Daily Voice: Strong market rerating likely if consumer sectors deliver strong earnings, says Client Associates' Rohit Sarin

Rohit Sarin is the Co Founder of Client Associates

For the 10% market upside from here on, Rohit Sarin, the co-founder at Client Associates said favourable earnings growth data from consumer driven sectors could bring in optimism towards growth and propel market to rerate leading to an upside.

However, in case of 5% downside scenarios, any negative surprise from consumer driven sectors could disappoint the market expectations leading to correction.

He believes Trump tariffs could be risk for India in near term, but in the medium to long term it can be a serious opportunity for India to diversify its export basket beyond US and improve on the operational efficiency of our manufacturing sector to compete with the best globally.

Do you see tariffs as a potential opportunity for India rather than a risk?

While in the near term it could be risk for India since tariffs could have adverse impact on the competitiveness of our exports to the US from the impacted sectors in the medium to long term it can be a serious opportunity for India to diversify its export basket beyond US and improve on the operational efficiency of our manufacturing sector to compete with the best globally.

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If that happens then India may end up finding many more willing customers besides the US and the entire world will become a market for us as it used to be before the British Colonialism took us over. This could be our Segway into scaling our merchandise exports which contributed just about 10.9% to our GDP in 2024 compared to 19%, 36% and 22% respectively in case of China, Germany and Japan. That could provide us a sustainable headroom for growth for the next 25 years.

What factors could help revive demand and push growth back to the 6.5–7% range, especially with the RBI having already cut rates and the government stepping up its efforts? Also can GST rationalisation make a big change?

Factors for demand revival and 6.5-7% growth trajectory, Tax sops given in the February 2025 Budget and expected reforms in the GST structure are expected to spur the demand from urban consumers. Above normal monsoons this year is expected to spur demand from the rural consumers. All time low inflation and lower interest rates will add to these factors as it could spur demand for consumer credit feeding into overall demand.

What factors could drive the benchmark index 10% higher from current levels — or, conversely, pull it down by 5%?

Market drivers for 10% upside or 5% downside scenarios – Favourable earnings growth data from consumer driven sectors could bring in optimism towards growth and propel market to rerate leading to an upside. Any negative surprise from these sectors could disappoint the market expectations leading to correction.

Which sectors meet your contrarian investment criteria, and why?

Consumer services like hotel and travel, consumer discretionary and NBFCs could do well if consume demand picks up.

Are you taking a significant position in banks with a 3–5 year view? Do you foresee a strong revival in credit growth?

We expect the credit growth to revive over the next couple of quarters on the back of increased consumption and a pick in private capex. As a result, we are positive on the banking sector that is attractively valued.

What is your outlook on the chemical sector? Are you currently investing in this space?

Chemical is one sector that has lagged behind over the past 3 years. However, various government initiatives (Production-Linked Incentive (PLI), Petroleum, Chemicals and Petrochemical Investment Region (PCPIRs)), expected increase in domestic consumption and shifting global supply chains (China+1) are expected to boost the sector. Having said that, a lower export demand and overcapacity in China is expected to weigh on margins.

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