Kotak Securities Predicts 2025 Market Performance: Hospitals, Airlines, and Bharti Airtel to Outperform

Finance expert Pratik Gupta, CEO and Co-Head of Institutional Equities at Kotak Securities, predicts IT services, consumer sectors, and banks will underperform due to low volume growth, lower NIMs, and higher credit costs. Conversely, hospitals, hotels, airlines, and Bharti Airtel are favored for their domestic focus and secular growth. Private banks may not outperform earnings but their attractive valuations make them appealing compared to overvalued sectors like EMS companies. The earning season has been broadly in line with muted expectations, but the commentary and guidance have been weaker than expected.

Japan's three megabanks—Mitsubishi UFJ Financial Group Inc. (MUFG), Sumitomo Mitsui Financial Group Inc. (SMFG), and Mizuho Financial Group Inc.—are poised to benefit from higher local interest rates, which are expected to boost their net interest margins (NIMs) and profitability. The Bank of Japan (BOJ) is preparing to normalize its monetary policy, which could lead to rate hikes that would benefit the megabanks [1].

The BOJ has already raised its policy rate to 0.5% and may further increase it to 0.75%, according to forecasts. This could result in an additional ￥100 billion in annual profits for SMFG alone, according to the bank's estimates [1]. MUFG, the largest Japanese banking group by assets, reported a slight decline in its net income in the fiscal first quarter, but the megabanks collectively expect higher interest rates to boost their net interest income by a total of ￥535 billion for the current fiscal year ending in March 2026 [1].

However, the megabanks may face a risk of higher credit costs due to the uncertain prospects for the US economy. The US announced 15% reciprocal and auto tariffs on imports from Japan, which could slow down economic growth and increase inflation [1]. This could potentially offset the benefits of higher interest rates for the Japanese megabanks.

Meanwhile, financial technology firm IntraFi secured a $2 billion debt deal in the leveraged loan market, led by Morgan Stanley. The deal includes a $705 million incremental first-lien loan and a $1.3 billion second-lien tranche, with the loans being sold at a discounted price of 99 cents on the dollar [2]. This deal allows IntraFi to pay its private equity owners a dividend and refinance a slice of its riskier debt. The deal was a win for Wall Street banks against private credit firms, which had discussed providing a debt package in recent months.

In terms of sector performance, finance expert Pratik Gupta, CEO and Co-Head of Institutional Equities at Kotak Securities, predicts that IT services, consumer sectors, and banks will underperform due to low volume growth, lower NIMs, and higher credit costs. Conversely, hospitals, hotels, airlines, and Bharti Airtel are favored for their domestic focus and secular growth. Private banks may not outperform in earnings but their attractive valuations make them appealing compared to overvalued sectors like EMS companies [3].

The earning season so far has been broadly in line with muted expectations, but the commentary and guidance have been weaker than expected. Kotak Securities projects a 10% earnings growth in FY26, down from their initial estimate of 12%, due to the continuing weakness in the economy and weaker economic commentary [3].

References:
[1] https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/8/japans-megabanks-likely-to-cash-in-on-higher-rates-to-improve-margins-91901600
[2] https://www.bloomberg.com/news/articles/2025-08-11/banks-score-win-with-2-billion-debt-deal-for-fintech-intrafi
[3] https://m.economictimes.com/markets/expert-view/which-sectors-will-outperform-the-market-in-2025-hospitals-airlines-or-something-else/articleshow/123275540.cms