Kotak’s Nilesh Shah says investors must temper return expectations for 2025

Nilesh Shah, Managing Director of Kotak Mahindra Asset Management, which manages nearly ₹4,300 crore in funds, urged investors to temper their expectations for market returns in 2025, following the strong performance of the past few years.

“Last five years have spoiled habits of investors. Everyone is looking at 25-30% return per annum compounded. The actual returns will be far lower than that,” he said, adding that managing investor expectations will be critical to sustaining strong fund flows.

Shah believes the market is entering a phase of moderation and rotation. Kotak Mahindra AMC has shifted its focus from expensive to reasonably valued sectors.

“Valuation becomes the driver for your future return,” he explained.

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Shah sees potential in banks with a strong credit culture and limited exposure to unsecured lending, as well as consumer staples with significant rural exposure, which could benefit from a robust rabi crop.

He remains positive on sectors like pharma and IT, citing reasonable valuations.

Shah also expects sectors such as EMS (electronics manufacturing services) and new-age businesses to continue their growth trajectory, driven by structural trends like China Plus One and evolving ecosystems.

However, he cautioned, “The real question comes from a valuation point of view. Are we discounting too many things?”

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Shah anticipates a year of consolidation in industrial and capex-heavy sectors, as the market’s high expectations may not materialise immediately.

“This is all going to come in a phase where returns are going to significantly narrow between large, mid, and small caps,” he said.

He stressed that in 2025, stock selection and sector rotation will be critical for navigating a market with returns expected to be in low single or high single digit.