Oil prices remain biggest risk for Indian markets, says Kotak Mahindra AMC’s Nilesh Shah

Indian equities are likely to remain resilient as long as crude oil prices stay under control, according to Nilesh Shah, Managing Director of Kotak Mahindra AMC, which managed funds worth $4.98 billion as of June 30, 2026. Shah said he continues to recommend an equal-weight allocation to equities, while maintaining a marginal overweight stance for aggressive investors, though both views depend on how oil prices evolve amid geopolitical tensions.Shah said investors should focus more on the direction of crude prices than developments in West Asia, adding that oil moving into triple digits could have wider implications for India’s economy.

He noted that market reactions to geopolitical events have become more measured as investors have seen similar episodes before. However, he cautioned that any sustained rise in crude prices would affect Indian equities.
Shah said the power and electrification theme continues to be supported by both structural demand and investor flows. He said the investment opportunity spans power equipment manufacturers, power producers, transmission companies and related ecosystem players, with artificial intelligence (AI)-led data centre demand adding another long-term driver.Shah also pointed to changing foreign investor behaviour. While foreign institutional investors (FIIs) have reduced exposure to several large-cap banking and IT stocks, they have increased holdings in more than 100 mid- and small-cap companies.

Discussing artificial intelligence

Shah said investors should closely monitor how AI investments are being financed. He observed that hyperscalers are increasingly relying on debt instead of internal cash flows, which could affect returns over time.He also flagged cross-contracting among AI ecosystem players as another trend that deserves attention. Despite these concerns, Shah said valuations of AI equipment providers remain relatively reasonable.

“These are the two red flags to watch out for — how much is debt funded and what is the contract rate between players,” he said.

On the domestic market, Shah said systematic investment plan (SIP) flows remain healthy as retail investors continue to back India’s long-term growth story. He added that upcoming large public offerings, including those of NSE and Jio, could play an important role in attracting both domestic and foreign investors if they are priced appropriately.

Shah also urged investors to focus on governance while investing in smallcap companies rather than short-term price volatility. He noted that strong earnings growth continues to support valuations, with the March 2026 quarter seeing 34% earnings growth for the midcap basket and 19% growth for the smallcap basket.

He advised investors to evaluate smallcap and midcap funds over a three-year to five-year investment horizon, saying temporary underperformance should not overshadow long-term potential.

For the full interview, watch the accompanying video

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