Ashwini Agarwal, Founder, Demeter Advisors in an interview to ET Now emphasized that the sector continues to offer value. “Banks and financials as a space looks quite interesting because valuations are still reasonable and the earnings environment looks pretty comforting because the credit costs continue to be benign, liquidity has eased up quite a lot, so we are starting to see that feed through to the loan growth,” he said. “The consumer seems to be doing a little bit better than how she has done over the last four quarters.”
According to Agarwal, the next couple of quarters could bring “very good earnings news” across both banks and non-banking financial companies (NBFCs). He added that the phased implementation of new ECL norms over the next five years will give banks enough time to adapt, further strengthening the sector’s outlook.
On his preferences within the financial space, Agarwal outlined a “barbell approach.” He explained, “On one hand you can have some of the larger PSUs or the larger private sector banks that have relatively not done so well… and then I would go down the curve and buy microfinance companies because the peak stress for microfinance is also behind us.” He believes the upcoming Q2 commentary from microfinance players could turn “quite constructive,” suggesting the potential for strong returns over a 12-month horizon.
On the IT sector, Agarwal acknowledged that sentiment has been weak but noted that “a lot of bad news is obviously baked in.” He said, “These are three cash flow generating machines… While valuations are expensive relative to their own history, the fact that these stocks have underperformed and that a lot of the bad news is priced in might provide some runway for outperformance in the very short term.” He described the current rally as “a hope trade,” pending confirmation from earnings results.
Turning to consumption, Agarwal struck a cautiously optimistic tone. “On the consumer side, especially discretionary consumption, we will see some positive news as well as positive commentary,” he said. He pointed out that microfinance loan books had shrunk significantly and that liquidity constraints had hurt spending, but with financing conditions improving and GST cuts in place, “a combination will lift the consumer sentiment.”He added that this revival could extend beyond a short-lived rebound: “Whether it turns out to be a flash in the pan for one or two quarters… I do not know. My sense is that this could be slightly longer.”Agarwal also highlighted the ongoing importance of the energy transition theme, where “valuations are very punchy in many places but there are some pockets where corrections are offering bottom-up ideas.”
Reflecting on the broader market, Agarwal cautioned that investors must take a stock-specific approach rather than relying solely on sector themes. “You have to look at stocks where earnings trajectory is pretty decent, but stocks have underperformed and that is where you need to go,” he said.
Looking ahead to the festive season, he reiterated his belief that consumer discretionary could surprise on the upside. “Easier credit availability, some improvement in consumer sentiment because of the lower GST will probably drive sales and drive revenues,” Agarwal said. Auto stocks have already rallied 20–30% on GST cuts, but he expects the trend to broaden across categories. “This theme is going to play out for a much wider range of consumer discretionary,” he added.
When asked which segments could drive an earnings re-rating, Agarwal pointed to retailers, fashion companies, jewellery, and white goods. “It is more bottom-up than top-down,” he said. “People were holding back from spending over the last one year and some of this will get released at least for a quarter or two — hopefully for longer.”
As the second-quarter earnings season unfolds, Agarwal’s commentary suggests a cautiously constructive market—led by banks and buoyed by a revival in consumer sentiment, even as investors remain selective in a rotational market environment.
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