GST upside already priced in, long-term impact intact
Speaking to ET Now, Upadhyaya noted that markets have largely absorbed the immediate GST-driven upside. “Most market participants understand that Q2 numbers may be weaker due to deferred purchases. But when Q2 and Q3 are looked at together, there should be no disappointment,” he said. Importantly, he emphasised that GST is a structural reform that will continue to aid growth momentum in the coming quarters and years.
US-India trade resolution could boost FII flows
While GST reforms are priced in, Upadhyaya highlighted that markets are yet to factor in any positive outcome on India-US trade negotiations. Over the past few months, foreign flows into emerging markets have picked up, but India has lagged due to trade-related concerns. India’s valuation premium over emerging markets has also narrowed from a five-year average of 70% to around 40-45%.
“Any resolution on the trade front could revive foreign institutional inflows and re-rate India’s relative premium,” he explained.
Earnings outlook: Gradual recovery ahead
On the corporate earnings front, Kotak AMC expects low double-digit growth for Nifty in FY26, with slightly better performance from midcaps, while smallcaps continue to face earnings pressure. The bigger recovery, however, is expected in FY27, with Nifty earnings growth of around 14%.
“The confidence in earnings recovery will increase with GST implementation. From here on, we should see a gradual improvement in corporate earnings trajectory,” Upadhyaya added.
Portfolio strategy: Tilt towards domestic businesses
Despite global trade uncertainties, Upadhyaya reiterated Kotak AMC’s preference for domestic-facing businesses. While some export-oriented sectors like IT, pharma and textiles may benefit from a trade resolution, the long-term earnings outlook remains stronger for domestic sectors.
“Even without GST reforms, domestic businesses were expected to deliver better earnings growth compared to exporters. With reforms, confidence in this outlook has only increased,” he said.
Chemicals, consumption and financials in focus
The Kotak CIO continues to favour specialty chemicals and fertilizers within the chemical space. He believes the worst of destocking-led margin compression is behind the industry, and anti-pollution measures in China could tighten supply, supporting pricing and profitability.
Upadhyaya also sees opportunities in consumption-oriented sectors that stand to benefit from GST cuts and improving demand, along with financials, where net interest margin (NIM) pressure is expected to ease after another quarter.
Reducing capex exposure, adding consumption plays
Kotak AMC has been gradually reducing exposure to capex and investment-driven businesses. “Government capex growth is likely to align with nominal GDP in the low double digits. While earnings will remain healthy, they may not outpace market averages as strongly as in the past,” Upadhyaya noted.
The fund house is therefore shifting part of its portfolio into consumption-oriented sectors that promise stronger growth visibility.
Reforms and flows hold the key
Upadhyaya believes structural reforms like GST will underpin medium- to long-term growth, while a breakthrough in India-US trade ties could act as a near-term catalyst for foreign inflows. With domestic businesses expected to outpace exporters in earnings growth, Kotak AMC’s portfolio remains tilted toward domestic sectors, supplemented by selective bets in chemicals, financials and consumption.
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