Outlook 2025: Kotak Securities is bullish on banking, pharma & 2 other sectors in the year ahead

Blame it on geopolitical tensions, global economic weakness, or elevated interest rates, among other factors, but the Indian stock market saw significant volatility in the calendar year 2024.

Sample this: Between March and June 2024, the equity benchmark Nifty 50 remained rangebound, fluctuating between 22,339 and 22,821 levels, advancing by barely 500 points over the three months. Similarly, after reaching an all-time high of 26,216.05 on September 26, the index declined by over 7 per cent, closing at 24,198.85 on December 18. 

The Nifty 50 index has delivered nearly 12 per cent return in 2024, lower than 19.4 per cent in 2023 and over 24 per cent in 2021. However, it is much higher than the 4 per cent return index delivered in 2022.

Amid high volatility and valuation concerns, investors are uncertain about where to invest.

Shrikant Chouhan, the head of equity research at Kotak Securities, feels that markets are fairly valued and provide an upside opportunity. “For investors with a long-term perspective, this suggests that they should consider investing at current levels and can look at adding on market correction,” said the equities expert.

Sectors to watch in 2025 

The brokerage has highlighted four sectors it is bullish on going ahead:

1. Banking Sector: The banking sector has given stable returns during the otherwise volatile market conditions. While the sector has underperformed vis-a-vis broader markets, Chouhan said staying invested in the sector is a wise decision based on fundamentals.

The equity research head also said that the banking stocks under the coverage witnessed 20 per cent year-on-year earnings growth, and the brokerage expects manageable credit costs this cycle.

“Banking stocks offer value and safety, likely outperforming the Nifty in 2025, driven by double-digit loan growth and strong asset quality. In diversified finance, we favour housing finance over unsecured and microfinance segments, given better asset quality and sustainable long-term growth prospects,” said the equity markets expert. 

2. IT Sector: Drawing a parallel between Banking Financial Services (BFS) firms and IT firms, the brokerage expects a normalisation of BFS vertical revenue for the IT firms in the financial year 2026.

The brokerage also believes that the tech spending outlook is “reasonably good” for most regional banks, payment companies and mid-tier BFS firms.

“Banks continue to spend on cloud-based platforms and are moving more core workloads to the cloud,” Shrikant Chouhan said, responding to Mint’s query on the sectoral recommendation.

Investments in data, analytics, AI and cyber security are being prioritised as the finance industry moves toward modernisation and online adoption to keep the competition stakes high, which bodes well for the IT sector.

3. Pharmaceuticals Sector: Kotak Securities highlighted that the pharma industry witnessed subdued growth for the last three months and then recovered with a 10.7 per cent rise year-on-year in November 2024. The brokerage prefers large-cap companies in this sector.

4. Healthcare Sector: The equities expert also focused on the healthcare sector’s increase in private bed capacity along with the pace of expansion in Delhi NCR. The pace is expected to be four to six times higher than in other Tier 1 cities. The capacity is expected to nearly double by the financial year 2028. 

“This amounts to a cumulative addition of ~8,400 beds by key companies in Delhi NCR,” said Shrikant Chouhan.

Max, Medanta, Artemis and Rainbow (in that order) are adding the highest proportion of their new beds (as a percentage of their existing overall beds) in the micro-markets, he said, highlighting the micro markets within a 10-kilometer radius of Gurugram, South Delhi, and Noida.

This poses “a risk to existing and upcoming beds in these micro-markets,” said Chouhan.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.