Still in the midst of an earnings downgrade, diversify some holding into gold: Rahul Arora of Nirmal Bang Equities

The CEO of Nirmal Bang Equities said the economy is still recovering from a cycle of earnings downgrade, which could continue to weigh on the investor sentiment.

The surprisingly sharp recovery of India’s benchmark indices after Trump’s tariff pause is ‘shocking’, Nirmal Bang Equities CEO Rahul Arora said in a conversation with CNBC-TV18 on April 25, adding that equities have not fully factored in the fact that India Inc may 'still be in the midst of an earnings downgrade cycle'. He also adviced investors to diversify some of their holdings into gold, as valuation still do not look cheap.

The CEO of Nirmal Bang Equities said the economy is still recovering from a cycle of earnings downgrade, which could continue to weigh on the investor sentiment. The current, downward revision in earnings has created a fragile and prudent environment, he said, adding that certain high valuations are harder to justify. Rahul Arora also pointed out that the broader market valuations do not appear cheap yet, indicating that the risk-reward balance is not favourable for aggressive investing at this point.

He expressed caution over the possibility of the market reaching new highs in the near term, and said such a scenario would be unexpected. “I'm very shocked to see that the market is where it is, so if it goes to new highs, I'll be even more shocked”, Arora added, emphasising that equities have not yet fully factored in the scale of upcoming earnings downgrades.

Given the cautious outlook, Rahul Arora recommended diversifying holdings into gold, which may prove to be a strong hedge against the ongoing market volatility and uncertainty. He suggested not placing all bets on gold, however, there must be “some amount of diversification, given that valuations don't look as cheap.”

Irrespective of the caution, Rahul Arora said he is positive towards sectors like insurance, automotives, and housing finance, as backs their strong fundamentals in better performance. The Nirmal Bang Equities CEO also weighed in on tariffs, and said they might have been used as an excuse to reset valuations downward, rather than any shift in market dynamics. This may suggest that markets could still go through a recalibration before a meaningful recovery takes place, he added.

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