Infosys, RIL shares face weight cuts by Kotak; Eternal, IndiGo, SHFL get a lift

"We caution that the stocks could correct more in the case of a prolonged Iran-US war, but we would use any deep correction to add to the positions. To balance the large-cap portfolio, we reduce weight on (1) Infosys by 50 bps to 250 bps, (2) Reliance Industries by 100 bps to 640 bps and M&M by 50 bps to 390 bps," the brokerage said.

Kotak said the strong Q1 results season so far and consequent earnings upgrades contrast sharply with India’s weak macroeconomic situation in the quarter. It is more comfort with India’s strong earnings outlook for FY2027-28, despite an uncertain macroeconomic outlook arising from the ongoing Iran-US war and likely weak monsoons.

The brokerage said it does not find much value in most parts of the market, despite overall market valuations looking quite reasonable. It said aggregate market valuations are pulled down by the sharp de-rating in the
multiples of banks and IT services. The sharp rally in certain sectors and SMID stocks in the past three months precludes investment across caps and sectors beyond a few exceptions, it said.

"A few more weeks of heightened conflict in the Middle East could result in better reward-risk balance," Kotak said.

Kotak said a strong Q1 results and better-than-expected results in several sectors should provide greater comfort to the market’s earnings outlook. It expects a fairly robust growth in net profits of the Nifty-50 index and its coverage universe for FY2027 due to low base in certain sectors, continued strong activity in others and higher YoY commodity prices.

"We note the somewhat ‘low’ quality of incremental earnings, but we will not quibble, given low earnings growth and large earnings downgrades over FY2025-26," it said.