Go India Stocks founder Rakesh Arora said market earnings may grow 16-20% over the next seven to eight quarters. He prefers IT and banking stocks for now. "The market is on liquid oxygen," Arora said. He added that lower crude oil prices and reduced FII selling are key for growth.

Go India Stocks founder Rakesh Arora has said information technology (IT) and banking stocks are among his preferred sectors in the current market, while steel stocks look more attractive than base metal companies over the next one to two quarters.

In an interview with Zee Business Managing Editor Anil Singhvi, Arora said the market has the ingredients for a sustained recovery, including attractive valuations and improving earnings growth, but a change in sentiment among foreign institutional investors (FIIs) remains important.

"The market is on liquid oxygen," Arora said, describing the current market environment. He added that valuations could provide support to the market, while FII selling could limit its upward movement.

FII flows, crude oil key market triggers

Arora said both a slowdown in FII selling and a decline in crude oil prices would help the market. In the short term, reduced selling by foreign investors could provide relief to domestic equities.

However, he cautioned that rising global bond yields and the possibility of higher interest rates could put pressure on valuations. Higher borrowing costs could also affect global economic growth and investment activity.

According to Arora, lower crude oil prices would be important for the market to sustain a longer-term bull run.

Earnings growth may reach 20 per cent

Arora said the ongoing earnings season has been supportive of the market, with several companies reporting strong results.

He said earnings growth of around 20 per cent in the second quarter would not come as a surprise, adding that the outlook for corporate earnings had improved after a gap of nearly two years.

Arora expects market earnings to grow by 16-20 per cent, with visibility extending over the next seven to eight quarters.

He also noted that results from some sectors that had previously faced pressure, including IT, were showing signs of improvement.

IT stocks a tactical buy, says Arora

Arora said IT stocks have formed a possible bottom and could be considered for tactical buying at current valuations. However, he cautioned that a sustained recovery would depend on stronger growth and an improvement in deal wins.

While hiring activity has started to pick up, he said growth remains modest and margins have yet to recover fully.

Arora said investors should monitor the third and fourth quarters for signs of improvement in deal wins before reassessing the sector's prospects.

Steel stocks look better than base metals

Arora said steel stocks appear better placed than base metal companies over the next one to two quarters.

He noted that steel prices had risen amid higher international coking coal prices, but the recent decline in coking coal prices could support steelmakers' margins in the previous quarter and the third quarter.

On global base metals, Arora cautioned that rising yields and a stronger US dollar could weigh on commodity prices. He also flagged the possibility of slower investment in artificial intelligence infrastructure if higher financing costs affect capital expenditure.

He advised investors to wait for further clarity before taking fresh positions in base metal stocks.

Banks, pharma also among preferred sectors

Arora said banking stocks, including private and public sector banks, remain attractive. He expects banks to benefit from a possible improvement in net interest margins as the interest rate cycle turns upward.

He also pointed to healthy deposit and credit growth as supportive factors for the banking sector. Pharma stocks remain another preferred area, he said.

At the same time, Arora advised investors to be cautious about interest-rate-saensitive sectors such as real estate and utilities, as well as highly leveraged companies.

He also suggested remaining underweight on consumer discretionary stocks, citing rising prices of products such as air conditioners and automobiles, which could affect demand.

Arora's broader strategy favours IT, banking and pharma, while calling for caution in rate-sensitive sectors and global base metals.