(Bloomberg) -- Indian equities are poised for greater volatility as quickening inflation poses risks to earnings of companies’ trading at high valuations, according to Kotak Mahindra Asset Management Ltd.

“Sentiment remains strong on India’s vaccination drive picking up, but valuations are on the higher end,” Shibani Kurian, head of equity research at Kotak Mahindra Asset Management, said in an interview with Bloomberg TV on Tuesday. “Given valuations are tracking on the upper end, there could be some volatility.”


After pushing into a record-high territory, India’s benchmark S&P BSE Sensex index has fallen in four out of the last six trading sessions. The gauge is up nearly 30% this year, and valuations look “very stretched,” analysts at Nomura said in a note, downgrading Indian equities to neutral.

Kurian is also concerned about inflation and higher commodity costs, which could put pressure on the companies’ margins as there is a lag before passing on higher prices. While she expects the pace of earnings upgrades to slow down, the Mumbai-based analyst favors domestic cyclicals including cement companies, capital goods makers, private sector banks, and real estate.

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