Banks Poised for Strong Q2 Performance, Consumer Sentiment Showing Signs of Revival: Ashwini Agarwal
Ashwini Agarwal anticipates a positive second-quarter earnings season,โฃ particularly for the banking sector, with a cautiously optimistic outlook for consumer-facing businesses. He believesโฃ banks are “cash flow generating machines” and, despite historically expensive valuations, recent underperformance and the pricing in of negative news may offer opportunities for โขshort-term gains.
Agarwal highlighted the comfort provided by ECL (Expected Credit Loss) phasing โfor financial institutions. He described the current market rally as โคa “hope trade,” contingent on confirmation through upcomingโฃ earnings reports.
Turning to the consumer sector, Agarwal notedโ that while discretionary consumption has been constrained by factors like shrinking microfinance loan booksโ and liquidity issues, improving financing conditions and recent GSTโ cuts are expected to lift consumerโ sentiment. He anticipates positive news and commentary on this โfront. โWhile acknowledging uncertainty โขabout โthe longevity of aโ 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 beโ slightly longer.”
Agarwal also pointed โฃto opportunities within the energy transition theme, identifying “pockets where corrections are offering bottom-up ideas” despite generallyโข “punchy” valuations.
He stressed theโข importance of a stock-specific investment approach, advising investors to focus on companies with aโฃ “decent earnings trajectory” that have nonethelessโข underperformed.
Looking ahead to the festive season, Agarwalโ reiterated his expectation that consumer discretionary spending could exceed expectations. He believes โขeasier credit availability and the impact of lower GST ratesโ will drive โคsales and revenues. Auto stocks haveโค already seen a 20-30% rally following GST cuts, and he anticipates โฃthis trend will broaden to encompass a wider range of consumerโข discretionary categories.
Specifically, Agarwal identified โretailers, fashion companies, jewellery โbusinesses, andโข white goods โmanufacturers 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 โฃsentiment, requiring investors to be selective in a rotational market.