The financial markets are currently navigating a pivotal moment. After experiencing a notable dip, there’s a surge in buying interest across select sectors, driven by stock valuations and solid fundamentals. Nilesh Shah, the Managing Director of Kotak Mahindra Asset Management Company, describes this market as being at a “fair value.” For investors eager to adapt to the evolving market landscape, Shah shares valuable insights on strategic trading approaches.

Market Valuation and Investment Strategy

Shah emphasizes that we are witnessing a market that is fairly priced, urging investors to align their equity allocations according to their risk appetite and investment goals. He notes that large-cap stocks are presently trading below their historical averages, while small and mid-cap stocks hover close to historical norms.

• Investment Focus: Prioritize large-cap investments.
• Cautious Approach: Hold off on small and mid-cap investments until further market corrections occur.

He also advises maintaining some liquidity, stating, “If the market declines further, this will allow you to increase your equity allocation without risking too much.” As the saying goes, it’s wise to diversify: “Avoid putting all your funds into the market at once,” Shah cautions.

Nifty Earnings Projections for FY26

Concerns regarding earnings persist among investors. Currently, Nifty earnings average around ₹250 per share each quarter. However, Shah maintains an optimistic outlook for the fourth quarter, predicting earnings to range between ₹262 and ₹275 per share, largely due to seasonal boosts from festivals and increased consumer spending.

Looking ahead to FY26, he anticipates a shift from high single-digit earnings growth to a low double-digit trajectory, estimating Nifty earnings could reach between ₹1,150 and ₹1,200 per share.

India’s Position in the Global Market

With global economic uncertainties on the rise, particularly fears of a recession in the U.S., the spotlight is on India’s potential as foreign institutional investors (FIIs) gauge the market. Shah believes that India could become a prime beneficiary of shifting global investments, particularly if the country can transition from the phrase “anything but China” to “always India.”

He acknowledges that while progress has been made, there is more work to do. He states, “We’ve made strides, but we need to refine our approach to truly capitalize on global growth opportunities.”

Impact of China on the Rupee

Shah also discusses the potential for the Indian rupee to weaken further, attributing its movement largely to developments in China. He recalls that during President Trump’s administration, a significant tariff on China led to a substantial depreciation of the Chinese currency, which could similarly impact the rupee.

• Competitive Currency: The rupee’s value will likely remain tethered to fluctuations in the Chinese currency due to their status as India’s largest trading partner.
• Long-Term Outlook: Future rupee movements will depend significantly on China’s economic maneuvers.

Continued FII Selling

Shah does not foresee an immediate end to FII selling. He asserts that an upturn in India’s earnings and a subsequent return of FIIs will be closely linked. “We believe India’s potential for reaching double-digit earnings growth next year could entice FIIs back into the market,” he explains, highlighting the importance of valuation, earnings growth, and governance in attracting foreign investments.

Economic Growth Projections for India

Recent economic indicators have been promising, with discussions about potential rate cuts from the Reserve Bank of India (RBI) gaining momentum. Shah clarifies that while liquidity support will continue, the RBI will need to exercise caution regarding rate cuts in light of U.S. Federal Reserve policies.

• GDP Growth Forecast: Shah projects that India could achieve near 7% GDP growth if global conditions remain favorable and the monsoon season is productive.
• Challenges Ahead: Achieving double-digit growth will require tough decisions that, unfortunately, the current ecosystem may not support.

In conclusion, as investors navigate these dynamic market conditions, Shah’s insights serve as a valuable guide for making informed decisions moving forward.