homemarket NewsRaamdeo Agrawal predicts market rally fuelled by retail & FIIs, expects Nifty & Sensex to double in 5 years
Raamdeo Agrawal predicts market rally fuelled by retail & FIIs, expects Nifty & Sensex to double in 5 years
Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services confidently projected that the Nifty and Sensex indices, which represent the broader Indian stock market, have the potential to double in value over the next five years.
In an interview with CNBC-TV18, Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services expressed his positive outlook on the market's future trajectory. He confidently projected that the Nifty and Sensex indices, which represent the broader Indian stock market, have the potential to double in value over the next five years.
Below is an edited excerpt of the interview:
Q: I want to ask you first about positivity - midcaps, all-time highs, smallcaps, all-time highs. Are you worried that there is a bit of an overdoing in the near term, a froth?
A: I had anticipated this, in the sense that I didn't know about small, large and all, but I was knowing that one-day foreigners must join this party because domestics since COVID, because of massive onboarding of retail, from 30 million to 120 million of accounts, the SIP boom is on at 15,000 crore per month. So that cushioned the selloff by foreigners. Now that journey is still on, retail is still on and on top of it, foreigners also want to buy in. First, they want to buy in what they have sold and then they want to top it up because now India is a far more important market in the global scene, almost close to $4 trillion, we have 4 percent of global GDP; $100 trillion of market cap worldwide, we are at about $4 trillion. So, we are again 4 percent, but at the aggregate level, their allocation may be about a percentage or so if you see the total number. So, there is a lot of gap between what they should be allocated in the years ahead and decades ahead, then what is the allocation today; whether they take a call today or they take a pause and then come after 3-6 months, but I see on a 5-10 year basis one-way FII flow. Of course, we have to play our part of it in terms of corporate earnings and other things and there is a likelihood that the market may rerate to a different level altogether, in the sense, from 2021 PE multiple, because the only way you can accommodate flow from both sides is either there is a massive boom in the paper flow from the corporates or the market itself rerates through 25-26 times before and then of course, the paper flow will come. So that is the kind of situation right now, something may change.
Q: At the moment what do we worry about Nifty? We worry that it is very close to its long-term average. In fact, higher, 1.5 standard deviations above its long-term average. But in euphoric times, it can go even to 21-22 times. So, do you think that we should be worrying now that we are above the long-term average? Can there be a selloff before that?
A: There are so many moving parts, but the most important is the corporate earnings. We are in the middle of the season.
Q: How do you measure that?
A: So far not many are disappointed, but the banks have been fantastic. I mean way beyond any analyst estimates. So, everything was around 50 percent kind of growth, and the analysts will still say there will be 70 percent for the year. So that is where the thing is, and even the cost inflation, which happened because of post-Ukraine and last year commodity inflation and all - that is yet to passthrough and most probably in the September quarter you will see an even more dramatic fall in the raw material costs, and hence margin expansion for the non-financial companies - consumer companies or cement companies, steel companies, you see margin expand.
Q: So, you would say even entering at this time or continuing to increase your investment? I mean, I guess everyone is invested. But to continue into top-up would be your game plan.
A: Yes, I mean, don't bother too much about the market levels because this all-time high is for the last 75 years. It is not for the next 5 years. We are going to see significantly higher Nifty, and Sensex in the next five years almost, I would say double from here.
Q: So, no red flags in your mind?
A: Red flag means you must be cautious because you can't buy anything at any price. You must be careful what exactly you are buying, you do your research, and, in any case, you are topping up your portfolio; in the sense that if you are 80-90 percent invested, you are finding an opportunity and getting into them. And I think from here every company or every industry will move differently; in the sense that everything will not fall off. There is something which has run up too much that will fall off, but simultaneously something else will do very well, like tech was falling behind the curve but you see what happened in the last month, everybody was underweight on tech and they got punished. So, the story will keep changing and if both the flows continue and corporate earnings remain intact at about 25 percent current year’s predicted, I think we are on a good wicket.
Q: Since you raised the issue of tech, I do want to discuss one or two sectors, which obviously are important. Tech, what would your personal view be? The guidance we got from Infosys was a bit heartbreaking, shattering, a confidence shattering. What is your sense? Is it already time to dip in or do you want to wait and see how the cloud clears?
A: Tech has a history, it's an adaptive kind of thing; in the sense that every 3-4-5 years there is a new thing coming in. Like Y2K came, people came for bodies, those who can quickly solve their problem, then comes the ERP (enterprise resource planning) boom, then came the dot com boom, then came all webs and everything online, the digitization and nowadays its AI. It is being talked that AI is yet another next frontier. So, it is going to be different, it is going to be huge, but it is going to take time. Right now, everybody is trying to understand what they can do and as the applications come, the mandates will become bigger, clients will also be clear about what they can do and even the service suppliers will also be very clear about what kind of competencies they need to build so that clients can be taken care of.
Q: So, you personally are using this dip to buy?
A: I am allocated; in the sense that even before the dip, I mean, we were not grossly underweight or something like that, except that we were much more on the large, midsize ITs for a growth differential, but we were there because look at today’s market moves, in the US it's only about tech companies or those 5-6 big companies, they are only driving. In India, it is led by financials. So someday we will follow the tech, but our digital side has done very well. In tech, all the digital companies which got hammered in the last 12 months, I think have come back very well.
Q: Which is what I wanted to ask you, I mean, Zomato. I have read your reports and you all are very bullish. Do you think that there is a second coming for the Paytms Zomatos, Nykaa, and everyone who was a marquee name e-comm?
A: Seriously, they have a second coming, they are well-funded.
Q: But valuations?
A: It is very tough to figure out the valuation in a conventional way. So, if you do valuation based on PE or something like that, there is no E. So, what kind of PE multiple do you talk about? So, the first thing is its option value. Second, you have to also do a lot of adjustments in terms of trying to understand the underlying value, in the sense that their books do not have any capitalization of any expenses. So that you have to adjust in some way, and then try to see, or maybe you see 4-5 years out; if you have the courage to see 4-5 years out for these companies and try to do some kind of conventional PE multiples. So, this is the frontier, new tech companies like Zomatos of the world or Swiggy or Policybazaar, Paytm. I think these are companies which are well-funded, and they will have a good time.
Q: Coming to the more conventional, the usual banking, is the one that we should discuss because it's 40 percent of the market. Would you think that HDFC Bank after the merger may underperform because there is a lot to lead, would there be any worries, would you rather bet on ICICI or Kotak because they have to carry a large load?
A: It's not about this or that, every bank has its own merits. This is the most successful bank in the last 25 years and the CEO has gone on record saying that we will create another HDFC Bank in the next 4 years. What more do you want? Your index is going to do 12-13 percent and they are guiding for 18 percent, I don't know whether topline or bottomline, but it’s an outperforming stock, which doesn't mean that there is no other bank which can outperform - this needs to be looked at very seriously because everybody is a bit sceptical about their outlook. But look at what they have created and the way they are going about it.
Q: The worry is, I mean, we have always been used to seeing HDFC Bank as the best in margins among the big banks, the best in ROA among the big banks. Now, they are second in both these aspects with respect to if you compare it to ICICI Bank. I am not still bringing Kotak because it's smaller in size compared to them. So that worry is there.
A: But in size they are way above. The dominance in the marketplace when you say that I am at 12-15-17 percent. You see in bad times. This is a good time, in good times when the credit cycle is good it doesn’t matter that much, but there is a little ripple in the economy and then you see how these tall, big guys will stand up. And I am not comparing HDFC with any other bank because their size is different, the growth rate will be different, the base effect is different.
Q: What about the disruption to housing finance itself because they were anyway very good in housing finance, and now you have cheap money, cheap, raw material to boot? So, does that make life difficult for other housing finance companies?
A: No. They will become super prime in the sense that it will be difficult to compete with them because now they have the distribution of HDFC Bank as well as HDFC and cost of money, which is invincible, I mean the lowest.
Q: So, life is tough for other housing companies?
A: Yes. They knew the game very well. A lot of time what happens is that you are not that good in housing finance. But the one thing they know very well is the housing finance. So, the kind of cross-sell they can do --- it is all promising thing, but how they execute on the ground that we need to see over a period, but the other super prime lenders must be cautious on that front.
For more details, watch the accompanying video
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Feroze Gandhi to Rahul Gandhi: Rae Bareli's tryst with Congress
May 3, 2024 11:36 AM
Rahul Gandhi to contest from Raebareli, close aide KL Sharma from Amethi
May 3, 2024 8:39 AM
BJP's Hindi heartland dominance faces test in phase 3 polls
May 2, 2024 9:14 PM