Raamdeo Agrawal of Motilal Oswal Securities says now is the time to build a portfolio consisting of blue-chip stocks. "This is the time when the markets are depressed, available at 9-10 PE multiple and individual stocks are available even cheaper," Agrawal said.
On what is ailing the markets currently, Agrawal said the market was facing relentless selling pressure. "It has got to do with the absolute withdrawal of capital from India, the way credit has been withdrawn, now equities are being withdrawn — we have seen almost USD 100-150 million worth of selling. So whether there is 50 or a 100 basis point rate cut, the sell order is there in the system," he said.
Here is a verbatim transcript of Raamdeo Agrawal's exclusive interview on CNBC-TV18. Also watch the accompanying video.
Q: Where do you stand on this debate: Goldman Sachs has just put a very strongly-worded 'sell' report on ONGC suggesting that the government has just been ad-hoc taking away money for its other listed entities, other downstream companies and they see that as a key risk and therefore put a sell on it?
A: I have not read the report and so I can not comment at this juncture.
Q: What about the market: it is a curious reaction to rate cut, the RBI cuts rates and the market opens virtually in the red the next morning?
A: It was expected that something was likely to happen on the rate front after inflation fell to less than 4%. However, today the market is not suffering because of an earnings crisis or on what will happen if interest rates go down, the real economy is not being reflected at this juncture in the market. It has got to do with the absolute withdrawal of capital from India, the way credit has been withdrawn, now equities are being withdrawn — we have seen almost USD 100-150 million worth of selling. So whether there is 50 or a 100 basis point rate cut, the sell order is there in the system.
In the short run, it's the voting machine which works. So, all these rates cuts and positive development in the economy will all work in a little longer term.
Q: How much more underperformance do you expect from the banks though?
A: One other thing, which has happened is that all other global majors had about 20-25% location in the financial sphere. So when they unwind their position, they proportionately end up selling in the likes of HDFC, HDFC Bank, ICICI Bank. They were literally owners; they had about 70% plus kind of ownership in these banks, so when they unwind, the brunt of selling comes on these banks.
We have seen that because of their concentrated buying, when the markets were moving up these banks also got premium valuation. You also have F&O here, so in anticipation of what the foreigners are going to do, the local speculators join the race and sell in anticipation. That, I think, is what is happening right now.
Q: You track the two wheelers industry quite closely. What did you make of these monthly sales figures, do you think it's a sign of turnaround or was it looking like a monthly up-blip to you?
A: It looked a little more than that. What had happened was that the industry had got used massive credit fueled growth two years back and then suddenly ICICI Bank and other banks saw a lot of delinquencies coming in and they withdrew the credit from there and that led to stalling of growth in two wheelers in 2007-08 and 2008-09.
But now the industry is used to not having credit and the natural growth which is there is coming up. One should not forget that two-wheeler is predominantly 60-70% rural oriented and there the demand because of credit waivers, loan waiver and whole lot things that the Congress government has done for the rural India, it is booming right now. It's a reflection of the rural economy right now.
My sense is that what we have been seeing for the last three-four months is not an aberration, it's a natural growth of about 12-15% in the industry, which should gain momentum as we go into 2009-2010.
Q: What is your call on the market: is this buy zone for you? Or do you think you will get much better prices because of poor technicals over the next few months?
A: It is academic for me because I really don't have much to invest except for some dividends and things coming in. However, my sense is that this is a time actually one should keep investing and one doesn't know if the market will further go down by 10-15-20%.
Going by past experience typically after the boom, the bust lasts for at least two years but the bulk of the decline happens in the first year. So most of the declines are over but the fear of further decline is there.
What we are seeing is that except for few companies particularly financials, you should buy well calibrated stocks in consumer segments. I have bought six-seven stocks in the last five-six months and, except for financials, either they are at purchase price or a little higher than that.
This is the time when the markets are depressed, available at 9-10 PE multiple and individual stocks are available even cheaper. If you buy what you like, the returns will not be staggering in short while but this is a time to build a nice portfolio of bluechips.
Q: If you had money to invest today would you buy either a Tata Steel at Rs 160 or a Tata Motors at Rs 145- both stocks where there is generally quite a bit of pessimism?
A: I would definitely not buy Tata Motors. Although I am bullish on Indian steel but I would avoid Tata steel because we don't know anything about Corus. Their capital allocation in Corus is Rs 60,000 crore in the last 5 years, but if any company or corporate has done a massive capital misallocation then they will have a decade if loss in terms of recovering from that shock.
In Corus, we have seen very good numbers in December. I would remain bullish on Indian steel and for that proxy would be the Steel Authority of India (Sail), or Jindal Steel but I would avoid Tata Steel at this juncture till I get more clarity on Corus. If I am out of this stock then I would not dabble in it.
Q: You track the fertilizer space, so how would you approach that space and what did you make of the preliminary gas sharing agreement that they were to sign with RIL?
A: I don't know the policies are such that fertilizer companies are not allowed to make money and the government's priority is towards rural India. Their fiscal deficit is such that fertilizer companies are unable to recover even cost of capital. So unless there is any dramatic shift in the policy, which I don't see how it can come in the next 5-10 years, this government also did not do anything in the last five years and it's unlikely that anything is going to happen. I would remain away from any of this fertilizer rumours which go around.
Source : CNBC-TV18
Courtesy/Source: moneycontrol.com
On what is ailing the markets currently, Agrawal said the market was facing relentless selling pressure. "It has got to do with the absolute withdrawal of capital from India, the way credit has been withdrawn, now equities are being withdrawn — we have seen almost USD 100-150 million worth of selling. So whether there is 50 or a 100 basis point rate cut, the sell order is there in the system," he said.
Here is a verbatim transcript of Raamdeo Agrawal's exclusive interview on CNBC-TV18. Also watch the accompanying video.
Q: Where do you stand on this debate: Goldman Sachs has just put a very strongly-worded 'sell' report on ONGC suggesting that the government has just been ad-hoc taking away money for its other listed entities, other downstream companies and they see that as a key risk and therefore put a sell on it?
A: I have not read the report and so I can not comment at this juncture.
Q: What about the market: it is a curious reaction to rate cut, the RBI cuts rates and the market opens virtually in the red the next morning?
A: It was expected that something was likely to happen on the rate front after inflation fell to less than 4%. However, today the market is not suffering because of an earnings crisis or on what will happen if interest rates go down, the real economy is not being reflected at this juncture in the market. It has got to do with the absolute withdrawal of capital from India, the way credit has been withdrawn, now equities are being withdrawn — we have seen almost USD 100-150 million worth of selling. So whether there is 50 or a 100 basis point rate cut, the sell order is there in the system.
In the short run, it's the voting machine which works. So, all these rates cuts and positive development in the economy will all work in a little longer term.
Q: How much more underperformance do you expect from the banks though?
A: One other thing, which has happened is that all other global majors had about 20-25% location in the financial sphere. So when they unwind their position, they proportionately end up selling in the likes of HDFC, HDFC Bank, ICICI Bank. They were literally owners; they had about 70% plus kind of ownership in these banks, so when they unwind, the brunt of selling comes on these banks.
We have seen that because of their concentrated buying, when the markets were moving up these banks also got premium valuation. You also have F&O here, so in anticipation of what the foreigners are going to do, the local speculators join the race and sell in anticipation. That, I think, is what is happening right now.
Q: You track the two wheelers industry quite closely. What did you make of these monthly sales figures, do you think it's a sign of turnaround or was it looking like a monthly up-blip to you?
A: It looked a little more than that. What had happened was that the industry had got used massive credit fueled growth two years back and then suddenly ICICI Bank and other banks saw a lot of delinquencies coming in and they withdrew the credit from there and that led to stalling of growth in two wheelers in 2007-08 and 2008-09.
But now the industry is used to not having credit and the natural growth which is there is coming up. One should not forget that two-wheeler is predominantly 60-70% rural oriented and there the demand because of credit waivers, loan waiver and whole lot things that the Congress government has done for the rural India, it is booming right now. It's a reflection of the rural economy right now.
My sense is that what we have been seeing for the last three-four months is not an aberration, it's a natural growth of about 12-15% in the industry, which should gain momentum as we go into 2009-2010.
Q: What is your call on the market: is this buy zone for you? Or do you think you will get much better prices because of poor technicals over the next few months?
A: It is academic for me because I really don't have much to invest except for some dividends and things coming in. However, my sense is that this is a time actually one should keep investing and one doesn't know if the market will further go down by 10-15-20%.
Going by past experience typically after the boom, the bust lasts for at least two years but the bulk of the decline happens in the first year. So most of the declines are over but the fear of further decline is there.
What we are seeing is that except for few companies particularly financials, you should buy well calibrated stocks in consumer segments. I have bought six-seven stocks in the last five-six months and, except for financials, either they are at purchase price or a little higher than that.
This is the time when the markets are depressed, available at 9-10 PE multiple and individual stocks are available even cheaper. If you buy what you like, the returns will not be staggering in short while but this is a time to build a nice portfolio of bluechips.
Q: If you had money to invest today would you buy either a Tata Steel at Rs 160 or a Tata Motors at Rs 145- both stocks where there is generally quite a bit of pessimism?
A: I would definitely not buy Tata Motors. Although I am bullish on Indian steel but I would avoid Tata steel because we don't know anything about Corus. Their capital allocation in Corus is Rs 60,000 crore in the last 5 years, but if any company or corporate has done a massive capital misallocation then they will have a decade if loss in terms of recovering from that shock.
In Corus, we have seen very good numbers in December. I would remain bullish on Indian steel and for that proxy would be the Steel Authority of India (Sail), or Jindal Steel but I would avoid Tata Steel at this juncture till I get more clarity on Corus. If I am out of this stock then I would not dabble in it.
Q: You track the fertilizer space, so how would you approach that space and what did you make of the preliminary gas sharing agreement that they were to sign with RIL?
A: I don't know the policies are such that fertilizer companies are not allowed to make money and the government's priority is towards rural India. Their fiscal deficit is such that fertilizer companies are unable to recover even cost of capital. So unless there is any dramatic shift in the policy, which I don't see how it can come in the next 5-10 years, this government also did not do anything in the last five years and it's unlikely that anything is going to happen. I would remain away from any of this fertilizer rumours which go around.
Source : CNBC-TV18
Courtesy/Source: moneycontrol.com
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