Kotak Institutional removes ABB India, Siemens, Cummins India from model portfolio

Kotak Institutional Equities has removed capital goods stocks such as ABB India, Siemens and Cummins India from its model portfolio after a sharp rally pushed valuations beyond comfortable levels, according to Sanjeev Prasad, Managing Director and Co-Head of Kotak Institutional Equities.Prasad said Kotak continues to see a long-term opportunity in themes such as electrification, digitalisation and domestic manufacturing, but believes investors should be disciplined on valuations. While the structural growth story remains intact, he said the market is pricing in too much optimism for several industrial companies.

“We used to like ABB India until recently, but we had to take it out of the model portfolio because it just became too expensive,” Prasad said. He said a similar valuation concern applies to Siemens and Cummins India, which have also been removed from the firm’s model portfolio.
Prasad noted that many companies linked to the electrification theme are now trading at rich earnings multiples despite their positive long-term outlook.”The question is how much money you want to pay for either companies, which have technology or companies, which are more or less assemblers,” he said.

Instead of chasing expensive industrial names, Prasad said Kotak prefers sectors where valuations remain reasonable, and earnings visibility is stronger. He identified private banks as one of the firm’s preferred investment ideas over the next two years.
“If you look at top-tier private banks… most of them are in the range of 1.7-1.8 times one-year forward book. There is limited scope of de-rating, maybe some scope of re-rating,” he said.Beyond financials, Prasad continues to favour domestic services sectors including healthcare services, hospitality, retail, transportation and telecom. He said these industries are supported by rising discretionary spending, a large shift from the unorganised to the organised sector and limited global competition.

Prasad also remains constructive on India’s manufacturing story, particularly the contract development and manufacturing organisation (CDMO) segment, where he believes valuations are still reasonable.

However, he urged caution on the IT sector, saying the impact of artificial intelligence (AI) on pricing and margins remains difficult to assess.

“The billion-dollar question is what kind of deflation one is looking at,” he said, adding that it is still too early to determine whether the recent correction has fully accounted for AI-related risks.

Prasad said aluminium remains structurally supported because of limited global capacity additions, although lower energy prices and the restart of idled production could weigh on prices in the near term.

For the full interview, watch the accompanying video

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