The Nifty is down 6%, stocks are being sold without discrimination and panic is in the air. Kotak Institutional Equities says this is precisely the wrong reaction — and has put out a detailed playbook on what investors should actually be doing right now
The sell-off has been sharp, haphazard, and in large parts, unwarranted. That, at least, is the view of Kotak Institutional Equities, one of India’s most closely followed research houses, which put out a note this week with a title that says it all: Operation Epic Churn.
Since February 27, 2026, when the Iran-US-Israel conflict began reshaping markets, the Nifty-50 has fallen 6%, the Nifty 100 Midcap Index has dropped 5%, and the Nifty 100 Small Cap Index is down 4%. Stocks across sectors — from auto to banking to IT — have been cut 10%, 12%, 15%, as if a permanent erosion of earnings has been baked in forever. Kotak thinks that assessment is wrong, and that investors who act on that wrongness stand to benefit significantly.
What It Is Getting Wrong
The firm’s thesis is that one to two quarters of earnings disruption accounts for a very small slice of a company’s lifetime value. A 10-15% cut in a stock’s price based on a few weeks of geopolitical turmoil is, in most cases, a mathematical overreaction. As the note puts it directly: “The haphazard correction in stock prices across caps, sectors and companies would imply a permanent decline in companies’ earnings, which is clearly invalid.”
Where Kotak does concede a legitimate concern is on the cost of capital. Higher geopolitical risk, a structurally higher risk-free rate compared to the post-global financial crisis era, and a larger equity risk premium to account for disruption — these are real and enduring shifts that investors should price in. The correction may have made stocks cheaper, but cheap relative to a mispriced past is not the same as cheap in absolute terms.
Kotak has long argued that large parts of the Indian market remain incorrectly valued because investors are still using frameworks built for a more stable world. That nuance, however, does not change the near-term opportunity the sell-off has created. And Kotak is very specific about what investors should do with it.
What to Sell, What to HoldÂ
The firm recommends reducing positions in cement, consumer staples and what it calls “narrative stocks” — companies trading at high or inexplicable valuations whose prices reflect a story rather than earnings. These are the stocks that held up during the rally and are now looking increasingly exposed as the cost of capital recalibrates.
On the macro picture, Kotak’s base case remains that the conflict stays high-intensity for a few weeks, followed by months of elevated tensions, and eventual normalisation of trade through the Strait of Hormuz. Under that scenario, the damage to India’s current account is meaningful but manageable — every $10 per barrel change in crude prices impacts India’s current account deficit by approximately $20 billion, or 0.5% of GDP — but not the kind of structural shock that should reprice equities by double digits.
Earnings estimates for the broader Nifty-50 remain largely intact, with Kotak forecasting net profit growth of 16% in FY2027 and 15% in FY2028, with the index currently trading at 19 times FY2027 estimated earnings.
Where to Actually Put MoneyÂ
Where Kotak is putting its own money is the clearest signal of all. The firm has made a direct change to its model portfolio — dropping IndusInd Bank and reallocating that weight into Bajaj Finserv, now at 480 basis points in the portfolio, and Eternal, now at 210 basis points. Both stocks have been punished hard since February 27, falling 11% and 10% respectively.
Kotak’s 12-month fair values for Bajaj Finserv and Eternal imply potential upsides of 41% and 70% respectively from current levels — numbers that are only available because the market has been indiscriminate in what it has sold. Beyond these two names, the firm’s broader portfolio remains heavily weighted toward banks — Axis, Canara, HDFC Bank, ICICI and State Bank of India collectively account for 33% of the model portfolio — alongside Reliance Industries at 9.4%, Bharti Airtel at 5.2%, and a 6.6% allocation to IT through Infosys and Tech Mahindra.
For retail investors who cannot replicate an institutional portfolio trade-for-trade, the actionable translation is this: use this correction to exit stocks you hold primarily on narrative or momentum — particularly in cement and consumer staples where valuations remain stretched even after the fall.
Redirect that capital toward quality financials, select large-cap technology names and healthcare, all of which have sold off on fears that Kotak explicitly characterises as overdone. The window may not stay open long. As Kotak’s note makes clear, the market is currently pricing in a permanent impairment that is almost certainly temporary — and when that realisation sets in, the stocks that are cheap today will stop being cheap very quickly.
