Kotak Equities sees Indian stocks faring better in 2026 on 3 factors; adds Dixon, raises IndiGo weight

Indian equities are set to fare better in 2026 after a subdued year, supported by an earnings recovery, improving domestic consumption and a more stable macroeconomic backdrop, Kotak Institutional Equities said, as it added Dixon Technologies to its model portfolio and raised its weight on InterGlobe Aviation, the operator of IndiGo.The brokerage said calendar year 2025 delivered “so-so” returns for investors, despite strong domestic inflows, tax cuts and government support. Markets were weighed down by elevated valuations, earnings downgrades, weak profit growth and limited interest from foreign portfolio investors, even as the Nifty-50 index gained about 9% year to date. Large-cap stocks outperformed mid-caps and small-caps, while performance varied sharply across sectors.Kotak said it expects 2026 to mark a turning point, underpinned by three key factors: a stronger earnings outlook, a recovery in domestic consumption demand following GST and income-tax cuts and lower interest rates, and a more supportive macro environment. The brokerage also pointed to the possibility of a better external backdrop, including progress on an India–U.S. trade deal and a stabilisation in the rupee after a sharp deterioration in the trade balance.“We expect CY2026 to be a better year due to (1) better earnings outlook, (2) improved domestic consumption demand, and (3) likely stable macro,” Kotak Equities said.Portfolio reshuffle: adds and increasesAgainst this backdrop, Kotak made several changes to its recommended model portfolio. It added Dixon Technologies with a weight of 150 basis points, citing long-term growth drivers despite recent share-price weakness.“DIXON stock trades at 51X FY2027E EPS and 37X FY2028E EPS and will likely deliver 37% EPS CAGR over FY2026E-30E,” Kotak Equities said, noting that joint ventures in camera and display modules and benefits from the government’s production-linked incentive scheme should support future growth.The brokerage also raised its weight on IndiGo by 50 basis points to 180 basis points after the stock corrected about 15% over the past month on concerns around short-term earnings risks from operational disruptions.“We do not see any meaningful change in Indigo's dominant position in India’s aviation sector,” the brokerage said.In addition, Kotak added Aadhar Housing Finance to the portfolio with a 150 basis point allocation, pointing to reasonable valuations and steady growth prospects.“Aadhar stock trades at 2.3X FY2027E BV and 2X FY2028E BV and will deliver FY2027E RoE of 16.7% and FY2028E RoE of 17.5%,” it said, even as it acknowledged modest asset-quality deterioration in recent quarters.Trims and exits: Torrent, Airtel, RelianceOn the other hand, Kotak removed Torrent Pharmaceuticals from the portfolio, saying the stock has performed well over the past 12 to 36 months and that it sees “better opportunities elsewhere” at current valuations. The brokerage also trimmed weights on Bharti Airtel and Reliance Industries as part of a broader rebalancing exercise, while increasing its allocation to Mahindra & Mahindra.Also read: Stock market meets physics: 5 laws that explain why prices move the way they doLooking ahead: selective positioning remains keyKotak expects Nifty-50 net profits to grow 18% in FY2027E and 15% in FY2028E, with diversified financials, metals and mining, oil and gas, and telecommunications services contributing the bulk of incremental profits. Still, it cautioned that several pockets of the market remain expensive, underscoring the need for selective positioning even as the broader earnings cycle turns more favourable.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)