Kotak Institutional Equities has removed capital goods stocks ABB India, Siemens and Cummins India from its model portfolio after a sharp rally pushed valuations beyond comfortable levels. According to Sanjeev Prasad, Managing Director and Co-Head of Kotak Institutional Equities, the firm continues to see long-term opportunities in themes such as electrification, digitalisation and domestic manufacturing, but believes investors should be disciplined on valuations. While the structural growth story remains intact, Prasad noted that the market is pricing in too much optimism for several industrial companies.
Prasad explained that many companies linked to the electrification theme are now trading at rich earnings multiples despite their positive long-term outlook. "The question is how much money you want to pay for either companies, which have technology or companies, which are more or less assemblers," he said. As reported by CNBC TV18, Prasad noted that ABB India was removed because it became too expensive, with similar valuation concerns applying to Siemens and Cummins India, which have also been removed from the firm's model portfolio.
Instead of chasing expensive industrial names, Prasad said Kotak prefers sectors where valuations remain reasonable and earnings visibility is stronger. According to the report, he identified private banks as one of the firm's preferred investment ideas over the next two years. Prasad noted that top-tier private banks are trading in the range of 1.7-1.8 times one-year forward book, with limited scope of de-rating and maybe some scope of re-rating. Beyond financials, he continues to favour domestic services sectors including healthcare services, hospitality, retail, transportation and telecom, which are supported by rising discretionary spending and a large shift from the unorganised to the organised sector.
Prasad urged caution on the IT sector, saying the impact of artificial intelligence on pricing and margins remains difficult to assess. As reported by CNBC TV18, he described the billion-dollar question as "what kind of deflation one is looking at," adding that it is still too early to determine whether the recent correction has fully accounted for AI-related risks. The firm remains constructive on India's manufacturing story, particularly the contract development and manufacturing organisation (CDMO) segment, where valuations are still reasonable.
Prasad also noted that aluminium remains structurally supported because of limited global capacity additions, although lower energy prices and the restart of idled production could weigh on prices in the near term. According to the report, while Kotak continues to see long-term opportunities in electrification, digitalisation and domestic manufacturing themes, the firm believes investors should maintain discipline on valuations despite the intact structural growth story.
