Kotak Adjusts Mid-Cap Portfolio: Kalpataru Projects In, 360ONE Out

Kotak Institutional Equities has notably adjusted its mid-cap model portfolio, integrating Kalpataru Projects and Infrastructure (KPIL) while simultaneously divesting from 360ONE. This strategic move highlights a cautious yet opportunistic stance in the current market environment.

Strategic Portfolio Adjustments

The addition of KPIL stems from its attractive valuation and robust growth trajectory, aligning with India’s infrastructure push. Conversely, 360ONE’s removal followed a significant appreciation in its stock value.

• KPIL is valued at 14.5 times one-year forward earnings.
• The firm projects KPIL’s earnings per share (EPS) to grow 30% in FY2027 and 24% in FY2028.
• This growth is underpinned by a strong order book and increasing exposure to critical sectors like transmission, buildings, and factories.
• 360ONE was removed after its stock price increased 7.4% over the preceding month.

Key Mid-Cap Opportunities

Despite challenges in identifying fresh mid-cap investment opportunities due to a substantial market rally, Kotak has pinpointed specific firms with considerable upside. These selections underscore a selective approach within a broadly strong segment.

• Eureka Forbes and ICICI Prudential Life are identified as leading mid-cap selections.
• Both companies exhibit potential for over 50% upside.

Macroeconomic Headwinds and Earnings Outlook

The broader Indian market faces a “manageable but volatile” macroeconomic landscape, with its moderate upside contingent on external resolutions. Several factors contribute to this nuanced outlook.

• A decisive resolution to the ongoing West Asia conflict is crucial for market stability.
• Persistent uncertainty surrounding this conflict impacts crude oil prices.
• Insufficient rainfall during the current monsoon season poses an agricultural risk.
• Government and Reserve Bank of India (RBI) initiatives are bolstering the external sector through increased capital inflows.

Kotak projects a Nifty-50 net profit growth of 17.5% in FY2027 and 14% in FY2028, following a more subdued 8% in FY2026. However, concerns persist regarding the “somewhat weak quality” of this incremental growth, which heavily relies on a sharp recovery in commodity-sector profits rather than broad-based market momentum.

Valuation Dynamics and Future Growth

An aggregate market assessment suggests reasonable valuations, yet a deeper, bottom-up analysis reveals pockets of concern. This divergence highlights a selective investment environment.

• The market appears reasonable on a top-down basis, partly due to a prolonged de-rating in the banking and IT services sectors.
• Bottom-up analysis indicates consumption stocks are trading at elevated prices.
• Investment-linked stocks in sectors like aerospace, defense, and capital goods have reached “extremely rich” levels.
• The Nifty is currently pegged at 22.7 times FY2026 earnings.
• It is expected to ease to 19.7 times FY2027E and 17.2 times FY2028E as earnings catch up.

India’s GDP growth is estimated at 7.7% for FY2026, moderating to 6.6% in FY2027, before recovering to 7% in FY2028. These projections underline a period of rebalancing between earnings growth and market valuations, with strategic sector bets becoming increasingly critical for investors.