Uday Kotak says $700 bn outstanding FII payments will boost market, sees AI worries driving flows to India

After strong headwinds wiped out massive sums of investor wealth since Diwali last year, veteran banker Uday Kotak shared his advice, advocating for value investing and expressing his confidence in the Indian market ahead of the beginning of the new Hindu financial year, Samvat 2083.

In his Diwali message shared by Kotak Neo, Uday Kotak noted that the year gone by reflects fast-changing moves in the global economy and financial markets, both globally and domestically. “It was a year of geopolitics, AI, gold, oil, interest rates and fast-changing political environment in many parts of the world,” he said.

The industrialist pointed out that the market saw phenomenal resilience from the domestic Indian investor who kept faith in the Indian stock market. Yet, the market has been rocky as global institutions withdrew significant amounts of money due to relatively higher valuations of the Indian market compared to other countries where markets were at lower multiples, he noted.

Uday Kotak on AI trade and India’s anti-AI advantage

Adding to the existing worries, the AI trade in the US further spooked investors in the past year, making India look more like an ‘anti-AI’ trade, Kotak said. “I do believe that AI is changing the world. But the kind of leverage global companies are taking to fund their AI aspirations is also leading to significant overvaluation in many cases,” he said.

The veteran banker expects India to benefit from the reverse flows as the AI frenzy fizzles out, while working down the path of building its own AI capabilities. This comes as worries around excessive spending by hyperscalers on artificial intelligence grow louder, with several analysts warning of a bubble-burst situation ahead.

Also read | AI bubble is coming, and there is no way out! Ashwath Damodaran explains what investors should do before the crash begins

Uday Kotak on Middle East crisis, oil and India’s current account

As AI worries rattled Dalal Street earlier this year, another and perhaps bigger headwind was making way for a sharper impact. The stock market was shut on the last Saturday of February when reports emerged that joint US-Israeli air strikes had killed Iran’s Supreme Leader Ayatollah Ali Khamenei. Analysts warned of a sharp selloff even before Dalal Street reopened, and their fears proved justified. Sensex and Nifty sharply tumbled in the months that followed as conflict escalated and oil prices soared.

Uday Kotak noted that the Middle East crisis has dramatically spiked oil prices and India is vulnerable because of its extremely high import dependence. “Despite that, India has held up pretty well,” he said.

Uday Kotak sees up to 75 bps rate hikes by RBI

The Reserve Bank of India (RBI) last month increased its benchmark repo rate by 25 basis points to 5.5%, as India joined the global rate-tightening wave amid mounting inflationary pressures triggered by the raging Middle East conflict. Uday Kotak, however, sees another 50 to 75 basis points of rate hikes ahead.

As Dalal Street enters Samvat 2083, the industrialist noted that market valuations have corrected and Indian stock market is not looking as expensive as it was around a year ago. “As the overhang of excessive investment in AI corrects, we do hope that the foreign portfolio investments stabilize. And we have to keep in mind that even today, foreign portfolio investments are about $700 billion outstanding. India is subject to those flows which will also have an impact on the stock market price,” he added.

Also read | RBI hikes rate, but analysts see shift to ‘calibrated tightening’ as bigger takeaway. How can this impact markets?

What Uday Kotak advises investors should do

Uday Kotak shared his advice regarding what investors should do in the new Samvat 2083 that brings in new hopes for better returns after a painful Samvat 2082.

1) Think medium term, think strategic: Kotak feels investors should think about the medium-term and invest strategically, instead of panicking and making the wrong trades over the short-term that is rattled by volatility.

2) Be very focussed on the companies you are investing in: He also advised investors to choose companies to invest in very carefully. The market veteran advised focussing on the quality instead of going with hype.

3) If you are playing, be sure you can withstand volatility: Markets by nature are volatile. For investors planning to play this volatility, Kotak advised to only enter if you have money to withstand volatility.

Also read | Why is market rallying today?

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.