Banks Poised for Strong Q2 Performance, Consumer Sentiment Showing Signs of Revival: Ashwini Agarwal
Ashwini Agarwal anticipates a positive second-quarter earnings season, particularly for the banking sector, with a cautiously optimistic outlook for consumer-facing businesses. He believes banks are “cash flow generating machines” and, despite historically expensive valuations, recent underperformance and the pricing in of negative news may offer opportunities for short-term gains.
Agarwal highlighted the comfort provided by ECL (Expected Credit Loss) phasing for financial institutions. He described the current market rally as a “hope trade,” contingent on confirmation through upcoming earnings reports.
Turning to the consumer sector, Agarwal noted that while discretionary consumption has been constrained by factors like shrinking microfinance loan books and liquidity issues, improving financing conditions and recent GST cuts are expected to lift consumer sentiment. He anticipates positive news and commentary on this front. While acknowledging uncertainty about the longevity of a potential rebound – questioning whether it will be “a flash in the pan for one or two quarters” – he expressed a sense that the revival “could be slightly longer.”
Agarwal also pointed to opportunities within the energy transition theme, identifying “pockets where corrections are offering bottom-up ideas” despite generally “punchy” valuations.
He stressed the importance of a stock-specific investment approach, advising investors to focus on companies with a “decent earnings trajectory” that have nonetheless underperformed.
Looking ahead to the festive season, Agarwal reiterated his expectation that consumer discretionary spending could exceed expectations. He believes easier credit availability and the impact of lower GST rates will drive sales and revenues. Auto stocks have already seen a 20-30% rally following GST cuts, and he anticipates this trend will broaden to encompass a wider range of consumer discretionary categories.
Specifically, Agarwal identified retailers, fashion companies, jewellery businesses, and white goods manufacturers as segments with potential to drive an earnings re-rating. He emphasized a “bottom-up” approach, suggesting that pent-up demand from the past year could be released over at least one or two quarters – and perhaps longer.
Agarwal’s assessment suggests a cautiously constructive market surroundings, driven by strong bank performance and a potential revival in consumer sentiment, requiring investors to be selective in a rotational market.
