$90-bn DII inflows, Nifty up 0% in 1-yr; Kotak flags weak fundamentals

Kotak Securities said that $90 billion of DII inflows and a flat market show that flows alone don't drive markets

A $90 billion domestic inflow, retail investors' euphoria and fiscal and monetary support could not lift India's benchmark indices higher, with Nifty remaining flat as high valuations continue to weigh, according to Kotak Securities. 

 

Over the previous 12 months (from September 2024), the benchmark Nifty and Sensex indices have given 0 per cent returns. Meanwhile, the small-cap and mid-cap gauges are still below the September 2024 levels. 

 

Over the same period, the equity market has seen about $90 billion in inflows from domestic institutional investors, analysts led by Sanjeev Prasad at Kotak Securities said in a note dated September 15. 

   

The Indian market has been flat despite retail euphoria, popular narratives, currency depreciation, and fiscal and monetary support, including GST reforms and tax cuts, the brokerage said. It also added that the market’s performance would have been even worse with a stronger rupee. "The Indian market's performance has been understandably worse in USD terms." 

 

Kotak Securities said that $90 billion of DII inflows over the past 12 months and a flat market show that flows alone don't drive markets, urging investors to focus on fundamentals instead. 

 

Analysts said that the weak market performance over the past 12 months can be attributed to expensive valuations for most sectors and stocks. Valuations have stayed at high levels, despite several stocks being flat or down over this period due to constant earnings downgrades, it added. 

 

The Nifty50 index currently trades at a price to earnings (P/E) ratio of 23.1x, below its five-year (24.5x) and 10-year (23.4x) averages. 

 

So far this year, the Nifty and Sensex have risen by 7 per cent and 5.8 per cent, respectively. Auto stocks led the sectoral gains this year amid a boost from GST revamp and tax cuts, while IT stocks lag. 

Kotak sees gradual earnings recovery

Kotak Securities expects gradual earnings improvement over the next few quarters and strong growth in FY2027. The brokerage said bank and non-banking financial companies (NBFC) earnings are likely to recover after a weak first half of FY2026, supported by a pick-up in loan growth, higher net interest margins, and lower credit costs. 

 

Earnings in consumption sectors, such as automobiles, could benefit from GST cut-driven volume growth, while investment sector earnings may see only moderate gains due to weak capex and investment demand, Kotak said. IT services earnings are expected to rise modestly amid continued subdued demand. Kotak noted that despite the expected earnings recovery, valuations remain rich, requiring more for sustained market performance.