Speaking to ET Now, Agarwal said pharma and autos remain top convictions, while FMCG and IT look expensive relative to their low growth trajectories.
Why pharma & autos win over FMCG & IT
Agarwal said valuation alone means little unless paired with growth. Many investors rely solely on PE multiples, he noted, and miss out on stocks with strong long-term earnings expansion.
Pharma and autos score high on:
- Multi-year earnings visibility
- Improving growth trajectories
- Reasonable PEG ratios (1.5–2x)
Meanwhile FMCG and IT—despite lower PEs—are delivering only 2–5% growth, making their PEG ratios “exorbitantly high.”
“India is a growth market. We have always made money backing high-quality growth,” he said.
Market’s biggest problem: Continuous FPI selling
Despite a strong earnings season and improving consumption trends, the market has remained stuck in a consolidation band. Agarwal attributes this entirely to FPI outflows, not fundamentals.FPIs are favouring US markets, whose share in MSCI Global has surged from 65% to 72%.
“For flows to come back to India, the US must correct. Only then will capital rotate back into emerging markets,” he said, expecting this shift toward end-Q1 2025.
Next leg of India’s market cap will come from small & midcaps
India’s market cap is around $5–5.3 trillion and could double in the next 7–8 years. Agarwal says only 30–35% of the next $5 trillion will come from today’s largecaps.
The remaining 65% will be generated by small and midcap companies that grow into largecaps—making them the biggest wealth creators.
He highlighted that many small/midcap companies guided for 20–25% annual growth, expanding margins, stronger balance sheets and better return ratios.
“These are the future largecaps—and the biggest multibagger opportunities,” he said.
Consumption recovery underway; earnings momentum improving
Corporate earnings have revived after a slow year, and management commentaries across sectors indicate demand recovery—especially in consumption.
Agarwal expects earnings to strengthen further in the current quarter.
Consolidation phase is healthy for long-term investors
Agarwal believes the ongoing consolidation offers domestic investors a chance to buy high-growth stocks at reasonable valuations before foreign flows eventually return.
“Volatility doesn’t scare us. Our money is long-term. We prefer quality small and midcaps with structural growth over the next 3–5 years,” he added.