Kotak Institutional Equities expects Foreign Institutional investors (FIIs) to continue selling in the Indian equity markets, citing high valuations. Pratik Gupta, CEO and Co-head at Kotak Institutional Equities, mentioned that the Nifty 50 is trading at a price to earnings multiple of 19 times based on March 2026 earnings estimates, which is above historical averages. He added that with earnings growth projected at 14 per cent in FY26 and FY27, there are downside risks to such estimates, leading to limited upside for the Nifty in the short term.
Despite this, foreign investors remain positive about India’s medium-term growth outlook. However, they are currently facing challenges such as high valuations and a liquidity squeeze due to capital outflows to the US, driven by a strong dollar and US policies. Additionally, higher capital gains taxes and other costs are impacting FIIs’ returns.
The brokerage firm anticipates continued earnings weakness in the Indian market for the upcoming quarters, with FY26 earnings growth forecast at 14.5 per cent. While the second half of the year is expected to show improvement, Kotak Institutional Equities believes that the market will remain range-bound.
In terms of sector preferences, the firm favors large private banks, non-banking financial companies, life insurance firms, hotels, real estate, and the tourism industry. On the other hand, they are cautious on consumer staples, discretionary, oil and gas, and chemicals sectors. Small and mid-cap stocks are also viewed with caution due to expensive valuations post recent corrections.
Domestic investors, on the other hand, are shifting their focus from small and mid-cap funds towards large-cap or balanced debt-equity funds. Overall, while the outlook for FIIs remains somewhat bearish in the short term, the long-term growth prospects for India continue to attract investor interest.
