Zerodha founder Nithin Kamath has warned of a slowdown in business growth. In a recent article on at a later stage.

“Business growth appears to be stagnant in most sectors,” Kamath said. “Even in private markets, valuations in previous cycles far exceeded the fundamental value or expected growth of startups.”

Kamath’s caution comes amid a turbulent year for Indian markets, where strong momentum from retail investors has led to record highs for the Nifty and Sensex, even as foreign investors have pulled out. While domestic investors remain active, Kamath emphasizes that growth indicators are warning signs.

The data reveals fluctuating but generally declining profit growth, despite some revenue resilience. For example, after a 44% increase in profits in June 2023, growth fell to 40.2% in September 2023, then declined sharply to 7.3% in June 2024, finally turning negative at -3.4 % in September 2024.

Kamath’s concern about the disconnect reflects broader concerns. Geopolitical tensions, high valuations and market corrections are reshaping investor sentiment. September marked the sixth consecutive quarter of single-digit revenue growth for Indian companies, with profits down 3.5% year-on-year, the first decline since the third quarter of FY23. led analysts to moderate their growth forecasts for the coming quarters, with Motilal Oswal forecasting Nifty’s earnings growth of just 2% for Q2FY25, the slowest rate since 2020.

However, some sectors are defying the trend. Motilal Oswal cites the financial and healthcare sectors, with expected profit growth of 11% and 15%, respectively, supported by consistent credit demand and strategic expansion into global markets.

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

On the other hand, other sectors are in difficulty. Metals are expected to see 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 refiner margins, is expected to see a 33% year-on-year decline. Cement, hit by high input costs and oversupply in the market, could see profits fall 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. Mid- and small-cap stocks have surged, with valuations now 60% higher than the Nifty 50, suggesting increased risk.

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