Rising fear of recession in western economies led by the European Union could make Indian companies linked to the domestic economy an attractive bet over the next few months given the strength of the local economy, Dhiraj Agarwal, co-head of equities at Ambit Capital, told CNBC-TV18.
With record high inflation and aggressive interest rate hikes on the anvil, economists are increasingly concerned that the US economy will tip into recession next year. At the same time, soaring energy costs and Russia-Ukraine war are likely to further slow the European economy.
Agarwal suggested that consumer-focused companies could pop back on investor radar given their relative earnings strength and sees good growth for automobile companies.
“The sector has suffered before COVID and after COVID, and a lot of it is slowly easing out,” he said. The equity strategist believes that there is pent-up demand for automobiles and that the commercial vehicle space has entered a new cycle of strong growth.
In the consumer staples space, Agarwal believes the worst of the margin compression for companies could get over in the June quarter. “We can see a very sharp rebound in margins for consumer staples,” he said.
A rebound in margins of consumer staple companies could result in a rally given their underperformance versus the broader market in the past year.
The other sector with a larger exposure to the domestic economy that Agarwal favours is the banking space, where the strategist sees minimum risk of downside.He argued that risk of earnings downgrades for lenders is minimal and the sector’s underperformance versus the Nifty 50 leaves ample room for gains. “Large banks face minimum downside risk although those expecting 12-13 percent credit growth are likely to be disappointed,” Agarwal said.
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