Kotak Institutional Equities has raised concerns about the outlook for retail-heavy stocks, warning that many could face further declines despite recent corrections. The brokerage's comprehensive analysis reveals that retail investors have experienced significant underperformance over the past 16-18 months, with most portfolios delivering weak or barely positive returns even as headline market indices remained steady.

Top Retail-Heavy Stocks Show Negative Returns

The study examined the top 20 retail-heavy stocks in the Nifty-500, revealing a concerning pattern of negative returns since June 2024. These stocks had experienced a strong run-up between March 2023 and June 2024 before the subsequent decline.

While most stocks in this category underperformed, HBL Engineering and Anand Rathi Wealth stood out as notable exceptions, delivering gains of 69.00% and 54.00% respectively during the same period.

Valuation Concerns Persist

Kotak Institutional Equities emphasized that valuations in many narrative-driven stocks remain disconnected from underlying fundamentals, even after recent corrections triggered by failed growth or turnaround stories. The brokerage warned that these stocks are likely to lose a significant portion of their market cap over time, potentially prolonging the period of weak returns for retail investors.

Mutual Fund and PMS Performance Lags

The underperformance extends beyond direct equity holdings to investments routed through mutual funds and portfolio management services. Equity-oriented mutual fund investors earned very modest returns between July 2024 and December 2025, despite this period accounting for nearly 53.00% of total equity MF flows mobilized between CY22 and CY25.

The analysis showed that a retail investor would have needed to invest consistently since September 2022 to achieve an XIRR of more than 13.00%, even before accounting for expenses and taxes.

Retail Participation Trends

Retail AUM in NSE-listed stocks has remained broadly stable at approximately ₹43.00 lakh crore over the last 18 months. While retail equity AUM expanded at a CAGR of around 15.00% between 2021 and 2025, most of this growth was concentrated between March 2023 and June 2024. Since then, retail participation in equities has cooled, reflecting increased caution amid uneven stock performance.

Market Outlook and Risks

Kotak Institutional Equities cautioned that prolonged underperformance could threaten future inflows, especially as investors place greater emphasis on risk-adjusted returns. The brokerage highlighted a growing mismatch between investor expectations and realized outcomes, particularly in midcap, smallcap, and thematic funds that attracted the bulk of inflows over the past two years. The findings underscore the challenges retail investors face in timing, stock selection, and exposure to high-risk market segments.

Kotak Institutional Equities has maintained a cautious stance on the Automobiles and Components sector despite near-term trends in commercial vehicles continuing to strengthen. While the brokerage has raised its volume and earnings assumptions for FY26 based on improving demand indicators, it has largely left the medium-term outlook unchanged.

Rating Updates and Target Price Revisions

The brokerage has made selective adjustments to its coverage while maintaining overall cautious ratings:

Strong FY26 Outlook For M&HCV Trucks

Kotak expects medium and heavy commercial vehicle (M&HCV) truck demand to remain strong through the second half of FY26, driven by multiple factors. E-commerce-led freight movement and steady infrastructure spending are providing the primary momentum for the segment.

Demand is being supported by a sharp pickup in intermediate commercial vehicles, haulage trucks and multi-axle vehicles, along with a recovery in tipper demand aided by seasonal construction and mining activity. Improving fleet utilisation and stable freight rates are also contributing to the positive momentum.

Bus Segment Benefits From Affordability Improvements

The M&HCV bus segment is expected to show steady growth, with Kotak forecasting 6.50% CAGR over FY25-28. This growth is supported by lower acquisition costs following GST cuts, particularly benefiting internal combustion engine buses. While electrification remains the long-term structural trend, improved affordability is likely to enable state transport undertakings to accelerate fleet additions in the near term.

LCV Segment To Outperform Heavy Vehicles

The light commercial vehicle (LCV) segment is positioned to outperform M&HCVs over FY25-28, with Kotak forecasting 7-8% CAGR growth. The demand recovery has been aided by GST-related affordability gains and is expected to remain strong due to several factors:

• Declining acquisition costs for small fleet operators
• Rising e-commerce penetration
• Growing last-mile connectivity needs

Margin Outlook and Pricing Dynamics

Pricing across M&HCV and LCV segments remains steady, with original equipment manufacturers focused on improving net realisations. While operating leverage should support margins, Kotak cautions that adverse product mix could present challenges. Incremental growth coming from margin-dilutive intermediate commercial vehicles, along with commodity inflation, could partially offset margin gains in the near term.

Kotak has raised its FY26-28 EPS estimates for both Ashok Leyland and Tata Motors' commercial vehicle business, driven by higher volume assumptions and improved margin outlook. Despite these upward revisions, the brokerage has retained its ratings, underscoring its view that while near-term demand is robust, medium-term growth expectations remain measured.

Conclusion

Despite raising FY26 volume estimates, Kotak Institutional Equities maintains a cautious stance on the automobiles sector. The brokerage has upgraded its target price for Ashok Leyland to ₹165 and Tata Motors CV to ₹425, reflecting the near-term positive momentum in the commercial vehicle segment.