Kotak sees value after 8% correction amid war fears

Uday Kotak flags energy shock risk for India

Amid the ongoing tensions in West Asia, Kotak Mahindra Bank founder Uday Kotak warned that rising energy prices could trigger a financial shock for Indians. The comment comes as markets react to war-related headlines with sharp moves in oil and equities. For India, crude matters not just for fuel bills but also for inflation, corporate input costs, and household budgets. Investors have been quick to price in negative outcomes, especially around the risk of supply disruptions and cost pressures.

What Kotak Institutional Equities says about the sell-off

Kotak Institutional Equities’ Sanjeev Prasad argued that value is emerging across market caps, sectors, and individual stocks after a sharp correction since the start of the Iran-Israel/US war. A Kotak report noted that the broader market has corrected about 8%, with several stocks falling more. In Prasad’s view, the magnitude of the fall suggests the market is assuming a prolonged crisis and a large, permanent cut to earnings. He said that interpretation is not correct, and that the market appears to be extrapolating near-term fears far into the future.

“Daily gyrations” show markets are trading headlines

Prasad said day-to-day swings indicate investors are reacting to positive or negative conflict news rather than focusing on underlying fundamentals. Kotak’s read is that the correction implies exacerbated fears around war, with negative implications for growth and profitability being priced in aggressively. The brokerage stopped short of calling the setup a “strong buying opportunity,” but said the valuation reset has improved the reward-risk balance in pockets of the market. It also contrasted the current environment with periods like March 2009 or March 2020, when valuations were described as deeply compelling.

Kotak’s base case on oil: elevated first, then normalization

Kotak’s base case assumes oil prices stay elevated for the next few weeks and then decline after “normalization,” but to a higher plateau than pre-war levels. The brokerage’s working assumptions include: the conflict continues over the next few days or weeks; tensions remain elevated for the next few months; the Strait of Hormuz reopens over the next few weeks; and there is no long-lasting damage to oil and gas infrastructure in the Middle East. Under this base case, Kotak expects the earnings impact to remain limited if the conflict is short-lived.

The downside scenario: months of escalation and cost pass-through limits

Kotak cautioned that a prolonged escalation lasting several months could increase downside risks for multiple sectors. The key swing factor, it said, would be whether companies can pass higher input costs through price hikes. Where pricing power is weaker or demand is soft, margins can come under pressure for longer. This is also why war-driven moves in crude can quickly become an earnings issue, even if volumes do not change much.

Downstream calls: estimates largely retained, exception for PSU OMCs

The brokerage said it has largely retained earnings estimates for most downstream companies, with the exception of PSU oil marketing firms. Its base case also assumes no significant disruption to oil and gas supplies and only modest-to-moderate price increases by companies to offset higher input costs. The emphasis on “short duration” is important, because downstream profitability and policy decisions can shift quickly when crude rises.

Earnings outlook: rebound next fiscal year, but risks remain

Prasad forecast a broad-based earnings rebound for Indian companies from next fiscal year, citing an end to the downgrade cycle and supportive economic policies. At the same time, he warned that India’s valuation premium is at risk due to a lack of corporate innovation and research. He also flagged that foreign investors remain cautious, pointing to high valuations and India’s absence in emerging technology themes.

Nifty earnings: muted Q1, no “green shoots” expected in Q2

Prasad told NDTV Profit that Nifty 50 earnings growth for the June-ended quarter is expected to be in the mid-single digits. He said most companies reported muted earnings or came in below estimates, while noting the biggest beat came from State Bank of India. He also warned against expecting “green shoots” in the July-September quarter of FY26. The underlying message was that the economy and corporate earnings will gather pace only when there is enough job creation for the masses.

Valuations and global risks: tariffs, downgrades, and expensive pockets

Prasad also highlighted lingering risks from US tariff uncertainty. He said the trade situation is “on hold,” and that by July 9 there should be more clarity involving the US and other countries, but warned that tariffs are likely to be higher. In another note, Kotak said consensus earnings estimates for FY26 and FY27 have seen downgrades in a few sectors and companies and that it expects more, as global and domestic slowdowns hit revenues. Kotak models 12% growth in the net profits of the Nifty-50 Index for FY26.

Kotak also said the market may be too bullish on export-facing sectors such as automobiles, IT services, and potentially pharmaceuticals and specialty chemicals given uncertainty around global GDP growth and US tariffs. It flagged that high tariffs could hurt revenues for auto companies such as Bharat Forge and Tata Motors. Prasad further cautioned that IT valuations are well ahead of pre-pandemic levels, despite elevated global interest rates, and may not reflect the risk of a deep US slowdown.

Key numbers and assumptions at a glance

What investors are watching next

The near-term market path, in Kotak’s framing, hinges on whether crude stays elevated for weeks or turns into a multi-month cost shock. The reopening timeline for the Strait of Hormuz and any signs of lasting infrastructure damage in the Middle East remain central variables. On the domestic side, Prasad repeatedly returned to jobs and private capex as missing pieces behind a durable earnings upcycle. And with valuations still described as elevated in large parts of consumption and investment-linked stocks, investors may continue to differentiate sharply between pockets of value and areas where expectations remain high.