In an exclusive interview, Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company (AMC), shared his insights on the current state of the stock market, the AI boom, and India's economic outlook. Shah addressed concerns about the AI-driven rally mirroring the dotcom bubble, emphasizing that the Indian market's recent correction was primarily driven by earnings. He suggested that India's limited participation in the global AI boom could be an advantage, potentially positioning the country as an "anti-AI" investment destination when the trend reverses.
Shah believes that India's market rally is expected to continue, bolstered by strong earnings expectations for FY27, global tariff trends, and central bank signals. He noted that while India currently offers limited direct AI investment opportunities in listed markets, the Indian economy is viewed as a global growth engine, with focus shifting to dollar devaluation and central bank moves. According to Shah, if US tariffs end, India's growth should accelerate; if not, the Reserve Bank of India (RBI) may step in with liquidity support and potential rate cuts to support growth.
Addressing the Indian market's performance, Shah acknowledged that it had underperformed its emerging market peers in CY25, leading to persistent selling by Foreign Portfolio Investors (FPIs). However, he anticipates that this selling intensity will decrease in CY26, and if global capital shifts away from America, some of those flows may be redirected to India. Shah expects the Indian stock market to transition towards a stock-specific rally in 2026 as earnings growth rebounds to double digits. He also pointed out that corporate earnings growth has been largely single-digit over the last six quarters, but multiple policy measures could revive consumption and earnings momentum.
Shah advised investors to have moderate expectations for returns from the Indian stock market in 2026, emphasizing that returns will likely come from select sectors and stocks rather than a broad-based rally. He suggested balancing portfolios with equities and precious metals, as gold and silver are expected to remain positive. He also noted that mid-caps appear reasonably valued and are expected to outperform large-caps, while small-caps are trading at a substantial premium to historical averages.
Looking ahead to CY26, Shah anticipates a volatile period for equities, with moderate gains expected, driven by earnings growth and domestic buying. He emphasized the importance of asset allocation, patience, and focusing on quality stocks for long-term rewards. He also highlighted key risks for the global market, including de-dollarization, the return of inflation, the possibility of an AI bubble, and the US-China rivalry. Despite these risks, Shah believes India's structural transformation over the past decade provides resilience against global shocks, although he cautioned against unrealistic growth expectations.
