The past two quarters of this fiscal have witnessed a significant slowdown in earnings growth, with the earnings cuts following the September quarter marking the sharpest decline since the Covid-hit period, says Dhiraj Agarwal, managing director of Ambit Investment Managers.
He warns that the slowdown is unlikely to reverse quickly. “A country and economy of our size, you can't really reverse the slowdown in one quarter or two quarters, right? It takes some time. So I think we should brace for a tougher 2025,” Agarwal said in an interview to NDTV Profit.
While there is optimism that government spending will gain momentum after elections and the monsoon season, it will not be enough to offset the broader economic challenges, he said. He also noted that revenue collections this fiscal have merely met expectations, unlike previous years when they consistently outperformed by 10%. This leaves limited fiscal room for aggressive interventions.
"The elections have also sent a message that while structural reforms and capex investments are necessary, they aren't sufficient to address the rest of the economy's needs. Spending will pick up, but it's unlikely to meet earlier expectations," Agarwal said.
Compounding the economic challenges is the impact of food inflation, which continues to weigh on consumer demand. "Food inflation is cutting into wallet share. Consumer credit growth has also tightened, adding to the demand pressure," he said.
Dhiraj Agarwal, MD of Ambit Capital (Source: Company)
Dhiraj Agarwal's Pocket Picks
While such problems persist, Agarwal agrees that there are pockets of opportunity even in this tepid market.
IT Sector and US-Focused Businesses: Agarwal remains optimistic about the IT sector, driven by a stable US economy. "Despite recession concerns, the US economy remains very stable. Trump will be positive for the US, at least in the first couple of years of his Presidency. This stability directly translates into growth for US-focused sectors like IT, which may deliver small positive surprises going forward."
Rather than place his focus on frontline IT majors, his best bets are those in the second rung. Aggarwal notes that these companies tend to grow faster as they are willing to take more risks, unlike their risk-averse frontline peers.
Pharmaceuticals with US exposure also hold potential for longer-term gains, although stocks need to be selected carefully due to the sector's heterogeneity, he warned.
Domestic Consumption: Despite overall weakness in consumption, some segments, such as air conditioners, jewellery, and selective areas of retailing, continue to perform well. "Jewellery, in general, is doing well, even though specific players like Titan may face competitive challenges," he said.
Banking: Despite a slowdown in credit growth, Agarwal sees valuation comfort and manageable asset quality in the banking sector, making it relatively resilient.
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