Warning! Zerodha’s Nithin Kamath raises a red flag as corporate growth plateaus

Zerodha founder Nithin Kamath has warned of a slowdown in corporate growth. In a recent post on X, he highlighted how both public and private markets are seeing growth plateau, and valuations in private markets, especially for startups, are now proving excessive, with funding rounds drying up for later-stage ventures. 

“Corporate growth seems to be plateauing across most sectors,” Kamath said. “Even in the private markets, valuations in earlier rounds were far over the fundamental value or expected growth of startups.”

Kamath’s caution comes amid a turbulent year for India’s markets, where strong retail investor momentum has driven record highs for the Nifty and Sensex, even as foreign investors pulled back. While domestic investors remain active, Kamath points out that growth indicators are flashing warnings. 

Data reveals fluctuating yet generally declining profit growth, despite some resilience in revenue. For instance, after a spike in profits of 44% in June 2023, growth slipped to 40.2% in September 2023, then declined sharply to 7.3% by June 2024, ultimately turning negative at -3.4% in September 2024.

Kamath’s concern about disconnect reflects broader anxieties. Geopolitical tensions, high valuations, and market corrections are reshaping investor sentiment. September marked the sixth consecutive quarter of single-digit revenue growth for Indian corporates, with profits declining by 3.5% year-on-year—the first drop since Q3 FY23. This trend has led analysts to temper their growth forecasts for the coming quarters, with Motilal Oswal projecting Nifty earnings growth of just 2% for Q2 FY25, the slowest rate since 2020.

Certain sectors, however, are defying the trend. Motilal Oswal points to the financial and healthcare sectors, with projected earnings growth of 11% and 15%, respectively, buoyed by steady credit demand and strategic expansion into global markets. 

Public sector banks are expected to see earnings growth of 17%, supported by stable domestic demand, while utilities are anticipated to see a 24% uptick due to capacity expansion and industrial demand.

In contrast, other sectors are struggling. Metals are expected to show only marginal growth due to a high base effect and competition from cheaper imports. The oil and gas sector, facing weak global demand and shrinking refinery margins, is projected to decline by 33% year-over-year. Cement, hit by high input costs and market oversupply, could see earnings drop by 41%.

Motilal Oswal’s market outlook suggests caution, citing high valuations as a potential risk. The Nifty is trading at 21.5 times forward earnings, above its long-term average, with the broader market trading at a steep premium. Midcap and small-cap stocks have surged, with valuations now 60% higher than the Nifty 50, suggesting heightened risk.

While local retail investors have played a stabilizing role, Kamath and other market watchers warn that a shift in sentiment among domestic investors could impact market stability.