Correction proves market is 'super hot', says Ramdeo Agarwal; cautious on PSUs

Dalal Street, in the recent few trading sessions, has witnessed volatility with Thursday's trading session seeing the sharpest fall since April this year. Speaking to CNBC-TV18, Raamdeo Agrawal, Chairman & Co-founder at Motilal Oswal Financial Services, believes that this is not a major concern as corrections are part of a classic bull market.

"This is an absolutely textbook bull market, which we are in now, it is very difficult to predict every day, every week, every month," he said.

"It is a very, super-hot IPO market, super-hot volumes in the marketplace. This party can be very long and very large, you cannot put a finger and say that now IPO market is very hot so of course there is cause for correction,” he added.

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The market veteran believes that currently liquidity, momentum, optimism and positive outlook are all in the bulls' favour.

Is there a disconnect between what is the state of the economy and the stock market? Agarwal believes so.

" The stock market is moving ahead of the economy as the economy is expected to kind of blossom, post-COVID in next 12-18 months or two years. So, I think it is very difficult to correlate economic development with what is happening in the stock market. I think we need a healthy correction, which is on right now,” he explained.

Motilal Oswal Financial Services on Thursday reported Rs 536 crore in consolidated net profit for the quarter to September, a full 81 percent growth year-on-year and the highest ever quarterly profit, driven by investment gains to the tune of Rs 267 crore and the record-high performance of the broking vertical.

The city-based brokerage-led financial institution said its consolidated revenue grew 46 per cent annualised to Rs 1,094 crore. For the half-year ending September, consolidated revenue grew 42 percent annualised to Rs 1,953 crore, and the group earned a net profit of Rs 758 crore, which is 63 percent more than the same 6 months period last fiscal.

The numbers are supported by all business verticals with core business firing on all cylinders, the company said, adding capital market business net income jumped 52 percent annualised, and asset and wealth management verticals grew over 226 percent. This was led by a 44 per cent growth in AMC's profit, and an 88 percent in wealth management and a 12x growth in private equity business driven by strong profit on exit of investment.

On earnings, Agrawal, said, “Our operating earnings are very strong and I don’t see operating earnings breaking down because ours is 80 percent retailing business. I am still seeing every month on-boarding of 100,000 customers. I think the activity level is a record high. We are in the classic momentum phase in terms of investors’ participation in the marketplace. So I think the second half looks to be as promising if not more than the first half in terms of operating earnings.”

Agrawal has been cautious on PSUs right from the beginning because, according to him, the thinking in bureaucracy is disconnected from the stock market.

“They are not running the companies or the departments to please the stock market. Though they are listed in the stock market. They have a kind of very different incentive or agenda at times. So that makes it difficult many times, because ultimately what you are buying is a feature of the company in a predictable fashion. If you make the feature unpredictable, then I don't know how to assess the value,” he said.

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