Ambit's Dhiraj Agarwal bets on FMCG revival, says power theme needs selective approach

Dhiraj Agarwal, Managing Director at Ambit Investment Managers, believes fast-moving consumer goods (FMCG) could emerge as one of the stronger performing sectors over the next two to three years, helped by margin expansion, better-than-expected volumes and relative earnings strength amid slower broader market growth.

Agarwal said the market had lacked clear themes for some time, but sectors such as FMCG and power were now beginning to stand out.

“I've been saying that the market is, in some senses, a bit themeless, but I can at least see a couple of themes emerging now,” he said.

For the full interview, watch the accompanying video

According to Agarwal, FMCG companies tend to perform well during inflationary periods because they are able to pass on higher costs through price hikes while also improving margins. He added that recent quarterly numbers from FMCG companies showed volume growth ahead of expectations.

He also pointed to the role of valuations in shaping the investment case. “As compared to where they were five years ago, when the whole Street was unanimously bullish on FMCG, the valuations are down 30 to 50%,” he said.

Agarwal cited examples such as Asian Paints, Nestle India and Hindustan Unilever (HUL) to explain how consumer companies historically delivered strong stock returns even with moderate earnings growth when the broader market remained weak.

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He said if overall Nifty earnings growth stays in single digits while FMCG earnings return to teens or mid-teens growth because of margin expansion, the sector could outperform the market.

While discussing sector preferences, Agarwal clarified that he was focused on staples rather than broader consumption plays. “No, it's FMCG staples. I'm talking only about staples around the entire consumption basket,” he said.

On the power sector, Agarwal said the structural outlook remains positive due to rising global demand and opportunities for Indian exporters, particularly in equipment supply to the US market. However, he cautioned that investors need to be selective because valuations in several stocks have already risen sharply.

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“It’s a theme in play 100%, but it’s not as easy a play from an investing point of view,” he said, adding that companies in the sector had already seen significant rerating.

Agarwal also shared his view on the broader market outlook, saying he expects Indian equities to remain range-bound rather than entering a deep correction phase.

“At this point, I would say it's more of a range-bound market,” he said. He added that investors were rewarding sectors showing resilience while avoiding businesses vulnerable to high oil prices and slower GDP growth.

On capital market-linked businesses, Agarwal said the long-term outlook for exchanges, wealth managers, brokerages and asset management companies remains strong because domestic household savings continue to shift toward equities.

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“Only 7-8% of annual Indian household savings are still going into equities at this point in time. This number can easily go to 14 or 15% over the next 10 or 15 years,” he said.

However, he added that investors should remain mindful of valuations even in structurally strong businesses.

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