Speaking to ETNow, in an interview, Agarwal said that fiscal measures and global cues are setting the stage for a potential rebound.
Reflecting on earlier advice to treat dips as buying opportunities, Agarwal noted that investors who followed this approach are now seeing the benefits. “Yes, as you rightly put a lot of things have happened in the last few weeks and months, and specifically, the growth challenges that India was facing have been handled quite well, especially with the GST rate cuts,” he said.
According to him, the combination of direct tax cuts earlier this year and fresh GST reductions is likely to give consumption a meaningful boost. However, he flagged the India-US trade negotiations as the “only major issue” currently weighing on sentiment.
“Once that deal goes through and this 50% tariff comes down significantly, that would be both positive on the trade side, the currency side, and more importantly on the flow side as well,” Agarwal added.
FIIs likely to return after a period of outflows
Foreign investor activity remains a key focus, especially after the U.S. Federal Reserve trimmed rates by 25 basis points. While FIIs have pulled out nearly $20 billion this year, domestic institutional investors have stepped in with more than $60 billion, helping cushion the markets.
Agarwal pointed out that India’s underperformance versus global benchmarks has already been priced in. “In last one year, India has underperformed the emerging market index by over 30% and the MSCI world index by over 25%. This kind of one-year underperformance we have not seen in the last 15-20 years,” he said.
With first-quarter results showing a 10% earnings growth for the Nifty 500, Agarwal believes fundamentals are turning a corner. He also noted that India’s valuation premium to global markets has cooled to 9%, compared with a long-term average of 15%. “We do expect the FII numbers also to come back. The shot in the arm would be as and when we get that trade deal done,” he stressed.
Sectoral Shifts: Opportunities beyond index heavyweights
On sectoral preferences, Agarwal observed that traditional index heavyweights—oil and gas, IT, FMCG, and banking—are showing limited growth, though banking may benefit once credit and deposit growth revive.
The real action, he argued, lies in emerging sectors. “The sectors that are showing larger growth, some of them are actually not there in the major indices, the likes of consumer discretionary led by retail as well as autos, a lot of internet and platform-based companies, the consumer discretionary services, the likes of capital markets, the travel, fertilisers, chemicals and in the industrial space the defence and power,” Agarwal said.
As India navigates global uncertainties and awaits progress on trade negotiations, the combination of tax reforms, Fed easing, and improving earnings is providing investors with renewed confidence in the market’s resilience.
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