Consumption Story Yet To Play Out, Pharma Stocks To Outperform: Ambit

Indian equity markets have witnessed a strong rally since February 29, with the BSE Sensex rallying over 23 per cent and the Nifty rising nearly 25 per cent. Analysts have attributed the rally to expectation of a consumption-led earnings recovery. But Q1 earnings announced so far has failed to cheer investors. 

Vaibhav Sanghavi, managing director and fund manager at Ambit Investment Advisors, told NDTV Profit that earnings will likely recover in Q3 and Q4. 

"The growth in consumption and material basket is more of a Q3 and Q4 story. We will have to wait for the monsoons to completely pan out and result in increase in disposable income of firms. Once the story happens, we will see increased consumption," he said. (Watch)

Mr Sanghavi added that the effect of a good monsoon and Seventh Pay Commission salary hikes will be visible more in the second half of this fiscal. Earnings growth could be in the range of 10-15 per cent in the current fiscal, he added. 

According to Mr Sanghavi, the pharma sector is looking attractive as present valuation is lower than its historical valuation. 

"The whole de-rating of the pharma sector was primarily because of the 483s and regulatory issues. What we are seeing in last one-two months is that these companies are putting in huge amount of efforts and getting remedial measures into place and getting approvals on their new drugs, which is a very positive sign," Mr Sanghvi added. 

However, he advised investors to stay away from the real estate stocks as inventory levels are very high and interest rates have not come off as much as expected.