The small- and midcap 20% is not a reasonable expectation from here

Governments have spent more than they earn, pushing debt-to-GDP higher while real rates stayed low enough to support growth. US inflation has run above the Fed’s target for almost five years.

Roughly 20% of global crude passed through the Strait of Hormuz, traffic has fallen sharply since the war began, and strategic reserves are at historically low levels. But the forward curve is in backwardation and Kotak expects Brent to remain around $90–95 over the next 3–6 months.

Q1 GDP came in at 7.8% against expectations near 7.25%, driven by capital formation and private consumption rather than government spending. Kotak credits part of the beat to a low base and expects full-year GDP of 6.8-7%.

Corporate results beat estimates across large, mid and small caps, but markets have not followed. One reason Kotak cites is supply: private equity and venture funds have sold roughly $50 billion since 2024, the impact muted by SIP flows.

Nifty trades at 18.1 against a historical average of 18.8, midcaps at 28 against 24, small caps at 23 against 18 — which Kotak calls a little expensive. It likes automobiles on Eighth Pay Commission spending, healthcare on medical tourism, cement on consolidation and infra capex, and financial services, where FPI selling has left valuations attractive.

On debt, Kotak believes the RBI is likely to raise rates 50 bps by March 2027 and expects the rupee at 95-98. FCNR inflows should lift core liquidity from about Rs 6 lakh crore to Rs 13-14 lakh crore, which the RBI may drain back toward Rs 5-7 lakh crore.