Kotak Institutional Equities has made several changes to its model portfolios, with a fresh set of large cap and midcap names entering the radar.

The brokerage has added ITC to its large-cap portfolio while reducing weights in Apollo Hospitals (APHS), Eternal and ICICI Bank.

In the midcap portfolio, Goa Agro, Mankind Pharma and Narayana Hrudayalaya have been added, while CRISIL, DCB Bank and Eureka Forbes have been removed.

The changes come as the brokerage sees valuation gaps emerging across several large-cap stocks. At the same time, it remains selective on mid- and small-cap stocks after their strong recent performance.

ITC has been added to Kotak’s large-cap model portfolio with a 1.5% weight. To make room for the stock, the brokerage has reduced Apollo Hospitals by 0.5 percentage point to 3.3%, Eternal by 0.5 percentage point to 3.6% and ICICI Bank by 0.5 percentage point to 9.9%.

According to the brokerage report, Apollo Hospitals and Eternal have delivered strong returns over the past six to 12 months. ICICI Bank’s weight, meanwhile, had moved above the brokerage’s 10% limit for an individual stock.

Kotak sees the broader large-cap space differently. “We find significant value in many large-cap. stocks after the sharp price and time correction in stocks over the past few months or years as the case may be,” the report said.

The brokerage points to a gap between stock prices and what it considers their underlying value. It believes several large-cap stocks are trading at attractive valuations despite the absence of a major economic crisis.

“We find the fact that several large cap. stocks are trading at attractive valuations simultaneously in the absence of a macroeconomic crisis quite remarkable,” Kotak said.

The report highlighted HDFC Bank, ITC and Oil and Natural Gas Corporation (ONGC) as examples. HDFC Bank is trading at relatively modest valuation multiples despite earnings per share (EPS) growth. ITC, meanwhile, trades at 10.4 times one-year forward EPS of its tobacco business after adjusting for its other businesses and cash.

ONGC is another case. The stock trades at 4.4 times estimated financial year 2027 EPS and 4.5 times FY28 EPS estimates, according to Kotak.

The brokerage has also reshuffled its mid-cap model portfolio. Goa Agro, Mankind Pharma and Narayana Hrudayalaya have been added.

Goa Agro has a 12-month fair value of Rs 1,010, implying 49% potential upside based on Kotak’s estimates. The stock trades at 21 times one-year forward EPS, while the brokerage expects a 22% EPS CAGR between FY26-29.

Mankind Pharma has a fair value of Rs 2,885, indicating 27% potential upside. The stock has fallen 13% from its end-July peak.

Narayana Hrudayalaya has a 12-month fair value of Rs 2,350, implying 26% potential upside. The stock trades at around 20 times one-year forward enterprise value to EBITDA, adjusted for Indian Accounting Standards (Ind-AS) 116.

Kotak has removed CRISIL, DCB Bank and Eureka Forbes from its mid-cap portfolio.

CRISIL has gained 21% over the past three months and is now closer to Kotak’s fair value of Rs 5,000. DCB Bank has risen 22% in one month and is near the brokerage’s fair value of Rs 228.

Eureka Forbes faces a different issue. Kotak said increased competition has led to further valuation derating and could create margin pressure.

“Mid-cap. and small-cap. stocks have done exceedingly well in the past six months while large-cap. stocks have languished,” the report said.

Kotak believes the recent divergence between large caps and mid- and smal caps has created opportunities, but it also cautions that attractively valued stocks can remain subdued for some time.