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Praveen Gurwani
Raamdeo Agarwal of Motilal Oswal Securities believes that markets are still on shaky grounds. Agarwal says that he can't conclude if the bull market is back or not.
Excerpts from CNBC - TV18?s exclusive interview with Raamdeo Agarwal:
Q: How does the market look from a value perspective after all that has happened till now?
A: It is still kind of getting adjusted to the huge correction in the market and still I think the ground is a little spooky, in the sense that it is not absolutely solid. One can extrapolate on the current strength present in the market. But one cannot take for granted that the bull market is back.
People are still asking questions as to what is wrong because typically the markets give an indication of something coming. Right now the economy is in good shape, corporate profits are in good shape but is there something, which we are missing?
Q: What is your sense, could the markets be sensing something, which an analyst can?t sense at this point fundamentally?
A: One thing is clear that the markets had run up too far too fast and beyond 10,000 it was very stretched and people had become desperate to see the correction, but then that is an India specific issue. But what has happened recently, is that there has been a global sell-off in all asset classes. So it is the synchronised character of the global markets now and India is participating very actively in the synchronised fashion for the first time and for us it is a double shock that things can move like this. I think that is one source of trouble but if one looks at the global trade growth of above 9%, we grew about 30% in exports, 22% in imports and this excludes services part of it. So some numbers are fantastic and one cannot ignore that.
So from here on I think markets will become much more stock specific and one has to be very cautious and the energy, which was there, as a completely blind bull, is clearly shaken.
Q: What is your sense of these global cues, the sort of risk aversion that there is at this point, liquidity has really dried up, is this going to be a much longer phenomenon or do you think it is a scratchy patch for most emerging markets?
A: It is very important to know what is happening in the global economy and the impact. It is a very important factor, which is not knowable, however hard we try. Disproportionately large amount of time is going into reading about them and trying to think about them and arriving at no conclusion. It is better to again rechannelise the energy into understanding the individual companies, their own valuations and see how patiently one can wait.
Q: Do you think the reenergizing would happen for midcaps considering the hit there?
A: Everything will happen, just because something is smaller in size it does not mean anything. They are also earning the same green bucks. Obviously the market has a way to look for small companies, where the valuations are not as stretched as the larger companies. The larger companies always are at some kind of premium to midcaps, but once this sell-off has happened and excesses are curtailed to some extent, I think midcaps have their own story to tell.
Q: Locally do you see anything, which could potentially be changing, fundamentally too, signals that the market could be sending? So far everybody has been saying that there are global risks, but locally companies will continue to perform? Do you see anything, which the markets could be sensing with local fundamentals?
A: What I get to see is the oil price discomfort, which was there and how it will pan out once it is increased. Second, interest rates, which are steadily climbing up and the RBI trying to slow it down or contain the growth of the economy at 8 -8.5%. Only when one tries to control that massive growth, one does not know where it has stopped growing. For one or two quarters in between, if there is a break in corporate profits, then that could make a huge break in stock market movements.
Another thing, which is a source of satisfaction and a source of concern, is that we have had three very good years of bull market, extremely good. The first year was 85% growth, the second was 60% growth and last year, which was completely unprecedented, we had a 73% growth. On the back of these three years of bull run, which broadly took the Sensex from 3000 odd levels to 12000, some kind of correction is expected for the fourth year in a psychologically sense. Making money had become so easy and the effect of crazy valuations going to about one time GDP to about Rs 35 lakh crore, the visibility in real estate and the crazy deals that we were seeing, so some correction was necessary. To that extent correction is welcome. The only thing was that the whole downswing was like a bomb dropped and one just could not do anything.
Q: Do you think we will get away with that after three years of a bull run and get away with 5-6 months of correction?
A: If you study corporate profit and growth, stocks are slaves of corporate earnings. If you have high quality profits, for example- Infosys or any other high quality company, they are down by 10-20% but they will be back in action or will be coming back to their normal levels within no time. If there is a very clear high quality corporate earnings and earnings growth, I do not see any problem in the long run. In the short run, it is like a voting machine and in the long run, it is weighing machine. We had enough of votes in our favour and now we have to be patient in terms of investing and in terms of getting our returns.
Q: From a valuation perspective, in terms of frontliners, has fair value been reached yet?
A: Yes, it is trailing at 15-16-16.5 times, what used to be forward one-year is now trailing. That is the change and now people will stop talking about 08-09 to justify the valuations and one can atleast live with 06-07 valuations. Even the IPO valuations were going completely haywire and one of the reasons is that in the short-run when the supply of stocks were limited, one could just keep bidding the price up because there was no supply chain. But now the supply is clearly visible and very high quality large IPOs are in the offing, so that has also made a lot of difference.
So it is not just global corrections etc, it started with metals, then regional markets, then our own markets, our own valuations and on top of it, IPO supplies.
Q: Will there be a rethink now in terms of pricing for all these IPOs?
A: Yes, there must be because having whole lot of disappointed investors is going to hurt the market big time, and eventually one has to sell at the selling price in the market. So instead of going too much below the real value, there has to be sanity about the valuation of IPO stocks.
Q: What do you hear when you speak to the managements of sectors, which are sensitive to the economy like autos, etc because one of the large two-wheeler companies are sounding a few caution notes, when they came out with numbers. Is the growth on track when you speak to them?
A: Yesterday, I was with one of India's largest truck dealer who caters to Telco, Ashok Leyland for lot of their dumpers etc and he said that his growth will be 100% this year.
Q: Did you buy around the 9,000 levels?
A: I did not have money, I was 100% invested.