Speaking to ET Now, market expert Amnish Aggarwal from Prabhodas Lilladar said that the current environment is characterized by day-to-day volatility, especially in commodity prices. “There is a lot of volatility in the day, because if we look for sure, one day it falls from 85 to 115-120, it returns in the next two days and rises again, so it is a very unstable situation and it has two aspects, one is the instability in the prices and the other is the instability of the prices of the products.” According to him, uncertainty about global supply chains and commodity availability means the situation may take time. “There is very little that can be done in the near term. It will take some time for things to return to normal. If this war continues long enough, all countries will look for alternative sources of supply, so things will take time to return to normal.”
Agarwal also warned that the ongoing turmoil could have a wider impact on corporate earnings. “This will impact earnings both in 4Q and even 1Q.” While he doesn’t foresee a severe economic contraction, he believes the knock-on effects on demand and growth could still pose challenges for markets. “Even if GDP suffers a bit from all these actions and demand weakens a bit, the scenario doesn’t look good.” Given the current uncertainty, he advised investors to remain cautious for the time being. “Until some sanity comes to the situation and the supply chain issues are resolved, it’s better to be on the sidelines rather than drowning like we are now.”
The banking sector, particularly private lenders, has also witnessed selling pressure in recent weeks. Agarwal noted that despite liquidity measures such as the reduction in CRR, other factors are currently working against banks. “Despite the CRR cut, G-Sec rates have gone up, so that’s a factor. The money market is tight.” He noted that one of the few positives in recent months has been strong credit growth. “The silver lining was that credit growth was very good, around 12% to 13%.” However, he cautioned that continued geopolitical uncertainty and supply constraints could weigh on lending activity going forward. “If this uncertainty over war and supply chain disruption continues, there is every possibility that credit growth will suffer.”
Rising inflation expectations can also change the outlook for interest rates. “With inflation expectations rising in the economy, another rate cut is ruled out, at least in April, and even more unlikely in the next three to six months,” he said. Unless targeted policy incentives are introduced for specific sectors, the potential for lower borrowing costs remains low, he added. This can affect the profitability outlook of banks. “The expected NIM expansion that the market was expecting for FY27 may not happen, so this will be a drag on banks in the near term.” However, he added that valuations in the banking space have not expanded and could eventually attract support.
When asked about the relative position of private banks vis-à-vis public sector banks, Agarwal said private lenders remain fundamentally strong but are more vulnerable to FII selling due to high foreign ownership. “Private banks are well placed in terms of valuations compared to their historical average. But private banks are also where FII holdings are high, so when FIIs sell they suffer more.” He added that if outflows continue, private banks could face more pressure than PSU lenders, even though their fundamentals remain intact.
Agarwal also highlighted the dynamics of loan-to-deposit ratio (LDR) in the banking system, noting that many large private banks are currently operating with relatively wide LDR levels. “If you look at most of the private banks among the big five or six lenders, none are below the mid-80s and some banks like HDFC and IDFC are in the mid-90s or a little higher. So definitely, if there is a little reduction in that, it will reduce the pressure on them a little bit.” However, he cautioned that even liquidity-reducing measures by the Reserve Bank of India may not spur strong growth if credit demand itself weakens due to uncertainty in the broader economy. “If disruptions in oil prices and supply chains hurt the real economy, debt growth of 12% to 13% may not be sustainable.” He added that credit expansion may slow significantly in the coming months. “If the current situation continues, I don’t rule out that even in the second half of March or in April these numbers could easily fall to single digits.” The auto sector has also experienced a significant correction in recent weeks, with leading auto stocks down nearly 15-20% after a strong rally over the past six months. Agarwal said the outlook for the sector now depends on several major variables, including oil availability, economic growth and weather conditions. “If you divide vehicles into three baskets – two-wheelers, passenger vehicles and commercial vehicles – the industry has been doing well since the GST rate was rationalized and the CV cycle had also started.” However, he warned that emerging risks could affect demand trends. “The big issue to consider is El Nino because if El Nino comes, rural demand and rural-oriented companies may be at the receiving end.”
In such a scenario, he believes that urban-oriented passenger car manufacturers can perform relatively well. “Urban-oriented, SUV-oriented passenger car players have a better chance.” The outlook for commercial vehicles remains less certain, as the segment is closely linked to freight activity and economic activity. “If overall load doesn’t hold up, even CV cycles will shorten,” he said.
Despite the current volatility, Agarwal believes there are still great opportunities for investors. “At this point in time, defensive and capital goods look good,” he said, while also suggesting selective exposure to consumer staples and healthcare-related sectors. “Be very picky about certain staples. Pharmacies and hospitals are also places to look.” Among individual stocks, he pointed to telecom major Bharti as a potential opportunity after the recent correction. “Stocks like Bharti can also be watched as they have corrected significantly without any fundamental crack.”
For now, however, the broader market is highly sensitive to global developments, commodity price fluctuations, and geopolitical risks. Until more clarity emerges and volatility subsides, many analysts believe investors may take a cautious approach and wait for stability to return before making any further investment decisions.
