In the consumer segment, Agarwal notes that rural demand is showing signs of recovery, though investors need to be selective. Companies with already high penetration, like Colgate, may find it harder to grow, while others may benefit from increasing demand.
Agarwal finds valuations in IT services to be quite expensive. He notes that a significant portion of the price-to-earnings ratio is based on built-in assumptions of long-term growth, which remains uncertain.Read Here | Take profits in India, look to re-enter on better value: Citi’s Drew Pettit
He has not been positive on the IT services sector for nearly three years and continues to believe that the valuations are not attractive enough to consider investing. Agarwal also observes that the market is beginning to acknowledge the underlying challenges in the sector.Agarwal views wealth and asset management as strong franchise businesses. He explains that even if the market were to decline by 20%, the earnings impact on these companies would be much smaller, as they continue to receive inflows driven by how financial savings are being channelled in the country. This trend supports both wealth and asset management firms.
In contrast, Agarwal points out that exchanges and brokerages are directly linked to market volumes. If trading volumes drop, these stocks are likely to see a selloff. While brokerages are not very expensive, they operate in a highly cyclical environment. Exchanges, on the other hand, are costly but benefit from strong moats, as the possibility of additional exchanges entering the market is low.
According to Agarwal, wealth and asset management firms offer the strongest franchise value, followed by exchanges, and then brokerages. He notes that overall valuations across these segments remain expensive and require careful consideration.
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