While potential downgrades during the year remain uncertain, he is comfortable with the 2026 forecasts since the growth is driven by sectors like banking and IT, where he remains confident.
Srini Sriniwasan, Managing Director at Kotak Alternate Asset Managers, and Shanti Ekambaram, Deputy Managing Director at Kotak Mahindra Bank, joined the discussion alongside Prasad.
These are the edited excerpts of the interview.
Q: In the banking sector, do you think the war for deposits will continue, and are we going to continue to see pressure on liquidity, raising deposits, and on margins at least in the first half?
Ekambaram: If I take the last two to three quarters, deposit rates have been reasonably stable. There are two factors to it, the system liquidity was fairly reasonable. And there has been some moderation on the credit side as well. So, banks have been able to raise deposits, but the cost of deposits has been reasonably stable. I expect, as we get into 2025, this will continue.
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Ultimately, it is a demand-supply ratio. Right now, it seems reasonably balanced. We have to see how economic growth happens, and how demand for credit takes off, which we have seen some moderation in, and that will determine the trajectory of deposit rates.
Q: So, could margins continue to be under pressure?
Ekambaram: Margins are a function of your lending and cost of money, not just a part of the deposit. It is also the mix of your lending. At an industry level, the mix of unsecured retail has come down, while the mix of SME and some amount of corporate has come up. But banks will devise ways to see how they can keep their net interest margins (NIMs) reasonably stable. I expect stability or maybe marginal reduction at the industry level on NIMs.
Q: I read your 2025 note, and you have been worried about urban consumption and the general slowdown. Do the December auto sales ameliorate the picture a bit? We saw the small car come back in the Maruti sales numbers. Perhaps the urban consumption slowdown is not all that bad, and things are plateauing.
Prasad: We will have to wait and see because it is only one month since we have seen with number. Also, two-wheeler sales have been very bad. This looks like low teens, kind of a decline in numbers. Having said that, December is not a very big month for auto sales. Obviously, there will be a lot of variation depending on what happened in the base month. On Maruti, specifically, the volumes were very low in December 2023. And that was something like a 74% decline from the December 2022. I would wait and see how volumes play out over the next few months before taking a more decisive view at this time.
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The commentary from companies whatever pre-result releases have come out seems to suggest that things are getting better compared to the September quarter, which was a complete washout with rural and urban all looking bad. At least now, you saw the press release from DMart, some recovery seems to be there. At least as of now, things seem to be better than the September quarter.
Q: What are your earnings growth expectations for 2024-25 (FY25) and 2025-26 (FY26)?
Prasad: We are looking at somewhere about 10% growth for Nifty 50 for 2025. For 2026 as of now, it will be about 16% growth.
As of now, we could be in a golden period of earnings in the sense that people have stopped bothering about 2025 numbers. I am reasonably okay with FY26 numbers forecasts for now with the fact that a lot of growth is coming from banks, IT, etc, where we are a lot more comfortable with our forecasts.
Q: In this IPO, people made a lot of money. There was a Moneycontrol story, which did the calculation. About 60% are still trading at a premium. So does the Diwali in IPO continue, and investors will make money you think?
Sriniwasan: If you look at the liquidity in the market and as Sanjeev Prasad mentioned earlier, people are discounting further and further out and ignoring the numbers for the short term. What we are also seeing is that there are new categories of companies, which are coming into the market, and the inclusion of companies like Zomato in the index just tells you that the composition of how the market will look over the next couple of years is changing.
All these new service-oriented companies or New Age companies, which have achieved scale and are now showing a trajectory of bringing down their burn obviously have a positive rub-off effect on other industries as well. Once people make money in the IPO market, the party will last as long as some other disaster doesn’t strike. And right now we don’t see a disaster around the corner, so maybe it will continue.
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