Macro versus micro forces battle on in markets: Ambit Investment Managers MD Dhiraj Agarwal

Mint

a day ago

Nifty earnings growth, which was a dismal 6% in the previous fiscal year, could gather momentum in the second half of the current fiscal year. This is when the full benefits of the ₹1 trillion cut in personal income tax rate alongside the sharp interest rate cuts by the Reserve Bank of India (RBI) began to spur demand and result in stronger corporate earnings, becoming the next trigger for markets, believes Dhiraj Agarwal, manging director (MD), Ambit Investment Managers. He also adds that after the sharp market correction between September and early April this year, 'we've entered a themeless or stock picker's market," a phase that would test the true acumen of finfluencers.
That's the million-dollar question. Right now, we're witnessing a fascinating tug-of-war between the macro and micro forces in the market. The macro picture is very positive and has certainly been the dominant driver, fuelling this impressive rally from the April lows. We had that six-year low inflation print of 2.8%, lower than RBI's comfort zone, which then paved the way for that significant 50-basis-point rate cut. Plus, the ongoing global tariff discussions genuinely present a compelling 'China +1' opportunity for India.
However, 'micro' or earnings growth needs to catch up, both for further upside and even to sustain these current levels. We saw a rather dismal 6% Nifty EPS (earnings per share) growth in FY25. For the market to hold its ground, I believe we need to see that growth accelerate to at least 10% and ideally climb into the 12-14% range for any meaningful upside.
While earnings growth for the Nifty 50 and Nifty 500 did surprise us positively last quarter, it's fair to say it was still relatively muted, leading to some downward revisions in overall estimates. For Q1(April-June quarter)of this fiscal year, we're anticipating a continued softness in earnings. However, the real story, in my view, begins to unfold from Q2 FY26 onwards. That's when we expect to see the full benefits of the ₹1 trillion income tax reduction for consumers, alongside the sharp rate cuts, truly beginning to stimulate demand and translate into stronger corporate results. We should see earnings gather significant momentum in the second half of FY26.
We are now in a 'themeless' market, very different from the 'theme-driven' market of the past decade. (The period)2015-2020 was all about consumption and private banks, then 2021-2024 saw the rise of capex-linked sectors and PSUs(public sector undertakings). If you picked the right theme, making money felt relatively easy.
However, post that sharp correction we experienced from September 2024 to April 2025, I truly believe we've entered what I'd call a 'themeless' phase. This means it's no longer about simply betting on an entire sector. Moving forward, every sector will have its winners and losers, and success will largely hinge on the individual earnings trajectory of specific companies. We're going to see much higher earnings dispersion even within every sector.
This is a significant shift, and investors will need to adapt. This is now, unequivocally, a true stock-picker's market. It's a phase where the acumen of 'finfluencers' will be rigorously tested, and it's certainly an environment where analysts committed to deep, fundamental research will truly shine.
My expectation is that credit growth will see a gradual (and not a sharp) pickup from the second half of the fiscal year. There are a couple of factors at play here. First, that ₹1 trillion in additional disposable income from tax cuts for consumers is likely to be utilised for immediate consumption or savings before we see a significant surge in new borrowings. We also have to remember that household balance sheets are quite a bit more leveraged today than they have been in the past, which could lead to some caution. Second, when it comes to corporate investments, while I do anticipate a pick-up, I expect it to be a measured one. It's not going to be an immediate explosion of demand.
Absolutely. The government has certainly been the primary driver of GDP growth over the last five years, and the question of private sector participation is paramount for sustainable, broad-based growth.
Currently, corporate investments are navigating a significant dilemma. On one hand, there's a strong, unwavering conviction in India's long-term domestic growth story. The potential is immense. On the other hand, we're still grappling with some perplexing near-term demand weakness. Furthermore, while the 'China +1' opportunity is genuinely large and exciting for Indian manufacturing and exports, we cannot simply wish away the current global risks stemming from potential economic slowdowns due to tariff wars.
So, my take is that the private sector will likely proceed with 'cautious optimism' rather than 'irrational exuberance.' We should indeed see private capex and, consequently, credit demand gradually pick up in the second half of this fiscal year. However, I wouldn't expect 'animal spirits' to return anytime soon—it will be a measured pick-up.
That said, if we zoom out and take a five-year view, I'm much more optimistic. The inherent structural strength of our domestic economy, combined with that significant global supply chain opportunity, should absolutely spur a more robust and sustained private capex cycle.
A fascinating observation on the world today: we're witnessing a rather unique phenomenon where markets appear to be compartmentalising economics and geopolitics into two separate silos. Historically, significant geopolitical tensions like those we're seeing today would typically trigger a 'risk-off' sentiment across financial assets. Yet, surprisingly, beyond a brief knee-jerk reaction, it hasn't fundamentally impacted global markets, including some surprising cases like Israel, where equities are actually at a lifetime high, up over 50% in the last 12 months!
From an India market perspective, the primary geopolitical risk remains what happens to the crude prices. As of now, they seem to be holding within a relatively stable range, which is positive for us.
However, global trade is an entirely different matter, and this is where I see a more tangible risk. There's a very real possibility of global trade, and consequently global growth, slowing down due to the current developments. This would undoubtedly have a negative impact on Indian growth, and by extension, on earnings and the broader markets. Our export sectors are crucial employment generators and have significant linkages to domestic demand, so any slowdown there would certainly be felt.
While the crude import bill has indeed come down relative to our GDP, in my opinion, the larger relevance is the crude bill's relationship to our current account deficit (CAD). The net crude import bill still hovers in the range of 3% of GDP (about $100-105 billion), and CAD in the range of 1-2% of GDP. Hence, a large—let us say 30%—move in crude prices can add almost 100 basis points to our CAD, making an impact of 40-50% in absolute terms. This is meaningful and does impact the currency and the global flows. However, I must say that due to a rising denominator (GDP), smaller swings (of 5-15%) are relatively easier to absorb.
While some might dismiss promoter exits as minor in the grand scheme of overall market cap, I prefer to look at them in relation to the total institutional inflows into the market. And from that perspective, it's actually quite significant.
For the April-June quarter, for instance, we saw total institutional inflows—from both Domestic Institutional Investors (DIIs) and foreign institutional investors (FIIs)—amounting to approximately ₹1.6 trillion. Based on market estimates, the total exits by promoters and founder-shareholder groups exceeded ₹1 trillion.
So, in that context, it represents a substantial draw on liquidity. It is definitely not something that can be ignored when we're trying to form a comprehensive view on the market outlook.
My advice for investors looking at the current pipeline of public issues is really no different from the advice I'd give for stock-picking in the secondary market.
IPOs and public issues are incredibly valuable for expanding our market and completing that crucial risk-capital loop by providing liquidity to early-stage investors. This vibrant IPO market has, in turn, attracted more risk and venture capital, playing a significant role in helping India build a truly dynamic and innovative startup ecosystem, bringing in new products, technologies, and disruption. And for the public market investor, it offers access to exciting new-age companies, further expanding the breadth of our markets.
However, the fundamental principle of diligently looking at fundamentals and valuations applies just as strongly to IPOs as it does to any stock you'd consider in the secondary market. Don't get swept up in the hype; focus on the underlying business, its long-term prospects, and whether the valuation makes sense for your investment goals.