India must act now to capitalise on global supply chain shift, says Ambit's Dhiraj Agarwal

India has another chance to become a key player in global manufacturing as companies diversify away from China, and this time, it must not miss the opportunity, according to Dhiraj Agarwal, Managing Director at Ambit Investment Managers.

“Everybody is looking at alternate supply chains, China plus one, etc., and this time you have to seize it,” Agarwal said. “We missed it in 2008–2009 when a similar opportunity presented itself. I am hoping this time we will be able to capitalise.”

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He noted that global markets are dealing with heightened uncertainty, particularly in the US. “It is almost impossible to predict what will happen tomorrow or next week. You can’t even build a business strategy based on last Friday’s announcement, because it might change next Friday,” he said. This unpredictability, he added, often delays capital spending, with businesses choosing to wait until policies become clearer.

Despite the global uncertainty, Indian markets are seeing risk-on sentiment. “The highest momentum part of the market is doing significantly better than the safe and high-quality segments,” Agarwal said. He also observed that retail investors have become the “price setters,” while institutions are now “price takers.”

Agarwal described the current trading range in Indian equities as similar to what was seen from January to May 2024, when the Nifty moved just 3.5% overall despite high volatility within that range. “I don’t see a huge move on either side at the Nifty level in the next few months,” he said, though some stocks within that range could still see 40–80% moves.

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On sector trends, he said real estate demand remains strong, benefiting non-banking financial companies (NBFCs). But valuations are a concern. “If you pick any sector that is doing well with high predictability of earnings, there is discomfort on valuations. And if you go lower, there is discomfort on fundamentals,” he said.

Reflecting on market momentum, Agarwal cautioned that some stocks may continue to rise even when fundamentals don’t justify the move. He compared the current rally to the tech boom of 1999, noting how Wipro went up five times in six months despite sky-high valuations. “If you are riding the tiger, be ready to jump off at the first sign of trouble,” he warned.

On defence stocks, Agarwal said they are currently expensive but not yet in a bubble. “Maybe not yet, but could it become one at some point, looking at the positive momentum? Perhaps,” he said.

For the full interview, watch the accompanying video

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