Earnings To Drive Markets Higher In Long Term, Says Ambit Capital's Dhiraj Agarwal

While the Indian stock market may remain choppy in the short term, corporate earning are expected to drive the benchmarks higher in the long term, according to Ambit Capital's Dhiraj Agarwal.

"The translation of GDP growth in corporate earnings is a little bit challenging," Agarwal, managing director at Ambit Capital, told BQ Prime's Niraj Shah in an interview.

While the real GDP is growing 6-8%, the overall sales of companies who have already reported earnings is averaging only 7%, he said.

The Nifty 50 index has risen 11.82% in the last one year, and about 12.9% year-to-date.

Agarwal highlighted that while the bottom-line figures of companies remain "fantastic", the top-line figures will rise in the longer term.

About four or five months ago, the Wholesale Price Index was "raging" and it was higher than the Consumer Price Index by almost 10 percentage points, he said. "This meant that margins of corporate India were under pressure as input costs were rising faster than companies were repricing the end products. This has now completely reversed."

The information technology sector may witness a "short cyclical rebound" as the U.S. may be able to avert a recession, even as "pure IT plays" remain under pressure, Agarwal said.

Talking about the pharmaceutical sector, he said that he remains constructive as the U.S. generic price decline is slowing down.

The small and mid-cap stocks drove the current rally in Indian indices, he said. According to him, sectors that are formalising, businesses catering to premiumisation and ancillary products aided by the capex cycle may see growth.

"There are opportunities in small caps which are scalable and sustainable," Agarwal said, without naming specific sectors.