Demeter Advisors' Ashwini Agarwal sees opportunity in private banks, FMCG, avoids AI & defence bets

Ashwini Agarwal, Founder & Partner, Demeter Advisors, said private sector banks and fast-moving consumer goods (FMCG) companies currently offer some of the strongest opportunities as earnings growth improves and valuations remain reasonable. He also said he is turning incrementally constructive on IT services companies due to rupee weakness and potential demand linked to artificial intelligence-related migration projects.

“This is very much a bottom-up, individual opportunities market,” Agarwal said, adding that many stocks corrected sharply after the March lows and are now seeing recovery as management commentary and earnings improve. He also highlighted India’s trade agreements with the UK, US and European Union as medium-term positives that could support exports and economic growth.

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Agarwal said private banks are trading near valuation levels last seen during the COVID-19 downturn despite improving credit growth trends. “Earnings growth is the story here, with very reasonable valuations,” he said. He expects leading private banks to deliver annual returns of 18-20% over the medium term, supported by stable asset quality and better spreads from rising interest rates.

He also identified FMCG companies as indirect beneficiaries of inflation, explaining that rising input costs typically push prices higher, while later moderation in raw material costs can help margins expand. “This is an environment where earnings growth and top-line growth will get rewarded,” he said.

Agarwal said Demeter Advisors has been studying the technology sector closely after a long period of underperformance. While he currently has no exposure to IT services stocks, he said the outlook is improving because of currency tailwinds and AI-linked demand. “I am getting a little constructive,” he said, adding that AI adoption could create consulting and migration opportunities for Indian IT firms over the next few years.

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However, Agarwal remained cautious on sectors linked to defence and artificial intelligence themes where valuations have surged sharply. “Anything that is hot and has excessive valuations is usually a source of frustration over medium-term investing,” he said, referring to stocks trading at extremely high multiples.

He also said he continues to avoid metals due to the difficulty of forecasting global commodity cycles and the lack of clear domestic growth visibility in several segments.

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According to Agarwal, investors should instead focus on quality companies that have corrected heavily over the last 18-19 months but continue to show earnings potential and strong balance sheets.

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