Is the market quietly setting the stage for the next big move? Kotak Institutional Equities has tweaked its model portfolio, citing valuation comfort in select names and limited upside in others. They have added two stocks to the recommended model portfolio following the recent market correction, while removing or trimming exposure to a few others where upside now appears limited.
Kotak Institutional Equities model portfolio: Two key additions
The question now is simple – which stocks are gaining Kotak’s confidence, and which are ones that did not make the cut?
ITC has been included in the portfolio with a weight of 200 basis points. According to the report, the stock has declined around 21% over the past month and is now trading at about 21.4 times estimated earnings per share for FY27. The brokerage noted that after excluding roughly Rs 150 per share attributed to the non-tobacco business, the core cigarette business trades at about 15.6 times FY27 estimated earnings.
Kotak has also added Max Healthcare Institute to the model portfolio with a weight of 150 basis points. The stock has fallen nearly 18% over the past three months. As per the brokerage report, Max Healthcare offers about 13.5% upside to its 12-month fair value estimate of Rs 1,125, even though valuations remain elevated at over 40 times FY27 estimated earnings.
The brokerage stated that despite higher valuations, it prefers the stock due to consistent execution and growth visibility in the healthcare space.
Kotak Institutional Equities model portfolio: What’s removed?
On the exit side, Kotak Institutional Equities has removed Embassy Office Parks Real Estate Investment Trust from the model portfolio. As per the brokerage house report, the share price of the company has surged around 20% over the past year and now offers only modest upside to its 12-month fair value estimate of Rs 455.
Furthermore, the brokerage house report noted that the stock had benefited from falling interest rates. Simultaneously, it added that India’s rate-cutting cycle may be nearing its end, reducing the attractiveness of such rate-sensitive plays.
The brokerage has also removed Lupin from the portfolio. As per the report, the stock has gained about 11% over the past six months, but offers limited upside to its 12 month fair value of Rs 2,255. Kotak pointed out that earnings per share (EPS) for Lupin are expected to remain flat between FY26-28. This is largely due to ongoing pricing pressure in the United States generics market.
In addition, Kotak has reduced the weight of Cipla by 50 basis points to 150 basis points in the model portfolio.
Is the market facing a temporary dip or a structural reset?
Apart from these stock-specific changes, the Kotak Institutional Equities, in its report raised a broader concern about the Indian market’s prolonged underperformance. As per the brokerage report, the market’s weakness could either be “a temporary blip” or “the start of a permanent reset in multiples to their correct levels.”
The report highlighted that Indian equities continue to trade at relatively high valuations compared to other emerging markets, while several global markets are available at lower multiples. The brokerage also flagged the absence of large high-technology companies in India as a structural challenge when compared with other emerging economies.
More importantly, the report cautioned that rising disruption across sectors and insufficient investment by Indian companies to counter these threats could lead to a gradual de-rating in valuations over time.
Foreign investors sell, domestic investors step in
According to Kotak Institutional Equities model, foreign portfolio investors have continued to sell Indian equities aggressively, extending a trend that began last year. At the same time, domestic institutional investors, largely backed by retail flows through mutual funds, have remained strong buyers.
Kotak noted that this sharp contrast indicates two very different views of the market. While foreign investors remain cautious on valuations and growth risks, domestic investors have continued their “price-agnostic” buying approach.
Retail investors and earning stability
Kotak Institutional Equities pointed to retail investor behaviour as a key factor to watch going ahead. The brokerage noted that sustained retail buying has so far prevented a deeper correction in market multiples.
The brokerage highlighted one positive development. According to the report, results for the Q3FY26 have largely met expectations so far.
Kotak Equities in its report said that the earnings appear to be stabilising after a prolonged period of downgrades, and expects a recovery in earnings growth over FY26-28. However, it also flagged potential risks, including rising metal prices affecting automobile and component manufacturers, and subdued demand impacting consumer discretionary companies outside automobiles.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.