range.

"If you take a slightly more longer-term call... India is in a pretty strong position from a macro perspective."

According to Prasad, one of the biggest changes over the past few months has been the correction in largecap valuations. He said private banks, insurance companies, non-banking financial companies (NBFCs), telecom and several commodity names now trade at more reasonable valuations after years of underperformance.

He identified financials, including banks, insurance companies and NBFCs, among the sectors offering value. He also highlighted Oil and Natural Gas Corporation (ONGC), noting that the stock appears inexpensive despite higher crude prices, and said Bharti Airtel remains attractive based on its forward earnings valuation.

Consumer stocks have also become more reasonably priced after a sharp decline in valuation multiples. Prasad pointed to companies such as Dabur, Godrej Consumer Products and Hindustan Unilever, saying their earnings multiples have fallen significantly compared with previous years.

However, he maintained a cautious stance on midcap stocks, saying many have rallied sharply over the past six months, with some gains driven more by market narratives than business fundamentals.

AI slowdown unlikely to revive IT services

Prasad questioned the market's assumption that a moderation in AI investments would automatically benefit Indian IT services firms.

"Just because there is so-called or purported slowdown in AI spending, does it mean that suddenly the environment for the Indian IT services companies gets better? I don't know."

He argued that global technology budgets remain under pressure as economic growth slows, limiting discretionary spending by clients. According to him, slower revenue growth could intensify competition among IT vendors, putting pressure on industry margins over the next few years.

"I suspect margins... are going down in a more competitive environment."

Q2 earnings likely to remain strong

Looking ahead to the September quarter earnings season, Prasad expects results to broadly mirror the April-June 2026 quarter, aided by a favourable year-on-year base.

He expects strong earnings across automobiles, supported by robust July and August sales volumes, while consumer staples should continue to benefit from improving demand. Commodity companies are also likely to report healthy performance because prices remain higher than year-ago levels.

Prasad said he does not currently see significant risks to consensus earnings growth estimates unless there is a sharp global slowdown or a sustained surge in crude oil prices that forces aggressive monetary tightening.

Preference for large caps over expensive themes

While acknowledging long-term opportunities in themes such as precision engineering and domestic manufacturing, Prasad cautioned that valuations have become stretched.

He also warned that the wires and cables industry could face margin pressure as new capacity comes on stream over the next few years, potentially leading to overcapacity.

According to Prasad, investors should remain selective, focusing on businesses where valuations adequately reflect growth prospects rather than paying premium multiples across an entire company because of a small high-growth business segment.

For the full interview, watch the accompanying video

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