Kotak Institutional Equities has implemented significant changes to its model portfolios, adding ITC to its large-cap portfolio with a 1.5% weight while reducing positions in Apollo Hospitals (by 0.5 percentage point to 3.3%), Eternal (by 0.5 percentage point to 3.6%), and ICICI Bank (by 0.5 percentage point to 9.9%). In the midcap segment, the brokerage added Goa Agro, Mankind Pharma, and Narayana Hrudayalaya while removing CRISIL, DCB Bank, and Eureka Forbes. According to the brokerage report, Apollo Hospitals and Eternal have delivered strong returns over the past six to 12 months, while ICICI Bank's weight had moved above the brokerage's 10% limit for an individual stock.
Kotak sees significant value emerging in large-cap stocks following recent price corrections. The brokerage points to a gap between stock prices and underlying value, noting that several large-cap stocks are trading at attractive valuations simultaneously in the absence of a major economic crisis. HDFC Bank is trading at relatively modest valuation multiples despite earnings per share growth, while ITC trades at 10.4 times one-year forward EPS of its tobacco business after adjusting for other businesses and cash. ONGC is another example, trading at 4.4 times estimated FY27 EPS and 4.5 times FY28 EPS estimates according to Kotak's analysis.
The brokerage has added three midcap stocks with significant upside potential. Goa Agro has a 12-month fair value of ₹1,010, implying 49% potential upside based on Kotak's estimates, trading at 21 times one-year forward EPS with expected 22% EPS CAGR between FY26-29. Mankind Pharma has a fair value of ₹2,885, indicating 27% potential upside, having fallen 13% from its end-July peak. Narayana Hrudayalaya has a 12-month fair value of ₹2,350, implying 26% potential upside, trading at around 20 times one-year forward enterprise value to EBITDA adjusted for Indian Accounting Standards 116.
Kotak removed three midcap stocks due to recent strong performance and valuation concerns. CRISIL has gained 21% over the past three months and is now closer to the brokerage's fair value of ₹5,000, while DCB Bank has risen 22% in one month and is near the fair value of ₹228. Eureka Forbes faces different challenges as increased competition has led to further valuation derating and could create margin pressure. As reported by Kotak, mid-cap and small-cap stocks have performed exceptionally well in the past six months while large-cap stocks have underperformed.
