Kotak's Prasad sees 0 returns in 1-2 yrs. Here's what to do

Summary: Kotak Institutional Equities managing director Sanjeev Prasad warns that retail investors may earn nothing from stocks in the next 2 years if they invest in the market today. What makes him so sceptical, and more importantly, if equities are set to disappoint, where should you put your money instead? We break down his warning and lay out a clear strategy for what investors can do now.

If you are counting on India’s stock market to make meaningful money in the next few years, you could be disappointed. Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities, believes retail investors putting money into equities today might not make any returns over the next one to two years, he told The Ken.

That’s not just contrarian pessimism. It’s a warning rooted in what he sees as a widening disconnect between fundamentals and valuations.

Prasad points to an uncomfortable trend: much of the market’s buoyancy isn’t being driven by earnings, cash flows or economic reality. Instead, it’s being held up by relentless, price-agnostic buying—chiefly from retail investors piling into mutual funds and domestic institutions compelled to keep deploying inflows. “A lot of money has gone in after the market had already run up,” he said.

At the same time, smart money is quietly heading for the exits. Foreign portfolio investors, private equity funds and even promoters have been taking chips off the table, cashing out while valuations remain elevated. Yet small investors continue to chase momentum.

The result? Valuations that have little to do with business fundamentals and everything to do with liquidity. In Prasad’s view, this imbalance sets up a period of lean returns for anyone entering the market now.

So, where should investors go?

If the next 1-2 years are likely to deliver little from equities, this is a period to prioritise capital protection and liquidity rather than chasing returns. Debt funds are well-suited to play this role. They offer stability and predictable outcomes, making them a better parking ground while the equity market burns off its excesses.

Here’s a simple framework:

• Investments for up to one year: Liquid funds are best for emergency money or very short-term needs since they offer safety and instant access. They invest in ultra-short-term instruments like treasury bills, certificates of deposits, commercial papers, etc. (maturing within 91 days) and preserve capital with returns higher than a savings account.

• Investments for 1–3 years: Short-duration debt funds (1–3 years) are ideal for a slightly longer horizon. They invest in high-quality government and corporate bonds with limited maturity and balance modest returns with low volatility while preserving principal when equity markets are volatile.
• Investments for 3–5 years: Once your horizon lengthens, a bit of equity can enter the mix. Aggressive hybrid funds combine equity with debt, offering growth potential with a cushion. Balanced advantage funds go a step further, dynamically shifting between equity and debt depending on market conditions, useful in times of valuation uncertainty. These funds allow participation in growth while cushioning downside through debt exposure.
• Investments for 5 plus years: Equity remains unmatched for wealth creation over time. Large-cap funds are a solid starting point for stability and moderate growth. Those willing to accept higher volatility can look at mid- and small-cap funds for stronger compounding potential. Flexi-cap and multi-cap funds offer diversification across market segments, making them suitable long-term wealth-builders.

Your takeaway

If Sanjeev Prasad’s caution proves right, equity investors chasing near-term returns are likely to be disappointed. But that doesn’t mean portfolios must stand still. Use the next couple of years to strengthen your debt allocation, match investments to your time horizon and be patient. When valuations cool and fundamentals reassert themselves, you’ll be better placed to step back into equities with conviction.

Which debt funds should you pick?

If equities fail to reward meaningfully in the near term, investors don’t have to sit idle. Debt funds provide a practical alternative with steady, defensible returns while protecting capital.

The tougher part is choosing the right funds: those that balance returns with safety, avoid hidden credit risks and actually deliver when you need them to.

That’s where Value Research Fund Advisor comes in. Our experts track every debt fund in the market, cut through the clutter and shortlist only the ones that truly deserve your money. Whether it’s liquid, short-duration, or dynamic options, you’ll know exactly where to invest, and why.

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Also read: Fund Radar: Can equities give 0 returns for 5, 10, 15 years?