Ambit's Dhiraj Agarwal bets on financials and discretionary consumption, flags high tech valuations

The December-quarter earnings will be critical to sustaining the market rally, said Dhiraj Agarwal, Managing Director, Ambit Investment Managers, in a conversation with CNBC-TV18. He believes festive demand has been strong and will likely reflect in improved numbers ahead.

Agarwal said that so far, earnings from banks and non-banking financial companies (NBFCs) have been largely in line with expectations, with no big surprises on either side.

He remains “meaningfully overweight” on financials, expecting credit growth to strengthen further as consumer demand sustains.

“Indian financials are a lot more linked to consumer demand than capex demand. If the consumption momentum continues, credit growth can pick up by about 200 basis points,” he said.

Agarwal is comfortable allocating up to 40–42% of his portfolio to financials.

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On the IT sector, Agarwal struck a cautious note, pointing out that growth has slowed to mid-single digits while valuations remain elevated. He said the sector’s valuations need to correct further before becoming attractive again.

“Valuations have to come down to 2016-17 levels, and there is still another 20%-25% lower for the sector valuations to go, to reach there, to say that even the current growth is not fully discounted, and one can now buy as a bargain buys,” he said.

Agarwal is upbeat about

consumer discretionary

sectors, supported by premiumisation and a pickup in urban spending. He expects the upcoming eighth pay commission to further boost consumption sometime next year.

“Automobiles, especially personal-use vehicles, should do well. Jewellery could also see a rebound as gold prices stabilise,” he noted.

In contrast, staples face slower volume growth even after price cuts. “A small price cut doesn’t really move the demand needle for staples, but it does for discretionary,” he added.

Agarwal expects renewable energy to be a major long-term growth theme, backed by strong government focus and climate goals. He highlighted that even traditional power players like NTPC are ramping up their renewable portfolios.

For the entire discussion, watch the accompanying video

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