Abhay Agarwal's top sectoral bets in a choppy market

Economic Times

09-07-2025

"I would say that our markets on a global scheme of things are still quite small. We are at $5 trillion market cap where you have companies in US which are close to $4 trillion market cap, single company. So, we are on that growth path. The foreign investors understand that. Obviously, these kind of uncertainties related to tariff situation and daily news-based announcements about US threatening to put new tariffs or taking out old tariffs is going to keep the markets on their toes in the short term, but in the longer term we are going to be pretty okay," says Abhay Agarwal, Piper Serica.
ADVERTISEMENT And yes, there is a lot of development and developments happening overnight and the markets are mature enough at least Indian markets to digest all of that. But US President Donald Trump has now slapped tariffs ranging anywhere between 25% to 45% on several countries globally. Also, there is a very important statement which has come in where Trump says that he is very close to make a deal with India. How do you see all of these developments for the domestic markets?
Abhay Agarwal: From domestic market perspective, I have just got back from a two-week trip to Europe and what I can tell you is that if you just move out of this noisy situation that we are in, as you just mentioned tariff related announcements and the global uncertainty around that, the good news is that India is seen as a bright spot of growth not only for the short term but for next 5 years 10 years. So, the good news is that there is a lot of foreign capital that is looking to come into India, invest in India for the long term. These are not short-term traders. The timing of the entry remains a question mark because there are worries about Indian markets being overvalued, but at the same time there is this belief that the market cap and the GDP growth will continue to inch up.
So, I would say that our markets on a global scheme of things are still quite small. We are at $5 trillion market cap where you have companies in US which are close to $4 trillion market cap, single company. So, we are on that growth path. The foreign investors understand that. Obviously, these kind of uncertainties related to tariff situation and daily news-based announcements about US threatening to put new tariffs or taking out old tariffs is going to keep the markets on their toes in the short term, but in the longer term we are going to be pretty okay.
So, your house is actually known for capitalising on market fear. Now, on those lines I just want to know what is the kind of cash holding that is present and you have been a fan of pharma since very long time. So, if we talk about key sectors which are on your radar and is pharma still a part of it and also a few pockets in BFSI, what is your take?
Abhay Agarwal: So, right now, we are about 8% cash and we are not looking to increase cash holdings because we continue to see good opportunities in some sectors and even in a raging bull market there is always a bear market also going on in some sectors or some specific stocks because of various reasons. So, we would like to focus on those situations, those opportunities. We are seeing enough of them. So, our average cash holding is about 5% to 6% that we like to maintain. In terms of pharma, yes, for last two years we have seen a lot of recovery in pharma companies' earnings and that has been because of five years of solid investment by large pharma companies in their business, a very friendly US FDA that is trying to make bridges with India to make sure that India is a very solid supply chain partner for US pharmaceutical business. And also, the Indian companies overinvested to their credit in building a very strong list of new launches and some of the Indian companies like Dr Reddy's if you look at it, they have like 150 potential new launches over next 18 months in the US.
ADVERTISEMENT So, the analysts have not given the Indian pharma companies enough credit. Hopefully that will reverse. But we are very hopeful that just like last year the pharma sector was the best performing sector amongst all sectors in last calendar year, we are expecting a similar performance this year and probably next year also because some of the spaces like CDMO are still emerging. So, we are very bullish on the pharma sector continuing to do well because of very strong tailwinds there. On banking and financial services, we are seeing recovery. I think the bottom has been made as far as NPA cycle, credit cycle was concerned, collections were concerned. The self-regulatory body of small finance banks and microfinance companies has done a good job of taking away the froth by building in the guardrails. So, we see recovery now in microfinance companies as well as small banks which are trying to become universal banks now. So, this is a sector that we are now overweight in. We were zero weight for last two years, but we have increased our weightage. So, these are the two sectors that we are quite bullish and the third one is EMS which is again a space that we expect to continue to do well.
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We are in an ambiguous state as far as trade deal is concerned. We do not know whether or not trade deal is happening or a mini deal is happening or a final deal will happen in next three to six months. In this scenario, what should one do? Should wait and watch, just sit on cash, or deploy money in sectors which may not be impacted by this.
Abhay Agarwal: Yes, if you are an investor, you are sitting on cash and you have a buy list, it is a good strategy to keep nibbling in a systematic way and that is what we are also doing. All the new money that we are getting, we are not deploying it at one go. So, we have a buy list in form of our model portfolio. But what we are doing is we are averaging out the buying over next six months.
ADVERTISEMENT The problem is that this is such a news-driven market and the news changes every day. The sentiment changes every day. Every half an hour there is a new announcement. My personal view is that India and US will conclude a trade deal. However, it will not be a kind of a final deal. It will have nuances. There will still be moving parts. There will still be sectors which will not be covered by this trade deal. So, there will not be 100% certainty for a long period of time. But even if you get to 50% certainty, it will be a good sign for the market. It will show intent from US and India both to conclude this deal. But it may take time. So, no country is going to back off easily. So, a good strategy for any investor sitting on cash would be to deploy over next six months in a systematic manner rather than doing it all at once.
ADVERTISEMENT That conviction gives a lot of confidence and when you say to deploy money in a staggered manner and create a strategy yes, results and earning season is around the corner. So while we define and draw the strategy considering the result and earning season, what is your take, what all sectors should one keep an eye on and once we get an opportunity get into it?
Abhay Agarwal: Overall, I am quite hopeful that this result season will be a good result season because we are coming off a smaller base and we are coming off two if not three result seasons which kind of were underwhelming, though the last one I would say was not underwhelming, it was probably neutral. But my expectation from the current earning season which is just going to start now is that, we will have some outperformance by companies that have turned their business model to take care of new product launches both in India as well as overseas. I am expecting better results from banking and financial services industry than analysts are expecting from pharmaceutical, from EMS companies, from insurance companies I am expecting positive guidance. But at the same time there are some sectors that will continue to drag a little. The leading one is IT services. We will see cautious commentary again and an underwhelming growth guidance from IT services industry.
Also, from large FMCG companies, I am expecting that the numbers will not be good, the margins will still be under pressure, but the guidance will be better. Similar for auto industry, the numbers may underwhelm a little but the guidance will be pretty positive because we have had a good monsoon a pick-up in rural income, rural consumption. So, overall, I would say this result season will be good. I would also suggest to astute investor not to punt on results. Let the results come out. Even if there is a stock reaction, make use of it rather than pre-empting the result before it is announced.