Transcript

The webinar focused on analysing market volatility and identifying potential investment opportunities, particularly emphasising the impact of rate cuts, the significance of earnings-driven growth, and the promising prospects of specific sectors like consumption, IT, and chemicals.

Earnings as the Primary Growth Driver

Agarwal emphasised that earnings, not market multiples, have been the primary driver of growth for Indian companies. Data showed that 93% of Indian companies' performance was attributable to profits, with only 7% linked to multiple ratings. This earnings-driven growth was consistent across various sectors, highlighting the importance of earnings in wealth creation. He showcased the success of the 10x fund and portfolio, which prioritise companies with strong earnings growth. Agarwal pointed out that businesses demonstrating sustained quality and industry-leading earnings performance have consistently outperformed others, generating substantial wealth for investors.

Promising Sectoral Opportunities

Agarwal identified several sectors poised for growth. He highlighted the resurgence of rural consumption in India, driven by favourable monsoon conditions, rising disposable incomes, and increased employment opportunities. This revival was evidenced by the decreasing demand for the MNREGA scheme, indicating a shift towards non-farm employment. Recent trends showed rural consumption growth outpacing urban growth, signalling a strong future for this segment.  Agarwal also noted the potential of the consumer staples and discretionary sectors, predicting a significant increase in earnings growth compared to the subdued performance observed from 2021 to 2024. He specifically mentioned companies like Page Industries, V-Mart Retail, and GoFashion as ones to watch for potential earnings surprises.

Turning to the IT sector, Agarwal expressed optimism about its future, citing high order books and multi-year utilisation levels as indicators of a strong earnings comeback in the next two to three years. While acknowledging the recent slowdown due to global economic uncertainties, he highlighted favourable factors like lower equity costs due to US rate cuts and high utilisation levels, positioning the IT sector for significant growth, particularly beyond 2026. 

Finally, Agarwal discussed the chemicals sector's revival, attributing it to China's capacity expansion and the market's ability to absorb the additional capacity without significant price declines. Despite current low chemical prices, he anticipated a robust recovery in the sector by FY26 and FY27, driven by China's revival measures and improving utilisation levels. The sector's strong gross block additions, coupled with low inventory levels in Europe and increasing demand, signalled a potential 25% increase in earnings growth.

Long-Term Investment Strategies and the 10x Portfolio

Agarwal also shared insights into the 10x investment proposition, focusing on identifying companies with the potential for exponential growth over 10 years. He stressed the importance of long-term growth trajectories, capital efficiency, and strong leadership as key criteria for investment. The 10x portfolio, managed by Agarwal, exemplifies this approach, targeting companies with the potential to deliver 10 to 12 times their current value over the next decade.

Agarwal highlighted the importance of intrinsic financial metrics like ROE and ROCE, emphasising that businesses, even with growth potential, must generate strong returns for investors. He outlined three key questions for investors to consider: the availability of reinvestment opportunities, the incremental growth's impact on ROE and ROCE, and the potential for achieving operating leverage as the business grows.

Agarwal described the investment methodology employed for the 10x portfolio, which involves a rigorous screening process using a proprietary framework to identify high-growth businesses. This framework is followed by thorough bottom-up research, including interactions with various stakeholders to validate growth projections and on-ground performance. The 10x portfolio, with its diverse sector allocation and focus on high-growth small caps, aims to withstand market fluctuations while maximizing returns. Plans are underway to make the portfolio accessible to global investors through a dollar-denominated fund. 

The webinar concluded with a Q&A session, providing participants with an opportunity to further engage with Agarwal and gain deeper insights into his investment philosophy and market outlook. 

Disclaimer: The stocks mentioned in this blog are for educational purposes only. This blog does not constitute financial advice. Please consult with a qualified financial advisor before making any investment decisions