In a detailed interaction with ET Now, market expert Sandip Agarwal from Sowilo Investment Managers laid out his views across sectors, offering a mix of optimism, caution, and strategic positioning for investors navigating current volatility.
IT Sector: A Structural Turn or Tactical Bounce?The recent rebound in IT stocks has caught investor attention, especially as it coincides with a weakening rupee. According to Agarwal, this may not just be a short-term move.He said, “If you see last one month I have turned very positive on the sector and I have come on your channel also and said and the reason is very simple one, the correction which has happened in last 15-16 months is very-very sharp and good.”
Valuations, he pointed out, have cooled significantly. “So, basically the PEG ratios which were at five-six times are now at 1.5-1.6 times.”A key trigger now is currency movement. “Second, the rupee depreciation which is 13%, that is massively underestimated as of now in the estimates.”He explained that earlier, companies did not fully benefit from rupee depreciation due to structural investments. “But I would like to highlight the fact that it has not flown into the margins in past because of two things.”Those factors included workforce strategies and localisation efforts. “One, all the companies always had a bigger bench. They wanted to invest in bench whenever there was a rupee tailwind.”
“Second, there was lot of money which went into the localisation, increasing the local workforce… went up to 65-70% for most of the companies, so that ate away almost five years of rupee depreciation benefit.”
Now that these investments are largely complete, the equation has changed. “So, the rupee depreciation will directly flow to the EPS upgrade.”
Agarwal expects strong earnings visibility. “In my view a 15% to 20% EPS growth for next two years is given for the sector.”
Q4 Expectations: Muted Numbers, Crucial CommentarySeasonally, the March quarter has never been a blockbuster for IT—and this time may be no different.
“So, if you see Indian IT has always been a first half growth story… fourth quarter due to less number of working days in February has always been a muted quarter.”
However, the real focus will be on management commentary and forward guidance.
Agarwal does not foresee immediate disruption. “But I do firmly believe that there is no major disruption in revenue growth which will happen immediately for the Indian IT services company.”
Currency impact, however, will be nuanced. “So, the rupee depreciation… will reflect in the INR numbers but… it goes away because of the losses which you have to book on the hedges.”
Looking ahead, repricing could drive earnings upgrades. “Every 1% depreciation in rupee gives you 1% additional EPS growth.”
He adds, “So, we are talking about 13% EPS growth alone from the rupee depreciation.”
Even under conservative assumptions, the outlook remains strong. “So, even the largecaps will see 27-28% of earnings growth over next two years in the worst case scenario.”
Banking Sector: Value Emerging Amid UncertaintyOn lenders, Agarwal highlighted a nuanced outlook shaped by RBI policy expectations and global developments.
“Yes, so we are in a situation where there is obviously a little bit of confusion.”
He believes the central bank may lean towards growth. “RBI will choose growth over inflation… because they need to cool down the bond yields as well.”
In such a scenario, positioning becomes critical. “If there is a hike… you obviously shift more towards the big banks again because that is where the margin of safety is higher.”
He sees opportunity in both PSU and private banks. “As of today PSU banks and large private banks because they have corrected quite sharply looks good.”
However, prolonged geopolitical tensions could shift preferences. “Then automatically there will be more preference for the large private banks because they have corrected much more sharply.”
His broader takeaway: “Private banks do offer great value if you are looking from a two-three-year perspective.”
EMS & Consumption: Wait-and-Watch ModeIn the electronics manufacturing services (EMS) and consumer segments, caution is the dominant theme.
Agarwal pointed to weather-related disruptions. “There are some drizzling happening in some parts of the country, so summer may be a late summer.”
This impacts seasonal demand. “Air conditioner… are very time sensitive products.”
On EMS, global supply chain issues remain a concern. “Whatever we have expected as a sharp recovery may not happen everything immediately.”
He believes March numbers may not reveal the full picture. “March numbers broadly everyone will have good numbers.”
Instead, the real test lies ahead. “The real challenge and real test will be the June numbers because that is where you will see maximum impact.”
Capital Goods: A Post-War OpportunityOne of the most compelling themes, according to Agarwal, lies in capital goods—especially linked to the Middle East.
“Post war we think there will be massive capex cycle again which will start in Middle East.”
This could benefit a wide ecosystem. “The large capital goods companies… even some of the ancillaries they will do phenomenally well.”
While timing remains uncertain, the structural story is intact. “That looks like a structural theme again for us next few years.”
Defence: Strong Tailwinds, Tough ValuationsDefence remains a long-term growth story, backed by global and domestic priorities. “Defence will do phenomenally well. For next 5-10 years it is a structural theme.”
India’s export performance has strengthened the case. “If you see India’s defence export numbers, you will realise that we have done phenomenally well.”
However, valuations are a concern. “Only challenge is that the prices at which defence stocks are available are insane and very tough to justify.”
Metals: Play the Theme, But With CautionAgarwal remains constructive on metals but prefers a selective approach. “Metals we definitely like but problem with metal is that you cannot have a big allocation to it.”
Instead, he suggests indirect exposure. “We try to play metal more through ancillaries… that is a much safer bet.” Currency again plays a role. “Whenever rupee depreciates, then metal obviously benefits.”
His preference is clear. “We like the ones which have aluminium and silver exposures. We are not so keen right now on the ferrous side.”
Final TakeFrom IT’s earnings revival to banking sector value, and from defence’s structural promise to capital goods’ global opportunity, the market narrative is evolving rapidly.
The key, as Agarwal’s insights suggest, lies not in chasing momentum—but in identifying where fundamentals, valuations, and macro trends align.
In a market shaped by both global uncertainty and domestic resilience, disciplined positioning may matter more than ever.
