Patience is key in markets as global uncertainties test new investors: Raamdeo Agrawal

I was talking to some people they were saying that market is dull. What do we do? So, I said expect little lower return and get ready for a bigger return. Longer you wait for a low return, higher will be the return on the back ended. So, this is a time for a little patience, says Raamdeo Agrawal, co-founder of Motilal Oswal Group.
ET Now: So, firstly wanted to have your take on how you have seen the markets transitioning throughout these many years and from here on how do you see the market going ahead, your first thoughts on that.
Raamdeo Agrawal:
Coming back to your question, markets have been actually very resilient if you look at a very long term, 10, 15, 17 years. It has been very predictable market and in last 16 years if you see, we have seen…, 16 years means we are talking about something like post GFC which is about 2008-09. So, after that only Covid has been one of the big breakdown, otherwise market has been very-very nice and scaling up.
And from 2020 post Covid, we are seeing virtual boom from 8,000-9,000 post covid correction to now 24,000-25,000, so 3x in five years, so it is a very sustained rise and it is very resilient. I mean, good thing is that not only it is rising, the corrections are very-very shallow and so that is giving the confidence. Even it has given a lot more confidence to retail investors and so, yes, journey has been very good.
Raamdeo Agrawal:
So, I was talking to some people they were saying that market is dull. What do we do? So, I said expect little lower return and get ready for a bigger return. Longer you wait for a low return, higher will be the return on the back ended. So, this is a time for a little patience.
Today market is good, but generally all these geopolitical challenges, the patience is a lot more required whenever the external environment becomes hostile. So, right now we are going through slightly turbulent environment and patience is the key one should… I mean, lot of people have come new in the system, almost like 60-70% people are less than five years into the market. So, they would have not…, their patience will be tested for the first time, so they should be ready to provide that necessary patience, no return kind of a zone for some time and then journey again starts. So, my sincere request to all the new investors would be that they should be ready to provide that patience which is the biggest fertiliser for long-term investing.
Live Events
ET Now: In last 15 years if I look at ballpark, like we say in Hindi mota-moti gold and equity markets have given almost parallel returns. Now, with gold you have not done any hard work, you always had advantage of liquidity. With equity markets in last 15 years you have taken big knocks of volatility in covid and then in 2013-14. So, if gold has given returns which are almost equivalent to equities, what does that tell you that which asset class will outperform going forward because gold has given you good returns without any stress. Equity has given you all kind of stress and has not given you great returns in 15 years.
Raamdeo Agrawal:
No, there has been…, a downdraft for the gold must be low. Of course, gold has done much better than I ever thought it will do. One is that there is no outperformance to further gold performance. If gold has done 15% or index has done 15%, I think I must have done at least 20%, so that 5% is not possible in gold. It is only possible in equities and I mean, some of the guys might have done 25%, 30% also, that is not possible in gold unless you leverage and those kind of things.
So, yes, I mean, gold has outperformed my own wildest expectation and it has emerged globally also as a very important bucket of value, so the people who believe in gold, of course, it is good news to them. And right now, it looks very, what do you call, bullish, but I would not put anything onto the gold. I am pretty comfortable. One of the things which Mr Buffett said is do what you understand. So, I understand only equities. So, I am pretty good at staying with equities.
ET Now: But I was telling someone today that when I met Raamdeo ji three years back on Diwali, he said capital markets is going to be that one structural story and I was just admiring the way that you actually pick up big trends in the market. While capital markets theme is not going anywhere in a hurry hopefully so, but what are the other big trends that you foresee now emerging in the markets?
Raamdeo Agrawal:
No, I still think capital market remains a big opportunity because it is asset light and it is very scalable and the firms, particularly is the opportunity size is one. Second is the scalability within, what do you call, opportunity itself, like if you look at the global asset management companies, now they do not talk in billions, they only talk in trillions. I mean, like there are $8 trillion, $10 trillion kind of a single asset management company. So, those kind of… As our AUM grows, we will also see that 10-15% of the total AUM would be with one AMC, like in India out of 40 lakhs equities, SBI must be having almost like 7-8 lakh crores.
So, those kind of consolidated positions will be there on a much more enlarged asset base. When asset base goes from 40 lakh crores to 400 lakh crores, these giants will have their due share in the larger pie also. So that kind of a capital market… and capital market is very, I would say, at least to me it looks like very smoothly compounding and scaling as a GDP of the country grows and the entire system remains intact. So, the capital market opportunity still is a pretty large opportunity and now markets have valued it also somewhat.
When we talked about three years back, valuations were very cheap. Now, people are realising that and it is showing up in the valuation. So, less attractive opportunity than what it was three years back, but nevertheless longer term that opportunity still stays pretty intact. But going to other segments, if the oil price stabilises about $65 or $60, all the OMCs which are there at current, currently available at literally one book or one-and-a-half book, 10 times, 12 times for their size of the businesses that seems to be kind of a great opportunity and it is very early trend. But let us see, I mean the government also has to be supporting in terms of policy making but that looks to be a big trend out here.
ET Now: So, I am using the nominal GDP as the benchmark here, 11% to 12%. For next three years which are the businesses because investing like you always say is buying a good business. Which are the businesses which will grow faster than the nominal GDP? Which are the businesses which will grow in and around the nominal GDP? And which are the businesses, themes, or sectors which will grow in single digit?
Raamdeo Agrawal:
So, like the real estate looks to be…, real estate, defence, energy transitions, capital market, I mean these are few themes which are coming immediately to my mind, they will grow at more like 20%, 22%, 25%. Even banking, banking on the whole, the kind of policy we are seeing, the regulator wants higher growth, credit growth rate. So, if the 13-14%, if they go back to the trend, credit growth rate, in that case mid-sized banks, well-managed banks they will grow at about 18-20% or more than that. So, yes, I mean, there are whole lot of sectors who will definitely grow. I mean, almost like one-and-a-half times of nominal GDP growth rates.
ET Now: You have been extremely bullish on real estate, which you have always maintained that it is also a structural story. A lot of the positive is already in the price. The real estate sector is a well discovered sector now. But do you think with RBI's push, with all that RBI is doing with regards to norms now and infra lending, etc, as well, this sector is here to stay and there is still money to be made?
Raamdeo Agrawal:
I mean, you have to be selective what companies you buy because it is a very-very large sector and the companies have their own limitation in terms of execution. Every city has two-three very large realty companies. But then if you look at the whole country, as you go from current $4 trillion GDP to $8 trillion or $20 trillion, the biggest game in town is going to be the real estate company.
Anybody makes money anywhere in stock market or anywhere, first thing they go is and splurge in buying a better house, good house and better house. If somebody has two bedroom, he will go for three-bedroom, they will go for better locality. So, real wealth effect of stock market and of the broader economy will be reflected in realty boom and that is what we are witnessing and I mean, it is just about three-four years old kind of thing, till about Covid things were absolutely in dumps.
Of course, they have come back from there and a lot of companies are listed also and a lot of companies are going to come up, but in this space we will find some unknown tier III companies or tier II companies or small companies making big splash in next 5-10 years.
ET Now: You have been a big votary of these high digit, high growth businesses, especially the digital businesses.
Raamdeo Agrawal:
Yes, so that I forgot to tell, but that is one thing which is going to be across, I mean, there is going to be so many companies from the digital side. The way US market is looking today that 8-10 digital companies are kind of a dominating the entire index movement or corporate profitability movement, those movements will also come maybe after five-seven years in terms of significance.
ET Now: …say that you need to figure out what is in the price, whether it is good news or bad news, whether it is earnings or whether it is compounding. So as we look into the future and if one has to look at next 12 to 18 months from a market standpoint, what is in the price and what is not in the price.
Raamdeo Agrawal:
I mean, that is company wise, you have to go very company-wise, listen to the story, eat, drink, and spend time with them and understand their story. At that time you are able to figure out, at least the way I go about doing it is spend a full day with the company, at the end of the day you will be able to figure out whether it is in the price or you are way above the…, I mean, underlying value is more than the price or price is more than the value that you will be able to figure out by spending full day with the company.
ET Now: Talk about a theme where question marks have been raised about the viability and the future existence and that is a good old IT services. Massive wealth creators but from given what is happening in AI, the maturity curve, the demand, do you think these stocks will continue to underperform and one should not call them as contra or value buyers at all.
Raamdeo Agrawal:
I am not too sure that world will go without IT services companies like Infosys, TCS, and all. But AI computing or what AI role…, I mean role of services companies will be changing for sure and they have been changing right throughout, from a complete body shopping in 90s to project implementation and now very large complex projects and now the new angle which has come up is the AI computing. So, I mean how relevant they will be in this new…, and they will be relevant, I do not have any doubts. The issue is, are their role going to go up or they will go through this stagnancy process or some kind of a contraction also. Because it budgets, I mean in my own company IT budgets are not going down, it spend is continuing and it is always short, your projects are not getting completed in time. So, it is not that just AI is coming and eating away all the services, no, it is not happening in real life. Yes, there is some exciting development about the AI, some of the things can be done faster, but I am not the right person to pass a judgment, but I do not think it is down and out kind of situation, no.
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Renewables, housing finance to power wealth creation over next 7 years: Deven Choksey

Deven Choksey , MD, DRChoksey FinServ, say that in the automobile sector, companies offering comprehensive engineering and R&D services to OEMs are poised to play a major role in the evolving landscape. This transformation has already begun and is expected to accelerate through the rest of the decade. Such firms — including those in the EV and mobility ecosystem — could deliver strong returns. Similarly, we are highly optimistic about the long-term outlook for housing. ET Now: After a very-very long quiet consolidation period, finally, you are getting a little hopeful that maybe the market has some upside to it and a breakout is possible. We are up a good 287 points, almost nudging 25,100 on the Nifty futures. Where do you see leadership? What can take us higher? by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like The Simple Morning Habit for a Flatter Belly After 50! Lulutox Undo Deven Choksey: Well, the market is already getting the leadership from some of the very strong companies like Reliance at this point in time, and one can well argue for some amount of unlocking of valuation happening in this particular company, that is where the market is possibly remaining completely resilient and supporting us. Apart from that, the banking stocks are showing reasonably good signs of giving further support to the market and would not be surprised if they end up giving between 15% to 20% appreciation even from current levels in the course of around 12 to 15 months. So, some of the leaderships are already established in the market. The dark horse in this entire situation could be, at some point in time, the commodities. If they start participating, probably they may run faster compared to many other sectors, which are already quoting at a reasonable valuation at this point of time, and that could be a contra call as well, largely because of the fact that the demand for commodities expected to surge in the following period here after. Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. ET Now: So, in the market, you do not make money by looking at yesterday's data, which is called history. In the market, you make money when you understand history and try and understand the future. Which are the next multibaggers? They may not be 100x, but the next five to seven years have the potential to, let us say, be 5x to 7x, five years 5x. Deven Choksey: Yes, a good point and this is something which we keep on debating every single day. In fact, there is a formula going on in the organisation that every single year you should produce one company which becomes 10 to 15 times in the next 10 years and that much patience you should have. So, that is what we have been doing up till now, with the grace of God. Well, currently the situation looks quite conducive to me for those companies which are typically a large degraded player for some of the larger OEMs. For example, in the automobile sector, since I mentioned OEM in the automobile sector, the companies that provide complete engineering and R&D services to this sector are the ones who are going to be participating big time in this changing environment, which we are going to be experiencing. Already, we have started experiencing the beginning of this decade, and it is going to further accelerate as we progress towards the close of this decade. So, the companies which are in the engineering, R&D space, who are basically helping the OEMs, they could be the ones who could possibly give a significantly large amount of return that could include the driving space as one part, but other parts are also there in this particular space. Similarly, we remain distinctly bullish about the prospects of housing going forward in the next 25 years. In fact, the city of Mumbai alone is talking about 30,000 redevelopments taking place in a span of around 10 to 12 years, 15 years. So, if that kind of a development which is happening in city like Mumbai and for that matter any other place in the country, we remain distinctly bullish about the housing as a space and within that we cannot forget the housing finance business because 85% to 90% of the housing is purchased based on the finance and that is where we see the continuous growth of 20-25% happening into the housing finance business. So yes, I do not know whether they will give what kind of percentage return over a period of time, but going by the size that they are likely to create, it would not be wrong to generate 10 times from the current price in some of the cases. ET Now: Just like in the last 15 years, the real outliers have been Bajaj Finance, IndiGo, DMart, KEI Industries, a long list which companies that have the potential to become the outliers. It could be earnings, it could be PE, it could be both. I mean, ideally, it is both if you have to become a multibagger, but where do you see this sweet positioning of enviable growth and strong PE bump up? Live Events Deven Choksey: In fact, in each of these names which you mentioned, their position has happened largely because how they executed their business and that is very-very important going forward as well because if yesterday was competitive, today and tomorrow are going to be extraordinarily more competitive because of the surge of technology along with. So in my viewpoint the companies which could possibly execute well are the ones which would be the winners of tomorrow and some of the names I do not mind sharing with a complete disclosure though that the companies like Tata Technology, companies like Bajaj Housing Finance, they are typically executing it a very differently and we like that proposition. The way in which these companies are executing their business, we find that they are creating a separate kind of presence in the industry for themselves and at the same time trying to show a relatively different path to the competition. Should they end up taking up the larger piefor example if Tata Technology kind of company out of the emerging addressable market of around $135 million in next three to five years, even if they end up taking 1-1.5% of that market, probably they would be generating significant large amount of return. And the same situation could happen with a Bajaj Housing Finance kind of company. If they have demonstrated 30% cagr growth in the AUM in Bajaj Finance, in Bajaj Housing Finance too they are moving with the same kind of a growth rate with a high margin business from other three apart from the housing finance so that is where I believe that their execution skills are completely different, maybe very much promising and we find a more happening in this area of activity from these kind of companies. ET Now: Where else in the current market can you take those outsized bets, or would you say wait it out? Deven Choksey: See, the uncertainties, the competitions, disruptions, they are all going to happen. I am not saying they will not happen. Our eyes are typically in the area of renewables in particular, and within renewables, how the companies are going to be addressing the large problem of green hydrogen is something which we would like to be very keenly watching out for. As of now, there is nothing on the horizon that one can separately identify, but as we keep on looking around, there will be a few opportunities as we see they emerging over time, that is one area which we like. Second thing which we definitely like out here is a complete logistic management activity in the country with the rail, road, airport and seaport completely coming under one-fold with which is speeding up so fast on the highways, I believe that this is one space which could possibly be a good space for many of the large scale annuity based investors like insurance companies, provident fund companies which is emerging very-very strong with the high cash flow positions. And last but not least, power and power utilities. We believe that some of the companies are executing their programmes very well in power, power utilities and could potentially continue to run at a rate of around 20% CAGR over the next 5 to 10 years. So, yes, there are opportunities in those companies, we are completely with the names and the valuation at this stage. Maybe it is a subjective question for a while for us. ET Now: What do you think runs the risk of underperforming? And I am talking really long-term, forward-dated questions here. I mean, there are patches in the market, for example, where Infosys, when it peaked out in 2000, gave you subpar returns for the next 10 years. HUL, when it peaked out in 1994-95, 10 years it did not create wealth. What do you think runs the risk of giving returns which are lower than a fixed deposit or a government bond in the next five years? Deven Choksey: It is a very interesting question. We keep on looking into the corporate balance sheet as to how they deploy their money. When we see that the balance sheets do not have enough amount of avenues to deploy money, that is the first signal that we get, wherein we probably stay away from those companies. It would not be proper in my viewpoint at this point in time to name them on the screen, but frankly, the allocation policy of the company would possibly create either performance or underperformance. In my viewpoint, I think most corporate managements do not want to remain accountable to the allocation policy, and that is where one is a little about their continued performance, even though in past they have performed handsomely, so that is an area where we are a little bit more concerned about. We keep our eyes open, and certainly those companies do not mean good to us from the return point of view, so we have to take a gradual exit also from those companies without keeping much of the past in the back. ET Now: What do you believe leadership is going to look like in the years to come, because one has seen that it is now about M&M, Bharti, and BEL. It is no longer your ITC, L&T, Reliance or for that matter, any IT names. Deven Choksey: Consumption could be the one theme which probably will have to be looked at very seriously because the way in which individuals are left with income in their hand, the way in which corporates are generating higher amount of profit in their books, I believe that both B2B side of the consumption and B2C side of the consumption game could possibly be the big time disruptor. From my viewpoint, the companies which are utilising the ONDC platform, companies which are working with CBDCs, companies which are working with AI, IoTs are the ones who could possibly be a differentiator in this space. Now, whether they would produce the same magnitude of return which some of these companies have produced in the last 15-16 years, it is a matter of time that we analyse that part of it, because on an ongoing basis, we have to review this part. But we remain distinctly positive about the characteristics under which these companies will be producing returns, and that is where our focus is from a selection point of view of the stock in the portfolio.