The markets have been rather quiet in September so far despite big triggers like the GST rate cut and stellar GDP print. A big question is what’s the key worry for investors right now, and how is it expected to trade going forward? Kotak Mutual Funds, in a report, stated that the market outlook at the moment is “Neutral to Equity.” This implies that corrections allow adding investments.
However, the report also highlighted that the current market valuation is at a premium compared to the historical averages. However, “the good news is that the Q1 FY26 earnings were marginally ahead of expectations, with overall growth driven more by margin expansion and leverage in Nifty 50 companies,” explained Kotak in its report. The report stated that India’s Return on Equity (ROE) profile is expected to maintain its dominance over other Emerging Markets, with an average differential of 2% in CY26.
Kotak MF on Indian equities: DII flows suggest domestic confidence intact
The constant selling by Foreign Institutional Investors (FIIs) has been a key worry. FIIs have sold Rs 47,666.68 crore in July, Rs 46,902.92 crore in August, and were net sellers in seven out of eight sessions in September. On the other hand, Domestic Institutional Investors (DIIs) bought Rs 60,939.16 crore in September so far.”This suggests sustained domestic confidence. Given the current premium valuations, particularly in small caps,” added Kotak Mutual Fund.
Kotak MF on Indian equities: Indian economy stands strong
If one looks at the economy and its impact on the markets, India’s equity markets present a compelling yet complex narrative. Compared to an estimated 3% global economic growth, the Indian economy continues to exceed expectations, posting a robust 7.8% GDP growth in Q1 FY2025-26. Even the Services PMI jumped to a 15-year high in August. According to Kotak Mutual Funds, “this core strength supports India’s increasing role in global GDP growth, establishing it as a centre of opportunity, despite the US imposing tariffs on Indian products.”