Daily Voice: Banks, healthcare or IT? Kotak Life's Kanawala reveals where he sees opportunities for 2027
September quarter results indicate that earnings momentum remains healthy across several sectors, supported by resilient domestic demand and operating leverage, although select sectors are witnessing margin pressure due to higher commodity costs, said Hemant Kanawala of Kotak Life.
"The outlook for Indian equities is turning more constructive after the recent correction, which has improved valuations and the risk-reward," said Hemant Kanawala, Senior Executive Vice President and Head of Equities at Kotak Life Insurance, in an interview with Moneycontrol. He believes that India could see a meaningful recovery in foreign inflows if earnings momentum improves, macroeconomic stability continues and the country offers a more competitive tax framework.
Among sectors, Kanawala believes that a fair degree of the near-term headwinds facing the Indian IT sector is already reflected in valuations. However, he cautioned that calling 2027 a game changer for the sector may be premature. Is the Indian market outlook looking promising at this stage? The outlook for Indian equities is turning more constructive after the recent correction, which has improved valuations and the risk-reward.
The Nifty is trading below its long-term average forward valuation, while domestic institutional flows and underlying economic growth remain supportive. However, near-term volatility could persist given elevated crude prices, global bond yields, rupee weakness and geopolitical uncertainty. We remain selectively positive, with earnings delivery and valuation discipline likely to drive market performance from here.
Do you strongly believe that the recent tax-related tweaks could help bring FII flows back into the Indian market? We believe if the ongoing discussions around tweaking tax-related provisions materialise, it could improve India’s relative attractiveness for foreign investors. However, taxation alone will not determine FII flows. The key drivers remain corporate earnings growth, valuations, currency stability, global interest rates and risk appetite.
If earnings momentum improves and macro stability continues alongside a more competitive tax framework, India could see a meaningful recovery in foreign flows. We remain constructive, though any improvement is likely to be gradual. Do you see the possibility of a more favourable direction for crude oil prices after the US midterm elections? We do see the possibility of a more favourable crude oil environment but would not directly link it to the US midterm elections.
The bigger drivers will remain geopolitical developments in the Middle East, restoration of disrupted supply, OPEC+ production decisions and global demand. Current crude prices reflect a meaningful geopolitical risk premium. Any easing of geopolitical tensions and improvement in supply conditions could create meaningful downside to oil prices, which would be particularly positive for India. After analysing September-quarter earnings, do you expect strong earnings growth to continue in the coming quarters despite external headwinds?
We remain constructive on India’s corporate earnings outlook. September quarter results indicate that earnings momentum remains healthy across several sectors, supported by resilient domestic demand and operating leverage, although select sectors are witnessing margin pressure due to higher commodity costs. External headwinds, including crude oil, global interest rates and geopolitical uncertainty, could create near-term volatility.
Nevertheless, domestic growth remains robust, supporting positive earnings growth, although performance could become increasingly differentiated across sectors, making stock selection important. Do you agree that the headwinds facing the IT sector are already priced in, and that 2027 could prove to be a game changer for the sector? We believe a fair degree of the near-term headwinds facing Indian IT is already reflected in valuations.
However, calling 2027 a game changer may be premature. A key trigger would be a recovery in discretionary technology spending, supported by a gradual shift in enterprise budgets from hardware and AI infrastructure towards AI-based applications and services. If this transition gains momentum, Indian IT companies could see stronger deal activity and revenue growth. We remain selectively constructive, particularly on companies positioned to benefit from cloud, AI and large transformation programs.
Which are the top three sectors on your radar that could generate strong returns by Diwali 2027? Our top three sectors looking towards Diwali 2027 are banks, healthcare and discretionary consumption. For banks, a potential rise in interest rates could support margins, while healthy credit growth should remain supportive. Healthcare benefits from strong domestic demand, alongside a growing CDMO opportunity that provides a structural export growth runway.
We are also positive on discretionary consumption, supported by strong economic growth, rising disposable incomes and the 8th Pay Commission, which could provide an additional boost to household spending. Overall, these sectors offer favourable earnings visibility, structural growth drivers and attractive medium-term opportunities.
