Fear vs FOMO to decide market direction, earnings revival likely in FY27: Nilesh Shah

Indian equity markets are at a crossroads, balancing between foreign investor fear and domestic investor confidence, according to Nilesh Shah, Managing Director of Kotak AMC. In an exclusive conversation with ET Now, Shah highlighted that the current cautious mood stems from relentless FPI selling, single-digit earnings growth, and global tariff uncertainties, but domestic investors continue to bet on India’s long-term growth story.

Battle between fear and FOMO

Shah explained that markets are caught in a tug-of-war.

“If FPIs succeed in creating fear in the minds of DIIs, markets could see more downside. But if domestic investors create FOMO for FPIs, we may see a bottoming out and upside in equities,” he said.
He stressed that earnings revival remains the ultimate driver of market stability.

Earnings recovery more likely in FY27

On earnings outlook, Shah noted that while H2 FY26 may see some improvement from GST rate cuts and RBI’s liquidity support, the real momentum will build in FY27.
“We have income tax cuts, GST cuts, rate cuts and the 8th Pay Commission coming into play. Collectively, these measures could significantly stimulate domestic demand,” he added.

GST is no magic wand, consumer spending key

While GST rationalisation is expected to aid consumption, Shah cautioned that its real impact depends on how consumers spend their extra disposable income.

“If people spend on swadeshi goods, the economy benefits. But if it flows into foreign travel or imports, the benefit reduces,” he said.

Portfolio Strategy: Focus on discretionary consumption and select defence

On sectoral bets, Shah recommended:

• Consumer discretionary stocks: As households are likely to spend on travel, hospitality, and home improvement rather than staples.
• Defence : Selectively, with a focus on firms catering to futuristic warfare and global markets.
• Capex-linked sectors: Companies with strong order books and operating leverage.

IT accumulation phase despite tariff noise

Shah revealed that Kotak AMC is gradually accumulating IT stocks, driven by their ability to leverage enterprise AI.

“IT services companies are creating cheaper, faster, better solutions. Enterprise AI could be as big as current IT services. With rupee depreciation and dividend yields, IT looks attractive for long-term investors,” he said.

He added that US policy support will be crucial in shaping IT sector prospects.

Long-term story intact

Despite short-term turbulence, Shah urged investors to stay focused on India’s 10-year growth potential.

“India might look expensive on a one-year view, but on a five-year basis, it is the cheapest emerging market due to superior earnings growth,” he said, citing India’s 180% earnings growth in the last decade versus just 10% for China.