Private banks and mid-cap stocks are expected to lead the next phase of the Indian equity market rally, according to Kotak Mahindra AMC.
This shift in market leadership suggests a transition toward sectors with stabilizing fundamentals. For investors, the focus is moving toward credit growth and valuation recovery in sectors that have previously faced pressure.
Shibani Kurian, senior fund manager and head of equity research at Kotak Mahindra AMC, identified banks as a primary driver for the upcoming cycle. The outlook is supported by improving credit growth and a reduction in deposit pressures. Kurian said that stable asset quality and more attractive valuations make these financial institutions a focal point for growth.
Mid-cap stocks are also positioned for a rally as the market seeks broader participation beyond large-cap entities. This trend is coupled with an improving earnings outlook that analysts expect to materialize by fiscal year 2027 [1].
Pankaj Pandey, head of equity research, said that power, finance, and infrastructure are likely to be key sectors in this movement. The stability of net interest margins is a critical factor for the banking sector's trajectory. As these margins stabilize, the capacity for banks to generate consistent returns increases, providing a foundation for the broader market rally.
The transition toward these sectors reflects a broader confidence in the Indian economy's structural health. With earnings improvements anticipated by FY27 [1], the market is preparing for a cycle driven by fundamental growth rather than speculative momentum.
“Banks and mid-caps are set to drive the next market rally.”
The projection indicates a rotation in the Indian equity market where value is shifting from overextended large-caps to undervalued mid-caps and the banking sector. By targeting FY27 for significant earnings improvements, Kotak Mahindra AMC is signaling a medium-term recovery period based on the stabilization of interest margins and credit expansion.
