The equity markets will put stock pickers to the test as the gap between expensive and reasonably valued stocks remains wide, says Dhiraj Agarwal, MD of Ambit Investment Managers. He advises investors to look beyond sector trends and focus on individual stocks with fair valuations and steady earnings growth.

Agarwal highlights that the year will challenge investors’ ability to accurately forecast earnings. He notes that markets have been harsh on companies that fail to meet earnings expectations. “As we have seen in this earnings season and the previous one, every single miss is being harshly punished by the market,” he added.

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On the broader market outlook, Agarwal appreciates the positive steps taken in the Budget but remains cautious about the equity market’s potential recovery.

Drawing parallels to previous market cycles, Agarwal foresees a highly polarised market, similar to the 2017-2019 and 2010-2013 periods, where only a narrow set of stocks outperformed while the broader market faced stress.

Agarwal advises investors to focus on companies with earnings growth superior to the Nifty benchmark while avoiding excessively high valuations.

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However, he acknowledges the difficulty in finding such stocks. “There are still companies capable of generating 20-25% plus earnings growth this year, but their valuations leave no room for further appreciation,” he explained.

The consumption sector, especially fast-moving consumer goods (FMCG) stocks, is facing an unprecedented challenge, with earnings declines in several companies.

For the full interview, watch the accompanying video

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