Uday Kotak: Three Major Risks and a Reality Check on Equity Valuations, Trump’s Tariffs, and Dollar Strength

While financialization plays a crucial role in the economy, excessive reliance on it can be detrimental, especially when investors lack a proper understanding of stock market valuations and shift all their savings into equities, according to Uday Kotak, founder and director of Kotak Mahindra Bank. He shared these insights while speaking at Kotak Institutional Equities' Chasing Growth 2025 investors conference.

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Concerns Over Market Valuations and Reciprocal Tariffs

In addition to highlighting the sharp valuations in the stock market, Kotak also raised concerns about the challenges posed by reciprocal tariffs, particularly in an environment where the US dollar has been strengthening rapidly.

Navigating the Trump Era

Discussing India’s economic approach during the Trump era, Kotak emphasized the need to avoid protectionism and instead focus on enhancing India's global competitiveness.

He noted that significant shifts have already taken place under the Trump administration, particularly in capital flows. Unlike the previous period, when investors diversified across asset classes, there is now a growing preference for holding dollar assets, strengthening the US dollar. Given that US equities alone make up nearly 70% of global market capitalization, this shift has broad implications.

Beyond concerns over foreign capital inflows, Kotak also pointed out that President Trump’s intent to reduce the US trade deficit with India could add pressure on India's Current Account Deficit (CAD). To counter this, India may need to reassess its trade structure with various economies to restore balance. Currently, India's CAD is well-managed at around 1.2–1.3% of GDP, roughly $50 billion. Notably, India enjoys a trade surplus of about $40 billion with the US.

Tariffs are a key factor in US-India trade relations, with India imposing approximately 10% tariffs on American goods, while the US levies around 3% tariffs on Indian exports. Kotak warned that as the US enforces reciprocal tariffs, excess capacity in other markets could lead to cheaper exports worldwide.

To navigate this evolving landscape, Kotak outlined several strategies for India. He stressed that the country cannot afford to embrace protectionism and must instead seize opportunities to enhance industrial competitiveness. Given the limitations in sustaining large Current Account Deficits, India must boost productivity and expand manufacturing’s share of GDP. Furthermore, he underscored the importance of both macroeconomic and microeconomic policy execution to achieve these goals.

The Path Ahead: Growth, Regulation, and Market Resilience

Kotak emphasized the need for a measured fiscal consolidation approach moving forward. He urged India to shift from excessive micro-management and regulatory oversight toward fostering growth and competition. To achieve this, he highlighted the necessity of maintaining free and fair markets at all times.

Additionally, Kotak pointed out that Indian stock markets have now reached a level of resilience and scale that allows foreign investors to enter and exit with ease.

Key Takeaways from Kotak’s Address

On Tax Rebates

Kotak noted that income tax rebates make deposit-taking businesses more competitive. However, he cautioned that while the liability side benefits, the so-called “Goldilocks era” for asset-side growth seems to be ending, citing potential stress in unsecured lending. Early warning signs of strain are already visible in the microfinance and unsecured loan segments, he added.

Growth of Quick Service Retail (QSR) and AI’s Impact

Kotak praised India’s thriving quick-service restaurant (QSR) sector, suggesting its potential to create globally recognized consumer brands. Addressing concerns about artificial intelligence (AI), he acknowledged its disruptive impact on education and financial sector productivity. However, he stressed the importance of fostering new job opportunities in the post-technology and AI-driven world.

Hard Work and Entrepreneurial Spirit

According to Kotak, India is witnessing a decline in entrepreneurial drive, particularly after the pandemic. He observed that many next-generation business leaders are prioritizing family office management and investment strategies over risk-taking and business-building. To ensure national progress, he underscored the importance of hard work and entrepreneurial commitment.

Disruption in Banking and Financial Services

Kotak also spoke about the wave of disruption in the banking and financial services industry. He cited examples such as PhonePe's dominance in the UPI market, Zerodha’s profitable expansion in the brokerage sector, and a Brazilian bank valued at $65 billion despite having only 7,000 employees. Given these trends, he urged traditional banks to adapt to emerging business models to stay competitive.