Stay patient in this market; earnings may face near-term pressure: Amnish Aggarwal

Speaking to ET Now, market expert Amnish Aggarwal from Prabhudas Lilladher said that the current environment is characterised by extreme day-to-day volatility, particularly in commodity prices. “It is too much volatility on a day-to-day basis because if you look at crude, one day it moves from 85 to 115–120, in the next two days it is back and then again it shoots up. So, it is a very volatile situation and there are two aspects to it. One is the volatility in prices and the second issue is the availability of the basic products.” According to him, the uncertainty surrounding global supply chains and commodity availability means that the situation may take time to stabilise. “There is very little which can be done in the near term. It will take some time for things to normalise. If this war continues for long, all countries will look at alternate supply sources, so things will take time to normalise.”

Aggarwal also cautioned that the ongoing disruptions could have a cascading effect on corporate earnings. “This is going to have a cascading impact on earnings both in 4Q and even 1Q might get impacted.” While he does not foresee a severe economic contraction, he believes the knock-on effects on demand and growth could still create challenges for markets. “Even if GDP takes a hit and demand weakens a little due to all these actions, that scenario is not looking good.” Given the prevailing uncertainty, he advised investors to remain cautious for the time being. “Till the time some sanity comes into the situation and supply chain issues get sorted out, it is better to be on the sidelines rather than taking the plunge as of now.”

The banking sector, particularly private lenders, has also witnessed selling pressure in recent weeks. Aggarwal noted that despite liquidity measures such as the CRR cut, other factors are working against banks at the moment. “Despite the CRR cut, G-Sec rates have been going up, so that is one factor. The money market is tight.” He pointed out that one of the few positives in recent months had been strong credit growth. “The silver lining was that there was a good amount of credit growth happening, around 12% to 13%.” However, he warned that continued geopolitical uncertainty and supply disruptions could weigh on lending activity going forward. “If this uncertainty on the war and supply chain disruption continues, there is every probability that credit growth might get hit.”

Rising inflation expectations could also alter the outlook for interest rates. “With increasing inflation expectations in the economy, another rate cut is ruled out, at least in April, and even in the coming three to six months the chances are very little,” he said, adding that unless targeted policy incentives are introduced for certain sectors, the likelihood of lower borrowing costs remains slim. This could also impact banks’ profitability outlook. “The expected NIM expansion which the market was anticipating for FY27 might not happen, so that could be a drag on banks in the near term.” However, he added that valuations in the banking space are not stretched and could attract support eventually.

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When asked about the relative positioning of private versus public sector banks, Aggarwal said that private lenders remain fundamentally stronger but are more vulnerable to FII selling due to higher foreign ownership. “Private banks in terms of valuations are better placed compared with their historical averages. But private banks are also where FII holding is higher, so when FII selling happens they suffer more.” He added that if foreign outflows continue, private banks could face more pressure compared with PSU lenders, even though their underlying fundamentals remain sound.
Aggarwal also highlighted the loan-to-deposit ratio (LDR) dynamics within the banking system, noting that many large private banks are currently operating with relatively stretched LDR levels. “If you look at most of the private banks among the large five or six lenders, no one is below the mid-80s and some banks like HDFC and IDFC are running it in the mid-90s or slightly higher. So definitely, if there is some let-up on that, it will reduce pressure on them to some extent.” However, he cautioned that even liquidity easing measures by the Reserve Bank of India may not provide a strong boost if credit demand itself weakens due to uncertainty in the broader economy. “If the disruption in oil prices and supply chains starts hitting the real economy, then credit growth of 12% to 13% may not sustain.” He added that credit expansion could slow significantly in the coming months. “If the current situation continues, I do not rule out that even in the second half of March or in April those numbers could easily crash down to single digits.”The automobile sector has also experienced significant correction in recent weeks, with leading auto stocks falling nearly 15–20% after a strong rally over the previous six months. Aggarwal said the sector’s outlook now depends on several macro variables, including fuel availability, economic growth, and weather conditions. “If you split autos into three baskets—two-wheelers, passenger vehicles and commercial vehicles—the industry had been doing well since GST rate rationalisation and the CV cycle had also started picking up.” However, he warned that emerging risks could impact demand trends. “The bigger issue to watch out for is El Niño because if El Niño comes, rural demand and rural-centric companies could be on the receiving end.”

In such a scenario, he believes urban-focused passenger vehicle manufacturers could perform relatively better. “Urban-centric, SUV-centric passenger vehicle players stand a better chance.” The outlook for commercial vehicles remains less certain, as the segment is closely tied to freight activity and economic momentum. “If overall haulage does not sustain, then even the CV cycle might get shortened,” he said.

Despite the current volatility, Aggarwal believes there are still selective opportunities for investors. “At this point of time, defence and capital goods continue to look good,” he said, while also suggesting selective exposure to consumer staples and healthcare-related segments. “Be very selective in some of the staples. Pharma and hospitals are also spaces to look at.” Among individual stocks, he pointed to telecom major Bharti as a potential opportunity after the recent correction. “Stocks like Bharti can also be looked at because they have corrected significantly without any fundamental crack.”

For now, however, the broader market remains highly sensitive to global developments, commodity price swings, and geopolitical risks. Until greater clarity emerges and volatility subsides, many analysts believe investors may prefer to adopt a cautious approach and wait for stability to return before making aggressive investment decisions.