Regulations won’t derail long-term growth of mutual funds, wealth managers, says Kotak’s Pratik Gupta

Pratik Gupta, CEO and Co-Head of Kotak Institutional Equities, believes India’s financialisation of savings trend remains strong and intact despite such regulatory headwinds. He said that while regulatory shocks may arise from time to time, the long-term structural story remains positive for these businesses.

India’s financialisation of household savings — the steady shift from physical assets like gold and real estate to financial instruments such as mutual funds, insurance, and equities — has been one of the defining economic trends of the past decade.

However, recent regulatory proposals, including SEBI’s draft to lower mutual fund expense ratios and tighten distributor commissions, have raised concerns over profitability and growth in the asset management and broking ecosystem.

Gupta noted that firms operating in monopolistic or oligopolistic segments — such as stock exchanges — are more exposed to regulatory intervention. He prefers businesses in open, competitive markets like mutual funds and wealth management, where firms can gain market share through stronger products, people, and service quality, thereby continuing to benefit from the financialisation theme.

He pointed out that while stocks in this space have delivered strong performance, valuations appear stretched in the near term. Over a one-year horizon, the sector looks expensive, though the longer-term outlook remains favourable.

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Discussing earnings trends, Gupta noted that consumer demand might be slowing after the festive boost. “TVS Motors recently guided that second-half two-wheeler sales could be up only 8–9%. The problem of job creation and income growth persists, especially outside formal sectors,” he said.

He observed that the recent surge in consumer demand driven by the GST and festive season boost appears to be fading, with companies indicating that the momentum may not last.

As a result, he remains cautious on consumer staples and discretionary stocks, which continue to trade at rich valuations of “50–60 times earnings.”

In contrast, he sees opportunities in banks, life insurance, telecom, and hospitality sectors. “Credit growth has picked up to about 11.5%, and large private banks are well-positioned to benefit. Valuations there are also more reasonable,” he said.

Gupta said domestic politics, including upcoming state elections like Bihar, have not significantly influenced investor sentiment. “Most investors assume the incumbent coalition will win. They are more focused on reforms, capex, and global fund flows,” he said.

For the entire discussion, watch the accompanying video

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