Kotak's Pratik Gupta still finds value in these two sectors in a pricey market

Indian market is expensive but there are two sectors that still have value, says Pratik Gupta, CEO & Co-Head, Kotak Institutional Equities. "Banks and insurance companies are still trading below their pre-COVID valuations. We continue to like the large top two-three state-owned banks. The main benefit over there being despite the strong price performance, valuations are still attractive,” he said.

He also likes three-four top private banks. However, given the ongoing tight liquidity situation, he expects slightly weaker earnings growth for the banking sector in the March and June quarters.

Gupta said, at 22,200, India's Nifty is currently trading at 20.5 times one year forward earnings, "which is not cheap by any stretch of the imagination."

Current valuations beat all record in India's trading history - whether one takes a five-year period, 10-year period, 15-year period -- or compares it with the likely growth ahead. He believes corporate earnings growth is slowing down. For FY24, Kotak Institutional Equities is expecting the Nifty to grow earnings by about roughly 18-19%. However, over the next two years, the growth is expected to slow down to about 12% on average.

Gupta is a bit cautious in the short-term on PSU defence companies despite a very positive long-term view. He also sees a little bit of a slowdown in electric vehicle (EV) space in the short term

Gupta also shared insights on the rising trend of stake sales by large investors, private equity funds, venture capitals in companies, or even MNC promoters paring stake in their Indian entities. “After the earning season every quarter, you do tend to see a resumption of stake sales coming through. So this quarter is no major surprise as such,” he explained.

On February 20, nearly 25% equity of Whirlpool of India change hands in block deals valued at over ₹4,000 crore. The parent entity, as of the December quarter, owns a 75% stake in the company. In August last year, GMM Pfaudler's parent, Pfaudler International sold a 13.5% stake in the Indian arm via block deals, post which, its shareholding in the company fell below 1%.

Timken India parent also sold 8% equity via block deals in June last year. In eight months since that transaction, which took place on June 20, 2023, the stock has been an underperformer, declining 13%.

Similarly, Thomas Cook promoter Fairbridge Capital also offloaded an 8.5% stake in November last year through an Offer for Sale.

Gokaldas Exports also saw its promoter Clear Wealth sell around 10% stake in the company in March last year. The management told CNBC-TV18 back then that the promoter did not intend to sell any further stake in the company.

Gupta believes this adds more liquidity to the stocks which otherwise may have a lower free float. However, investors need to look at the fundamentals of the company from a longer-term perspective and not get too hassled by these stake sales by promoters, he advised.