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Compilation of Raamdeo Agrawal Interviews

Compilation of interviews of Raamdeo


Agrawal from 2011-2018 to economic
times

No editing to the original content has been done.


Source:
https://economictimes.indiatimes.com/topic/Raamdeo-
Agrawal

Compiled by Venkatesh Jayaraman

@VenkateshJayar2
For the collection of more such compilation
and my notes and interviews on Personal
Finance / Value Investing, please visit

https://www.linkedin.com/pulse/my-notes-
compilation-value-investing-venkatesh-
jayaraman/
7/26/2018 Raamdeo Agrawal: The code of great, good, gruesome: Raamdeo Agrawal on how to put Buffett concept in Indian context - The Ec…

The code of great, good, gruesome: Raamdeo


Agrawal on how to put Buffett concept in Indian
context
Save
ET Now | Updated: Jun 18, 2018, 07.48 PM IST
3
Comments

Time is a friend of good companies and a big


enemy of bad companies, says Raamdeo Agrawal, Co-
Founder, MOFSL. Agrawal tells ET Now that India produces the
highest number of multibaggers in the world.

Edited excerpts:

Yuu have culled this very interesting quote from Phil Fisher
which says that it seems logical that even before thinking of buying any common stock, the
first step is to see how money has been most successfully made in the past. Is it imperative
that the stock has to have given 20-30% returns in the past?

Company Summary
The quote is much broader. What happens is that in
NSE BSE
every country, every market, a set of companies do
Motilal O… -3.15 (-0.37%) well. It is not that in every country, every business
does well. Take two-wheeler companies. In India,
Dish TV -2.55 (-3.65%)
they are the bluest of blue chips. You have three-four
ICICI Bank 11.00 (4.01%) of them and they are thriving and making money.
There is no other country like that. In China, they
may have bigger two-wheeler companies but even there, no two-wheeler company I making
money. They make lot of two-wheelers but they do not make a lot of money.

Even the way private sector banks are making money in India is seen in very few countries. They
make money but not that much. So, you have to understand in which country which business is
doing well. Once you grasp that, then you go to find the companies which are likely to do well
because say we go from India to Japan. The companies in Japan are different from companies in
India. I was there in Japan two-three months back, the businesses are very different. They are
more electronic components, global market share.

They are way ahead…

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7/26/2018 Raamdeo Agrawal: The code of great, good, gruesome: Raamdeo Agrawal on how to put Buffett concept in Indian context - The Ec…

I mean not ahead or anything like that…

In terms of technology…

Yes. Their whole focus is very different, competitive advantages are very different. Their
competitive advantages are global in character because it is a very small country relatively but they
have global ambitions. Most of the companies are globally competitive and so that is a very
different dialogue when you go to the management room than what it was in India.

Let us drill it down to how you are looking at hunting for quality in this market. You are
talking about indicators to classify a stock. At the very core, that is the problem that people
have. There is such a big universe of stocks. What are the indicators that will drill it down to
specific names that one would be interested in investing?

That is a process. Find out what is the current profitability? The Code Of Great, Good, Gruesome
in 2007, page seven of Buffett letter is very illustrative of how to look at the companies. Companies
or business will keep moving from one to other.

There are three types of companies in every country, every market. If we look at only India, 4,000
companies are listed. There are three types of companies – great, good, gruesome. These are like
three bank accounts. Buffett started investing in 1941. After 60 years, he realised that there are
three types of businesses only. He explained in 2007, what is a great business and what is a good
business? First, good business is something where cost of money, says 8-10% in India, earns
about 19-20%. All the good banks like HDFC Bank and others earn about 19-20%. So on Rs 100
crore, they make Rs 20 crore profit every year.

You put in Rs 100 crore at the beginning of the year and the output you get is Rs 120. If you want
to double the money, if you want to double the profit from 20 to 40, you have to put another Rs 100
crore. So, after three or four years, if you do not pay out dividends, all the money which you earned
has to be redeployed to double the profit in three years’ time.

So 20% return on equity. 20% you put in the bank, it will again earn 20% more and hence year
after year, keep compounding and in three-and-a-half – four years it will double the profit. But at
that point of time. your money deployed will be about Rs 200 and on that he will earn Rs 40. Again,
your ratio remains the same 20%. That is a good business, this is what typical good capital
intensive businesses like banks and all they keep doing.

Now what is great? Great is what you start with say 20% first year, second year you do 25%, then
30%, then 40%, then 50%, 60%, 100% and then you do not need any capital to make money. It is
like getting cane juice without putting in canes. There are very few of them like that.

In the Indian context…?

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Yes Asian Paints, Nestle, Lever, IndiGo and so far unless they change the base model and all
these global companies, FANG companies your Google, Microsoft, they all make money without
putting any money.

So, that is a great company. 1% or 2% would be great companies. In India, if you have maybe 50-
60 companies which are great companies, about 300 to 400 companies will be good companies.
Then there is a long list of gruesome companies.

It is important not to understand good and great. But what are the bad companies? Time is a friend
of good companies and a big enemy of bad companies. This is a difference between gold or real
estate and stocks. It is very necessary that if you want to become rich through the stock market, in
the long run, you have to buy good companies.

You are looking at such a polarised market. Only 15-20 stocks are looking good….

Do not jump, let us finish this gruesome because that is the most important part. I read 45 times
before I understood these gruesome companies are the companies which not only earn less than
cost of capital, say 10% is cost of capital, for some reason you are earning 4-5% or you are
actually making losses. Losses are no problem because you realise that this is a danger zone but if
you are making 5% return on capital, on Rs 100, you are making Rs 5. If you want to double the
profit from Rs 5 to Rs 10, and you have put in Rs 100. it will take like 15-20 years to make Rs 100.

So, you go and borrow that money from the banks and put in that use as business. Eventually if
there is any tough time and typically these is low return companies always face bad times. It
becomes a process of capital destruction all the way for the banks, for the entrepreneurs and of
course the person who has invested year after year. Nothing goes go zero straight away. They will
go from 20% to 10%, 10% to 5% and then negative.

How easy is it to identify gruesome companies?

Very easy.

In hindsight everybody knows a JP Infra went bust, RCom went bust but at that time, was it
easy to identify ? Or would think two years ago that ICICI Bank NSE 4.01 % which is a great
retail entity, will face such issues?

Yes, actually it is very easy. You look at the 10 years return ratios. The EBITDA margin, PAT
margin, asset turnover and then finally they give you ROC and ROE. Whenever you look at the
company, first you go to that ratio screen. At least, I do that. You ask me some new company
anywhere in the world I will go to that ratio. It is like a janam patri (horoscope) of any company.

It will tell you how it has been doing, its profitability, capital efficiency. You have to use the ratios in

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combination, it is like artwork in the sense that it shows what ratio is to be seen in a particular
company. It will show if the company is temporarily profitable with a lot of compromises in the
terms of trade.

Can I use an example here, Dish TV NSE -3.65 % ?

I do not remember. It was not a great company till say a year back. I do not know what is the
situation today. Have they actually turned around?

They did but then they are again making losses. Now, of course Mr Jhunjhunwala is buying into it.
So, return on equity and return on capital employed are very important ratios and you have to look
at them in conjunction with the overall profitability of the business but is there something that
helps?

Past and future are two different things. Past had been patchy but you know that. What is
lying in future? There could be a change of the competitive structure, say like say telecom.
Till 2003, telecom was in gutter in the sense that nobody was making money.

Suddenly the regulation changes and Bharti was available at 25 bucks, in three years time it went
to Rs 1200 and it became one of the most fantastic businesses ever. Then we saw the emergence
of 16-17 licenses and the whole competitive structure got destroyed and now from that 16, it has
come down to three. Now the repairing of competitive structure is done.

Yet the competitive structure is very intense among these three so it will take some more time but
right now it is a bad business. All of the three companies are not making money but it is creating a
potential for a huge upside at some point of time. Someday return will come but when, only time
will tell.

Once you have identified the good, the great and the ugly, what about pricing because in
this kind of a market scenario. the good and the great is coming at a very high price. It is
only the rubbish which is available cheap?

Not all, not all.

But largely how important is pricing according to you?

It is very important. There is no investing unless you buy at reasonable price. Margin of safety has
to be there, maybe at times it is 50%, at times it is 33%, at times it is 80-90%. There are
companies which have 70-80% kind of margin of safety in mind.

Margin of safety is in the mind of investor. You may disagree, I may agree so that is where you will
sell and I will buy. In our QGLP formula, one is the quality of business. Once quality of business is
done, you have to go one by one. If quality of business is not good, you have no business to look

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at the other four buckets of quality of management, growth, longevity of growth and price. All have
to be clear but I can do it simultaneously. But the process is; look at the quality of business, if
quality of business is good, look at quality of management, which is most dicey in India. Every
company is a piece of art. If that guy in charge does not want to make a nice, clean company in the
future, you will not get a nice clean company in the future. Sitting as a minority shareholder what
can you do?

I want to put in examples over here. How do you look at the ICIC Bank story? It is a great
management…

You are putting an example and you are asking me a direct question.

Do not tell me what you think about the business but since you brought up managements,
the lack of trust the business has right now is only because it is going through a leadership
transition. Axis Bank has also faced that, PSU banks have faced that. How would you
classify these businesses?

Yes. I am reading a book by Taleb, Skin In The Game. It’s a book worth reading, particularly in this
context of Indian banking. Mr Kotak gave an interview recently. It was a wonderful interview and
there he talked about Skin In The Game of the bankers.

When you are giving Rs 5,000 crore, Rs 10,000 crore, do you really feel that you are giving Rs
10,000 crore to somebody? How much pain do you feel about giving and how much due diligence
will you do, apart from the process? Do you feel that money you are giving? When you have skin in
the game, you will feel that.

How do you bring skin in the game in Indian banking? The other side, the borrower has skin in the
game. Unlike European and American corporations which are also run by boards and the lenders
are also board driven. So, both sides are tie-walas. But in India, the borrowers are entrepreneurs
and the lenders are tie-walas.

One set of bankers have skin in the game and the other set of the bankers do not have skin in the
game. How do you bring a level playing field wherein the risk assessment or risk measurement is
taken with proper care? Lending is a very simple business at one level and yet very complicated, if
you do not price the risk well.

If you price the risk well and lend to some crook at 30-40%, you will make tons of money.

Let us talk about the possibility of a gruesome company becoming good and then a good
company becoming great. You know which company has actually done that journey and
has come on tops.

We see a lot of these turnarounds. There are tonnes of it. If you keep doing this thing, a company

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like say Bajaj Finance 8-10 years ago, was a very ordinary non-descript NBFC trying to do
financing for two-wheelers as a sister concern. And then everything changed. The new
management team came Rajiv Jain and the first two- three years, people like us who were
watching from outside, did not realise what is happening and it was already 10x.

Then at some point, we realised that these guys are winning and they are doing some very
extraordinary things. In the same space, they have found a completely new strategy and new
target and new way of doing things using computers, AI and all sorts of big data in a much more
effective way to give loans in few seconds or few minutes to the customers.

They appointed a completely new segment on the customer loans. It gave a completely new life to
that company and you see what has happened to the company. From less than a Rs 1,000-crore
market cap to more than Rs 1 lakh crore market cap! It is a 100x in just about five-seven years.

It is one of the most wonderful stories. In fact, other banks, NBFCs are trying to do a Bajaj Finance
in their own banks or wherever. There is admiration for this company. From a completely gruesome
or non-descript business or company, it has become one of the awesome examples for the entire
finance sector.

Calling Bajaj Finance gruesome would not be really right. It was just another indifferent
company. Any gruesome company where you feel the story could turnaround with change
of management?

No, how do I know? I would not know.

Nothing on your radar.

No, we would not know. We look back and then we see some signs of it. One of the signs is that
whenever a company turns around, the quarterly results will show 70-80% growth, top line 15%
growth and then80% profit growth in first quarter, then in second quarter, then third quarter, then
yearly. First year, from Rs 50 crore, it goes to Rs 100 crore. You realise something is happening.
Then second year again, from Rs 100 crore to Rs 300 crore. Wow! These guys are now rocketing.
You know by that time markets do not bother about it. Some insiders, close guys would buy it. The
smart guys from Pune or Hyderabad or people close to it. Market caps will be Rs 1000 crore, Rs
2000 crore, Rs 3000 crore and still nobody in the institutional set up will look in.

They will be scared that is the point, they would be like okay there is something…

Something is happening but firstly they should come in radar. Right now the condition of the market
is most of these rockets are already taken care of. The close guys the midcap, smallcap, PMS
guys and the value pickers have picked up most of them. Five-six years back, that was the fun.
You run a screener and you will find one or two ideas and then do masti. That fun is lost right now.

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So I can think of two examples where the management really helped in this transition from
gruesome to good to great. Maybe not even gruesome but just good to great. Eicher Motors
and IndusInd Bank. Again Mr Sobti and Mr Lal are examples of good management changing
the business.

So one of the ways a very ordinary or written off or non-descript business becomes great
businesses or great companies is when the great managements or right time comes for the
management. IndusInd Bank is a absolute classic case. Stock price was Rs 18-20. It is now 100
times or 150 times more.

It is an index company now.

Yes, index company and it is one of the foremost though it was one of the oldest private sector
licensee but had not made much headway. Today it is one of the most aspirational private sector
banks. In India, there are lots of these stories. That is why India produces the highest number of
multibaggers. The number of multibaggers that are produced in India is not found in other parts of
the world.

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7/26/2018 It’s just a matter of time before India starts getting noticed: Raamdeo Agrawal - The Economic Times

It’s just a matter of time before India starts


getting noticed: Raamdeo Agrawal
By Nishanth Vasudevan, ET Bureau | Updated: May 08, 2018, 10.11 AM IST
2 Save
Comments

Raamdeo Agrawal, joint managing director


of Motilal Oswal Financial Services NSE -0.37 %
, makes it a point to attend Berkshire Hathaway’s shareholder
meeting every year to listen to Warren Buffett. Agrawal said the
meeting reinforces his beliefs on value investing that he has learnt
from the billionaire investor over the years. In a chat with Nishanth
Vasudevan on the sidelines of the Berkshire’s annual general
meeting (AGM) held in Omaha on May 5, Agrawal spoke about his
takeaways from the meeting.

Edited excerpts:

What was your main takeaway from the Berkshire Hathaway AGM of 2018?

Company Summary
The event was more of a confirmation of the
NSE BSE
thoughts we had about investing which we have
Motilal O… -3.15 (-0.37%) learned from Buffett over the years. One thing he
stressed on was the importance of long-term
investing. He explained it well through the 1942 incident when Japan attacked Pearl Harbour and it
was the lowest day for the US economy and the markets then. But, if anybody invested $10,000 in
equities then and held on, that would become $51 million today. So, he was trying to convey the
message that war, and other disasters will happen, but the economy will never stop growing.
Buffett also gave an example that he brought three shares of Cities Service at that time and sold it
for a small gain but then the stock went up. I have always believed that never time the market. This
point has only strengthened my belief. The other point he spoke about unproductive assets like
cryptocurrencies. Assets which you buy should be productive in character.

What is the most critical aspect of long-term investing?

A lot of people don’t bother what they are buying. In investing, time is a friend of good stocks and
an equally big enemy of bad stocks. In 50 years, good companies will grow 1,000 times and bad
ones become zero. So, one must focus on buying a good stock and holding it.

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7/26/2018 It’s just a matter of time before India starts getting noticed: Raamdeo Agrawal - The Economic Times

Global fund managers usually speak of India and China in the same breath. But, Buffett has only
spoken about China and does not seem to be interested in India at all..

Yes. In fact, they are putting China in the same league as the US. I think that is something that has
not been seen in the past Berkshire AGMs. If you had noticed, a lot of questions during the AGM
came from Chinese investors and analysts. They did not make any reference to India at all. I don’t
know why we are not able to make an impact, but I remain optimistic because the number of
people coming from India to attend the AGM was staggering. China was clearly dominating the
discussion, but it’s just a question of time before India starts getting noticed. I still remember China
was not part of the discussion about five years ago. This year the discussion is intense because of
the trade war.

When the question on emerging markets was asked, Buffett made this remark that his
problem is size, not the geography.

With $140 billion of cash and $35-40 billion cash flow every year, that is the problem that Berkshire
is facing. They can’t be buying 20 stocks a year. They can only buy one or two stocks. So, for
them, it is bigger the better. Buffett will be happy to do a $50 billion deal. But, there are hardly any
companies in emerging markets like India that meet the requirement. With that size they will have
to buy the whole company. It’s not easy to get a company of that size and of his liking.

The Chinese economy is $12 trillion and is growing at 7% at that base. The Indian economy is $2.5
trillion and is struggling to grow at 7%. Every year China must be adding $700-800 billion into their
GDP. Compared to China, our incremental economic activity is very limited. So, that is the reason
China is able to create big companies. Buffett is still trying to do most of his investments in US,
while Munger seems to be more open to going to China.

Buffett also said that US companies are seeing the benefits of lower corporate tax rates. Is
that a risk for emerging markets like India?

Our corporate tax rate is still 30-32%, which is clearly higher than the US. Finance minister Arun
Jaitley has spoken about cutting tax rates initially but he has not been able to implement it because
of fiscal constraints. But, they have brought it down partially. They have brought down the
corporate tax rate for smaller companies to 25%. So, the intention is very clear that as and when
the fiscal situation improves, they will implement it. My sense is that they will bring it in the first
Budget after the 2019 elections.

What are your thoughts on the ongoing debate about moat investing which was also
discussed in the AGM? Tesla CEO Elon Musk has been critical of this concept...

The issue is that whether you understand the moat or not. For the person who does not
understand a moat, it has no meaning. Understanding a moat is very difficult and to recognise its

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7/26/2018 It’s just a matter of time before India starts getting noticed: Raamdeo Agrawal - The Economic Times

long-term potential is more difficult. Amazon and Google have a moat but the question here is
whether the moat will exist for a long period. Long-term investing is about 8-10 years. Despite
being the guru of investing, Buffett has clearly missed out on the FANG (Facebook, Amazon,
Netflix and Google) companies, which have become huge now. They have not been able to
reconcile to the moat in Amazon and how long-lasting it is. That maybe because of his age, maybe
it is the backdrop or the feeling of missing out.

(The reporter was in Omaha, US, at the invitation of Motilal Oswal Asset Management)

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7/26/2018 Raamdeo Agrawal: Raamdeo Agrawal’s 3D mantra for success in stock investing - The Economic Times

Raamdeo Agrawal’s 3D mantra for success in


stock investing
By Swati Verma, ETMarkets.com | Updated: May 02, 2018, 11.07 AM IST
2 Save
Comments

NEW DELHI: Market maven Raamdeo


Agrawal on Monday talked of three Ds as key to
success in equity investment: discipline, diversification and the
ability to differentiate value from price.

It is important to stick to discipline and investment philosophy no


matter whether it is good or bad times, says industry veteran
Raamdeo Agrawal.
It is important to stick to discipline and
investment philosophy, says Raamdeo
“24x7, seven days in a week, 365 days in a year and 20 years, 30
Agrawal.
years ... throughout the career, you have to maintain the discipline.
When you do that you become very good at it,” the joint MD of Motilal Oswal NSE -0.37 % told
ETNow in an exclusive interaction.

Company Summary NSE BSE


He advised investors to be careful in differentiating
value from price. “Value is what you get, price is
Motilal O… -3.15 (-0.37%) what you pay.”

He said all investors are value investors and they must figure out how to calculate value. “You
cannot calculate value of everything at every point of time... I could be good in four-five sectors,
you could be good in another four-five sectors. So you take your picks. I will take my picks. But as
a whole, if you do a good job, you have to make money,” he said.

Sharing his outlook for the banking sector, Agrawal said in the financial markets, ownership,
understanding of risk when the bank lends a good amount of money is of great significance. “If I
give you Rs 5,000 crore, I should feel the pain of giving you Rs 5,000 crore and I should ensure
that 10 times of Rs 5,000 crore will come back to the bank with interest.”

Lending money is easy, you can distribute trillions of dollars but the key is how you get it back. If
you do not get it back, and if it is a public sector bank, the bill goes to finance ministry, he said. “In
this, there is no skin in the game of the people who are lending money.”

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7/26/2018 Raamdeo Agrawal: Raamdeo Agrawal’s 3D mantra for success in stock investing - The Economic Times

He said private sector banks do not have the privilege to go to the finance ministry like state-run
banks.

Agrawal said as an investor, one has to take a calibrated approach to build up a portfolio. That is
why fund houses have diversification in their portfolio. Even if one bank stock falls or does not do
well, there will be another which will perform well, say rise 50 per cent. This way, the loss gets
compensated.

“Diversification within a portfolio can take care of all the challenges of the marketplace,” he said.

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7/26/2018 I would not buy a lender if owner does not have the skin in the game: Raamdeo Agrawal - The Economic Times

I would not buy a lender if owner does not have


the skin in the game: Raamdeo Agrawal
Save
ET Now | Updated: Apr 30, 2018, 02.07 PM IST
In 2
Comments
an
interview with ET Now, Raamdeo Agrawal, Jt MD, Motilal Oswal
NSE -0.37 % , explains that if bankers feel that they may not be able

to recover the money or if there is deficiency in the recovery, they


should have the wherewithal to figure out how to make it up. That
is what is called skin in the game.

Edited excerpts:

What is your investment philosophy?

Company Summary
See investment philosophy is perpetual – whether in
NSE BSE
good times or bad times. In fact, in bad times, we
Motilal O… -3.15 (-0.37%) should do it absolutely the same way. This is like
dharma (religion). In good times, you cannot say I
am a Jain and in bad times say I am a Muslim or something like that! It does not work like that.

You have to be 24x7, seven days in a week and 365 days and 20 years, 30 years, throughout your
career, you have to maintain discipline. When you maintain the discipline, you become very good
at it and then you are able to see very clearly. Whatever be the style, every person in the market
tries to find a gap between value and price. Value is what you get, price is what you pay. People do
not differentiate between value and price. You have to figure out what is the value and see the
price.

Some people look at the chart and figure out what to buy. All the investors are value investors and
they have to figure out how to calculate the value. You cannot calculate value of everything at
every point of time. I could be good in four-five sectors, you could be good in another four-five
sectors. So, take your pick. On the whole, if you do a good job, you have to make money.

Earlier, when asked if ownership is important to you, you mentioned that having skin in the
game is important. Accountability and management is important. Does it really matter who
owns the bank at the end of the day as long as accountability and management issues are
in place?
https://economictimes.indiatimes.com/markets/expert-view/i-would-not-buy-a-lender-if-he-does-not-have-the-skin-in-the-game-raamdeo-agrawal/a… 1/2
7/26/2018 I would not buy a lender if owner does not have the skin in the game: Raamdeo Agrawal - The Economic Times

In the banking system, the ownership, the understanding of the risk should be there. When I give
you Rs 5000 crore, I should feel the pain of giving you Rs 5000 crore; I must see that 10 times Rs
5000 crore will come back with the interest. Giving money is easy. You can distribute trillions of
dollars. The point is how do you get it back and when you do not get it back, if it is a public sector,
the bill goes to finance ministry.

There is no skin in the game of the people who are lending the money, at least in the Indian
context. The private sector banks here do not have an opportunity to go to finance ministry, saying
here is a Rs 10,000-crore default, please give me that money! What is important is whether you
have a skin in the game. If I feel that I may not be able to recover the money or if there is a
deficiency in the recovery, I have to have the wherewithal to figure out how to make it up. That is
what is called skin in the game.

Once the owner or management have the skin in the game, they conduct the entire lending
operation very carefully and it is very important that across the economy, this responsibility is there.
Once you have responsible lending across the economy, a very solid foundation will be laid for
economic development.

How are you reading the developments at the leading private sector banks in the country?
As an investor, how do you read these developments?

As an investor, we have to take calibrated buildup of the portfolio, that is why you have a
diversification. We have 20-25 stocks. Other fund managers have 40, 50, 60 stocks. If a bank does
not do well in our portfolio, diversification within the portfolio takes care of all the challenges of the
market place.

Would you reduce your holdings in these banks?

No. You have to have a strategy. Somehow, we have avoided investing in any of these banks but it
could be a coincidental but my clear understanding is that I would not like to buy a lender if he
does not have the skin in the game that I am practising for last 20 years. That is how we have
avoided most of the mishaps.

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7/26/2018 Share Market: Huge opportunities in BFSI and consumer sectors: Raamdeo Agrawal

Huge opportunities in BFSI and consumer


sectors: Raamdeo Agrawal
By Rahul Oberoi, ETMarkets.com | Updated: Mar 29, 2018, 04.30 PM IST
0 Save
Comments

Talking to Rahul Oberoi, on the sidelines of


the ETMarkets Global Summit 2018, Raamdeo
Agrawal, Co-Founder & Joint MD, Motilal Oswal Financial
Services NSE -0.37 % , says the market cap to GDP ratio at 85-87%
is on slightly higher side but it is not very alarming.

Edited excerpts:
The loss of somebody is gain for
somebody else. Private sector banks,
How are Indian equities looking compared with long-term
NBFCs, private insurance, mutual
averages?
funds… all these are opportunities in
the BFSI space.
Current market valuations are a little higher than the
10-15 year averages but when you look at market
Company Summary NSE BSE valuation, you have to use multiple ratios. If you use
only PE, that could be very deceptive because that is
Motilal O… -3.15 (-0.37%)
definitely looking a little higher. But the earnings itself
is depressed. When you divide a certain level of
market cap with a given depressed profit, you tend to get a higher number. Now, that scares
people as it is expensive. But if you look at the market cap to GDP, it is about 85-87% which is on
slightly higher side but it is not very alarming.

Have LTCG fears in the market subsided?

Yes. LTCG thing is what will absorb and I think even before the law came, people were mentally
ready because there was a lot of rumour. The grandfathering of the gains till about 31st January
2018 has kind of taken the string out this entire provision because now from that valuation, markets
are already down by 8-10%. Now, the market has to move by 10-12% before you actually get into
any kind of taxable gains. If markets remain flat or something like that, in 2018-19, you will not
make any significant capital gains on the price of 31stJanuary 18. The actual biting of LTCG will be
felt only in 2019-20. So, I think people are pretty fine.

Are you expecting more reforms from the Modi government?

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7/26/2018 Share Market: Huge opportunities in BFSI and consumer sectors: Raamdeo Agrawal

No, I do not think so. A lot has been done like demonetisation, GST. GST is still a work in progress.
The successful implementation of the e-way bills or the 360-degree GST implementation itself will
be one of the biggest reforms India ever had. That is what I would expect and no more. I do not
think they will take very big initiative as only 10-12 months are left.

Do you see further correction in PSU banking stocks? Which other themes are looking
good?

PSU banks had never been my big favourite. We have been literally avoiding that entire segment
because the value migration from public sector banks to private sector banks is written on the wall.
It had to happen. It is happening for last 20 years and it will keep happening in the next 10 years.

I have been not a big fan of this particular segment. But there are other segments. The loss of
somebody is gain for somebody else. Private sector banks, NBFCs, private insurance, mutual
funds… all these are opportunities in the BFSI space. On the consumer side, India is a huge
consumer country with 1.3 billion people and everything is underpenetrated.

I mean car representation is just about 1-2%. There are 20 million cars for 1,200 million people!
Every consumer facing sector remains a big opportunity. But, we are much more company oriented
rather than sector oriented.

Technology firms are still staying away from listing. Any Reason?

You are talking about e-commerce companies because that is the one which are yet to get listed. I
am sure they will come. Right now, they are in the wrap of private equity. Global private
equity, venture capital funds are funding it. They are not making significant gains right now. They
are all loss leaders but they are significant in size. Some of them are attracting global attention too.
In a year or two, when they become profitable, their business model is stabilised. I think they will
come with a IPO.

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4/23/2018 Time-wise corrections for 2-4 months will make market very healthy: Raamdeo Agrawal

Time-wise corrections for 2-4 months will make


market very healthy: Raamdeo Agrawal
ET Now | Updated: Mar 19, 2018, 11.02 AM IST
Talking 4
Comments
to ET
Now, Raamdeo Agrawal, MD & CO-Founder, MOFSL, says
investors are looking for opportunity to put more money if the
market corrects a little bit. The investor sentiment is very positive
and very stable.

Edited excerpts:
Value migration from PSUs
commanding 80-90% share or almost
100% share to more like 60% and What is the view on the market? Do you think majority of the
50%, that process is still on correction in India is behind us and the underperformance
could correct itself?

A lot of things are happening. There are a lot of


NSE BSE
Company Summary
counter forces in the sense that we have political
Motilal O… -0.75 (-0.08%) headwinds. There are a lot of political activities in
next 12 to18 months. We have little higher
PNB 0.50 (0.53%)
valuations. We have foreigners selling but on the
other hand, we have the economy picking up. We have seen the IIP. We have seen the GDP
numbers.

What I am seeing for the companies is that it is spreading in the sense of a recovery in the
economy. So, we have a positive outlook on the earnings. The domestic flow is very good. All
these are counter forces but eventually the slightly higher valuation must correct to make the
market very healthy. I would think that some more correction, even time wise, even if it is not by
levels, continue for two-four months or little less, that will make the market very healthy.

Everyone is talking about earnings recovery. Do you even think that markets should not
really be worried earnings recovery and they should be focussing more on political
outcome?

https://economictimes.indiatimes.com/markets/expert-view/time-wise-corrections-for-2-4-months-will-make-the-market-very-healthy-raamdeo-agrawal/articleshow
4/23/2018 Time-wise corrections for 2-4 months will make market very healthy: Raamdeo Agrawal

It is very difficult to figure out what market will do because markets keep resetting the expectations
every day, every minute because one election in Bihar or UP resets the expectations for May. I
would think that the market is very dynamic but the real driver is the earnings. If there is a very
strong recovery, better than what the market has built in today, the market will tend to firm up
higher or at least it will not fall.

Clearly after the PNB NSE 0.53 % scam, PSU banks have been in a spot of bother. But
irrespective of the recent correction, would you say that investors need to still be wary and
there could still be accelerated selling even in the pipeline for PSBs?

So long as it is not systemic problem, it is only one branch, one bank. Of course, it is a large
problem for the entire asset category. It has been classified as a big red flag. But as time passes
and the system says that it is a problem confined to one branch of a bank, then of course the
markets will get reconciled to that. I would think that so far what I have seen is that it is operational
gaps in operation of a branch in a bank though the size is very large.

What could be a fallout of this murky move across PSBs? Could we see money actually
flow into private banks or NBFCs as opposed to PSBs?

The trend has been going on right from ‘95. This is a 20-year story where when they opened the
gates for the private sector banks, clearly the value migration started from public sector banks to
private sector banks.

So, they have been losing share in the credit market, in the free market, in profit market in toto.
Whether this particular event accelerates the migration is difficult to say because if it is managed
well, then the pace at which they were losing may fall and the private sector in any case was doing
very well. There was no dearth of business for them. All of them are growing at 25-30% and most
of them are operating at full capacity. Even if the opportunity becomes a little bigger, they can do
significantly better.

Do you think insurance is the sector which is at the stage where private banks were about
10-12 years back?

Yes. This value migration from PSUs commanding 80-90% share or almost 100% share to more
like 60% and 50%, that process is still on and that is on in even mutual funds. UTI was the
only mutual fund company till about 1992 and then the private sector started coming in. Now you
see bulk of the mutual fund is in private sector and that too domestic private sector.

Even foreigners have fled. if you look at private insurance and life insurance, general insurance
and banking of course is happening. Wherever there was a 100% government monopoly in any
segment of the financial sector, it is giving way to more efficient and newer business models from

https://economictimes.indiatimes.com/markets/expert-view/time-wise-corrections-for-2-4-months-will-make-the-market-very-healthy-raamdeo-agrawal/articleshow
4/23/2018 Time-wise corrections for 2-4 months will make market very healthy: Raamdeo Agrawal

the private sector.

Can you speak about mutual fund flows? Are you getting a sense that mutual fund flows
could now be sticky given that markets are no longer in the free-flowing mode?

Till February, we have got very healthy flows and recently in the second week of March 2018, we
have seen some slowdown. But I am meeting investors day and night and I do not see any
concern. In fact, they are looking for opportunity to put more money if the market corrects a little
bit. On the whole, the investor sentiment is very positive and very stable. I do not see an impact of
this entire thing any significantly on the liking for equity and the mutual funds.

https://economictimes.indiatimes.com/markets/expert-view/time-wise-corrections-for-2-4-months-will-make-the-market-very-healthy-raamdeo-agrawal/articleshow
4/23/2018 Let it be a year of correction, I will keep expectations low: Raamdeo Agrawal - The Economic Times

Let it be a year of correction, I will keep


expectations low: Raamdeo Agrawal
By Sanam Mirchandani, Nishanth Vasudevan, ET Bureau | Mar 12, 2018, 08.23 AM IST

4 Markets are not necessarily headed down only but as valuations are
Comments
stretched, it would be prudent to keep low
expectations, said Raamdeo Agrawal, joint MD at Motilal Oswal
Financial Services NSE -0.08 % . In an interview to Sanam
Mirchandani and Nishanth Vasudevan ahead of the Motilal Oswal
Eureka conference in London, Agrawal said there are several
positive economic triggers ahead.

"The US is trying to do is something


Edited excerpts:
which is like making Indian PSU banks
blue chips. " Markets have corrected 9% from all time high levels. Is the
worst of the selling over?
I don’t think so. In the short term, it is anybody’s call. There are political challenges in the next 12
months. We have some state elections before the grand finale (general elections), hopefully in May
or maybe earlier. Maybe at some point of time, markets will get so used to it that they might say
enough is enough and take their own course. One fundamental difference is that this kind of flow of
money from domestic side has never happened. There is no impact of 9% correction of the
commitment. In fact, I see clients getting more aggressive to subscribe, which is a very good sign.
It is not necessary that market is headed one way down, particularly for the companies which are
doing well. But because of valuations being little stretched, I would think that let it be the year of
correction, forget about the fortnight of correction. I would keep very low expectation from the
market-minus 10%, plus 10%.
Company Summary NSE BSE
Domestic flows have not been challenged in the
Motilal O… -0.75 (-0.08%) last three years. If this is a year of correction,
could these flows be tested?
TCS 6.20 (0.18%)
The moment markets correct by 10-12%, there is lot
of money sitting on the fence. If it corrects 10% from here, a lot more money will come. Ray Dalio
has said that next 10 years belong to India. So net-net allocation to India will not reduce. We have
wonderful companies, just that they are a little expensive. If they are a little expensive, there are
two ways to correct — time wise or price wise. It could be a combination of both or it can be a
vertical correction price wise.

In PSU banks, the market thought that last year was the worst and now we have seen PNB
fraud case. You held SBI in your portfolio earlier. What’s your view now?
We have sold SBI. I am not expecting this kind of thing in any other bank. It is very bank specific or

https://economictimes.indiatimes.com/markets/expert-view/let-it-be-a-year-of-correction-i-will-keep-expectations-low-raamdeo-agrawal/articleshow/63262903.cms
4/23/2018 Let it be a year of correction, I will keep expectations low: Raamdeo Agrawal - The Economic Times

branch specific. Now, so many circulars have come, so in what shape, what has to be provided
from contingent liability, only the March quarter result will tell.

What will make you bullish on the structure of PSU banks?


You need big therapy. You need out-of-the-box thinking. It is something very doable. You have to
repair the management. Till 2005, private sector was small. Till 2002-2003, PSUs used to create
40-50% of wealth and 30-40% used to be by MNCs. Now, everything is private. It is a festival of
private entrepreneurship.

Do you expect more negative surprises in the March quarter?


From banking side, yes. At some level it (PSU banks) is a deep value. But it’s a falling knife now.
We don’t know how much it will fall. We know that as the economy recovers, banks also recover.

Are we coming to a policy-paralysis situation where banks will refrain from lending?
It is indirectly paralysis in banking, at least in PSU banks. Of course, it throws up a huge
opportunity for private sector banks. That’s also the case and they are no more small. So, how
much slack they can take is one thing, but you cannot allow PSU banks to die.

What do you think of trade war concerns?


This has huge repercussions. They want to revive manufacturing in the US. Now, the US is trying
to do is something which is like making Indian PSU banks blue chips. They have given up steel
making, manufacturing and textile. Now, they want to revive it. And that too they want to use the
tariff structure. This realignment could be very interesting, but painful. Trump is a businessman. So,
they are doing it absolutely the hard way. He wants manufacturing jobs to come back. That is
another big challenge and it will blow up in next 6-8 months. If global equity markets go down, its
attractiveness will go down. It will become very risky. Volatility will go up.

Is sentiment completely risk-off for EMs as far as foreign clients are concerned?
Everybody is interested in India and Indian companies. The problem is valuation. So, the market
must correct. Ultimately, only one engine cannot fly the market. There are three engines —
earnings, global flows, and local flows.

What is the theme that you are looking forward in the next three years?
It is not about particular themes today. If GST works, this government is going to go all the way.
That will change the tax to GDP and change the way the government spends. That can completely
revive the economy and we can have a party for many years to come. Once GST is right, then the
https://economictimes.indiatimes.com/markets/expert-view/let-it-be-a-year-of-correction-i-will-keep-expectations-low-raamdeo-agrawal/articleshow/63262903.cms
4/23/2018 Let it be a year of correction, I will keep expectations low: Raamdeo Agrawal - The Economic Times

same people have to pay their direct tax also. Combination of these two will give me 1 or 2% more
tax to GDP. There is a huge compounding effect.

Does the electric vehicle space interest you?


It is interesting but it is still some time way. As innovation gets deeper like solar, I am sure it will
become much more mass produced.

TCS NSE 0.18 % and HCL Technologies have been among your top wealth creators. Going
forward, will IT be as big a wealth creator?
Intuitively, I think so. The headcount-driven model has gone. Digital will be there. So, technology
has a role to play. Valuations are very cheap, lower than that of the index.

Is IT sector a crowded segment?


It is a fantastic opportunity. Their dominance has not gone anywhere. The need for technology is
growing every day. The issue is whether the projects go to them or the new guys. If not them, then
some other set of new companies will come but the sector will keep creating wealth.

What is your view on the telecom sector?


There is rivalry among incumbents. Actually it is a very unhealthy rivalry. We have not very put any
bet. We are staying away.

https://economictimes.indiatimes.com/markets/expert-view/let-it-be-a-year-of-correction-i-will-keep-expectations-low-raamdeo-agrawal/articleshow/63262903.cms
4/23/2018 Take a cue from what Buffett is doing, not what he is saying: Raamdeo Agrawal - The Economic Times

Take a cue from what Buffett is doing, not what


he is saying: Raamdeo Agrawal
ET Now | Updated: Feb 26, 2018, 01.54 PM IST
Talking 1
Comments
to ET
Now, Raamdeo Agrawal, MD & CO-Founder, MOFSL, says
Buffett is not that aggressive in buying, he is piling on more cash.
Now, it is $116 billion and may be next year, it will become
$135-$140 billion. But sitting on so much cash for so long may lead
to valuation trap. It is better to not time the market. Go ahead and
buy whatever you understand and with a little lower expectation.
Go by what Buffett does, not what he
says: Raamdeo Agrawal
Edited excerpts:

The world read the Berkshire Hathaway annual letter or Warren Buffett’s famous letter
which came out over the weekend and looks like Mr Buffett is taking both the sides. On one
side, he is insisting that we should not compare bond yields with equity yields but on the
other side, he is also sitting on hundred billion dollars of cash now.
It is quite an interesting read because this time he has removed all the lengthy portions of
explanation of the businesses from the main letter and he has made that 25-27 page. Typically it
used to be to only 16 page and of that, only 12-13 pages are important read. To that extent, it has
become much more readable and much more precise at least for Indian consumers because we
actually do not own the shares and we are not that much concerned about the underlying
businesses as much as about the what his wisdom is and what are his strategies about investing.

I was reading it yesterday and I found that in 53 years of activity -- ever since he took over in 1965
-- he has outperformed the market in 34 years and he had underperformed in 19 years. Actually, if
you see the performance of his entire company, the book value has grown at 19% and stock has
grown at about 20% and index had grown at about 9.9%. It has been amazing journey. Even last
five years, he has handsomely beaten the index. The old man is still full of vigour.

Coming back to your question on cash and investing, he is sitting on $116 billion of cash and he
does not seem to be in a hurry to buy because he is saying that last one year there has been a
literally drought of investment. They have gone through all the proposals and potential candidates
but I think because of the price, they have not been able to buy anything. But at the same time, he
is also bullish about American equities and he says so long as the bond yields remain low, it looks
that stock as a whole is going to be more attractive and that there is a tailwind on the back of
American equities. If you look at what he is doing, he is not buying but he is still favours the stocks.

https://economictimes.indiatimes.com/markets/expert-view/take-a-cue-from-what-buffett-is-doing-not-what-he-is-saying-raamdeo-agrawal/articleshow/63077314.c
4/23/2018 Take a cue from what Buffett is doing, not what he is saying: Raamdeo Agrawal - The Economic Times

The fact that Berkshire is sitting on over $100 billion of cash, is that not a bearish signal
because for Berkshire to acquire large assets in this kind of market where they are gunning
for majority stake may not that be easy? What Berkshire is saying is that look we do not
find value because we do not think there are too many acquisitions available for the grab
but that does not mean that there is a bubble in the financial markets and you need to sell
down your equity investments.
No, in fact he has again talked about risk in a much more precise form and he is saying that risk is
not meeting your financial objective because investing is about laying out your today’s savings to
achieve something more in the future. But if the bond yield remains at 1% or so, which it was in
2012 or even if it is little higher right now, the objective for which you forego your savings the real
risk is coming from the fact that you are foregoing your current consumption to meet some financial
objective. He thinks if you are in bonds, you would not be able to meet the objective and hence by
that definition, bond is riskier. This is all happening in the backdrop of US. Bond is riskier than
equities in the long run.

It was in the 2006 or 2007 letter that Buffett mentioned that the leverage market was
becoming large and derivatives products may act like a time bomb. Now he does mention
that one should stay about leveraging but he is certainly not pointing to a big financial
Armageddon. Historically, when Buffett has felt that markets were way above its true value,
they have hinted that in their newsletters. There was no mention of an underlying bubble or
bust anywhere in the newsletter?
Yes, because he is saying that there is a tailwind on the back of American equities. Berkshire itself
got a credit of about I think $29 billion for tax law changes in US and the economy is strong. Yes,
he is not cautioning; the full letter does not sound that scary or he is not outright bearish on that but
see we have to take a cue from what he is doing, not from what he is saying.

I would take a lot of cue from what he is doing and he is not that aggressive in buying, he is piling
on more cash now it is $116 billion and may be next year, it will become $135-$140 billion. There is
so much of dry gunpowder out there, either he is expecting for last two-three years the markets will
crash and then buy a whole lot of companies but there is too much of liquidity and purchasing
power waiting on the wings, not only from Buffett but from many other value investors who are
following him. Many are sitting on cash because they are scared of the market levels. I do not
know whether markets can correct in this kind of environment where the economy is doing well,
earnings are good, tax rates are cut, bond yields are very reasonable. Such a situation, is not a
very conducive environment for a crash.

In the past, you have owned the Berkshire Hathaway stock and you have sold that stock
https://economictimes.indiatimes.com/markets/expert-view/take-a-cue-from-what-buffett-is-doing-not-what-he-is-saying-raamdeo-agrawal/articleshow/63077314.c
4/23/2018 Take a cue from what Buffett is doing, not what he is saying: Raamdeo Agrawal - The Economic Times

because if Berkshire Hathaway is sitting on so much of cash, obviously it will have a impact
on the return on capital and return on assets. That is what Buffett is again pointing out. He
expects a drawdown in the Berkshire Hathaway stock. Frankly I have never seen a chairman
talking about his stock and where he is actually giving a profit warning to his shareholders
that do not expect great returns in future because I am sitting on a lot of cash?
Yes but I think the stock has done amazingly well. I think it has done about 18-19% last year itself it
has done 21% with the market. But I think, in last five years except one year, where there was a
little decline, it has done a compounding of between 17% and 18% and may be even 19%. So, the
stock has done very well. The stock is rerated, the earnings growth has been 9-10% but the
rerating or the PE multiple has been quite staggering. In my assessment, when I was saying 9-
10% kind of a long term growth from 9-10% sustained growth very unlikely that you will make 20-
25% but obviously I was wrong in last three-four years. The stock has done very well at about and
particularly this year because of this tax cut, It looks like the stock will keep on doing reasonably
well because they have got so much of purchasing power and you see the aggression in
the insurance deal. With $20 billion reinsurance and with $10.5 billion of insurance premium, it
must be a 20, 30, 40 years kind of a policy but still the size is staggering. It is probably the world’s
largest single reinsurance deal.

So, the scale is changing and here he says that this is one business he does understand and then
his economics are very good and so he is going full blast. It looks he has many more policies being
underwritten going forward because he has become the biggest global insurer for these kind of
policies.

A lot is going for this company. In fact, the biggest change in this letter is what he is looking for. He
asks what are the three-four criteria he chooses for the companies? He has made the biggest
change where earlier he was not talking about growth explicitly. Now he is saying that he looks for
entry barrier businesses I mean companies with competitive advantages, terrific management then
he is saying opportunities lot of opportunities for internal growth and with a high return on
equity and sensible price.

Earlier, it used to be businesses with competitive advantage or great businesses done by great
management at reasonable price. This was the first thing he has said in 2007 and now he is saying
that terrific business, terrific management, internal growth opportunities are available at a sensible
price in comparison to the bond yield and it should be much more favourable. I think that particular
paragraph is very interesting where growth is coming explicitly. He is looking for more growth from
the businesses which he wants to acquire, pure quality and without growth they have become
expensive compared to the bonds.

I just want to pick up on the point that you were earlier making about where he finds value
right now and he has categorically mentioned in his letter that Berkshire Hathaway needs to
make one or more huge acquisitions in the non-insurance space and that Berkshire’s goal
is to substantially boost the non-insurance earnings, as Indian investors what can we
derive from the non-insurance space?

https://economictimes.indiatimes.com/markets/expert-view/take-a-cue-from-what-buffett-is-doing-not-what-he-is-saying-raamdeo-agrawal/articleshow/63077314.c
4/23/2018 Take a cue from what Buffett is doing, not what he is saying: Raamdeo Agrawal - The Economic Times

India is one of the biggest opportunity in terms of quality with growth because the underlying
economy itself has so much of potential to grow, and 6% growth in economy is considered a
recession and now we have attained a large size also, $2-2.5 trillion of economy. When you grow
at about 7-8% or 9% even if 7% compounded for the next say 10-15-20 years, the amount of
growth potential of all the good businesses -- even if it is a bank, NBFC, insurance company, asset
management company, non-finance companies like all the consumer companies, auto companies
– is big.

Auto penetration is nothing even with a huge penetration of motorcycles and scooters you see the
industry growth is about 14% volume this year. India has a huge potential for well-run businesses
in most of the fields. Figuring out which company has underlying good business and good
management and the potential of growth at a reasonable price -- I am saying that it is almost the
QGLP format. Seeing where is the potential, clearly the prices are a little expensive right now. Of
course, that will to some extent dampen the near term return but for somebody who his buying for
about five years, I think there is still decent return to be had.

He has also in his letter mentioned that there is an aversion to leverage, would you say as a
message this applies to the normal investors and not just in the US but across the board in
India as well? The message is stay away from those highly leveraged stories because when
the green signal, but there is no amber light and the signal straightaway goes to red, then
you would not have the opportunity to get out?
Yes, yes. He has been cautioning against excessive leverage right from the beginning and we do
not want to live at the mercy of the lenders so that has been his message and particularly in equity
investing you have to be extremely careful.

One is that underlying business should not be excessively leveraged, people should earn their won
huge return on capital employed rather than just return on equity on a leveraged situation.

Second, as an investor you should not leverage the equity portfolio because the individual stocks
can go down by 50-60%. He has given three instances of Berkshire Hathaway falling by 50-60%. If
f you buy anything leveraged like that, I do not know what will happen to the guys who borrow it.

Since he is in insurance business, it is a huge risk he is underwriting. He has a lot of float money
so it is a very unique kind of a situation for him to be completely averse to any kind of leverage
situations where he could be out of money, he could suffer from-- because his biggest promise to
the world is that let it be $20 billion, $40 billion kind of claim, there is one person who can write the
cheque that is Berkshire Hathaway.

With that kind of a business background and responsibility to the balance sheet and to the
shareholders and to the business itself, he has to be naturally very averse to debt side of it. But we
know excessive leverage is required only in a bad business. So, a combination of leverage and
bad business is absolutely lethal.

https://economictimes.indiatimes.com/markets/expert-view/take-a-cue-from-what-buffett-is-doing-not-what-he-is-saying-raamdeo-agrawal/articleshow/63077314.c
4/23/2018 Take a cue from what Buffett is doing, not what he is saying: Raamdeo Agrawal - The Economic Times

As we conclude, what would you derive from the letter? The fact that he has talked about
cash piles swelling, the fact that he said there are fewer suitable buyouts right now in the
market or that he has cautioned that Berkshire shares could see a sharp draw down? Would
you say that he is somewhere hinting that keep some powder dry on the sidelines because
valuations are looking expensive?
Two things – one is that he is clearly saying that valuations are expensive and that is why he has
not been able to use the cash in last 12 months. Clearly that is one message. You should be on the
guard in terms of valuation, which is the underlying theme in India also. I think it is part of the
global equity theme that generally equities are expensive and one of the reason is because the
bonds are very low in the yield and somewhere by holding cash and not participating in the market
aggressively, the message is very clear -- and he has been wrong for a very long period in terms of
hoarding cash for a long time --- that when the world is not conducting their affairs with prudence,
we must conduct our affairs with lot of prudence.

It will be ultimate test of patience for the so-called value investors who are holding back on the
purchases because if so much of money is sitting on the wings, it could be a value trap. It could be
a valuation trap for very long term to come in the market and you have to go on. I am following
again Buffett only that do not time the market, go ahead and buy whatever you understand and
with a little lower expectation in the market place.

So I will take a leave from the Buffett/QGLP strategy. I remember we had a conversation two
years ago and that time you said look I like liquor stocks because liquor companies have a
moat around them, nobody likes them, they are good businesses and you bought into
liquor companies. If you have to let us adopt that QGLP theme to a sector right now, where
do you think there is a good quality business which has a longevity, is available at a good
price now and it has been run by decent promoter, where would you like to apply your
theorem now?
All the businesses are available here. You can see our portfolios. Everything is a good business,
good growth, good management, longevity and growth. So one of the thing about Indian
economy and underlying businesses is that you have a growth potential and probably predicable
growth for many years to come. That may not be the case probably in developed market.

I mean here 6% growth is minimum. That differentiates us. In which other country will you find that
over last 40 years, a mortgage company the size of HDFC with excellence is growing at 20% and
even now they are growing at 20 plus per cent for next many years to come, maybe a decade at
least?

This kind of predicable growth machines are very few. At least, I do not know of them. I have not
researched in those countries. There must be few of them out there also but that is the kind of
opportunity in every segment of it. You have to go and build your portfolio one by one. I cannot talk
about many companies individually but it is tough to build very reasonable portfolio right now but
finding 15-20 ideas should not be that difficult.

https://economictimes.indiatimes.com/markets/expert-view/take-a-cue-from-what-buffett-is-doing-not-what-he-is-saying-raamdeo-agrawal/articleshow/63077314.c
4/23/2018 Warren Buffett: $116 billion in idle cash, Buffett is still smiling! 5 big cues for stock investors - The Economic Times

$116 billion in idle cash, Buffett is still smiling! 5


big cues for stock investors
By Amit Mudgill, ETMarkets.com | Updated: Feb 26, 2018, 04.06 PM IST
5 NEW
Comments

DELHI: Legendary investor Warren


Buffettapproaches stock investing with two simple
rules. The first is to never lose money and the second is to never
forgot rule number one.

This could be the reason why Buffett-led Berkshire Hathaway is


Berkshire Hathaway was in possession sitting idle on a heap of cash of $116 billion and short-term treasury
of $86.4 billion in cash at the end of bills -- and still smiling.
2016.

"Our smiles will broaden when we have redeployed Berkshire’s


excess funds into more productive assets," the Oracle of Omaha said in his annual letter to
Berkshire shareholders on Saturday.

Company Summary NSE BSE


Berkshire Hathaway was in possession of $86.4
billion in cash at the end of 2016.
Motilal O… -0.75 (-0.08%)
Market pundits across the world like Buffett's straight
talk. This time, they even got some cues on equity and bond investments.

"Buffett does not seem to be in a hurry to buy stocks due to valuations," said Raamdeo Agrawal,
MD and co-founder at Motilal Oswal Financial Services NSE -0.08 % .

This is the first lesson for investors.

1. Never make an investment for the sake of it

Buffett wrote that in his search for new stand-alone businesses, he seeks durable competitive
strengths, able and high-grade management; good returns on the net tangible assets required to
operate the business; opportunities for internal growth at attractive returns, and a sensible
purchase price.

https://economictimes.indiatimes.com/markets/stocks/news/116-billion-in-idle-cash-buffett-is-still-smiling-5-big-cues-for-stock-investors/articleshow/63077724.cms
4/23/2018 Warren Buffett: $116 billion in idle cash, Buffett is still smiling! 5 big cues for stock investors - The Economic Times

"That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for
decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost
irrelevant to an army of optimistic purchasers," he said.

Rajeev Thakkar of PPFAS MF noted that it is not that the good quality businesses have gone away
-- it is just that they are not available at a valuation that Buffett would like to purchase and that was
the key fact.

"Buffett is piling on more cash. There is so much of dry gunpowder out there. Either he is expecting
markets to crash and waiting to buy companies with so much of purchasing power waiting in the
wings. Not only Buffett, there are so many other value investors who are following him or they are
sitting on the cash because they are scared of the market levels," Agrawal told ET Now.

"I do not know whether the market can correct in the prevailing environment in the US where the
economy is doing well, earnings are good, tax rates are cut, bond yields are very reasonable in
that situation," Agrawal said.

2. Don't go with leveraged positions

On this, Buffett said his aversion to leverage might have dampened Berkshire's returns over the
years, but it made him and Berkshire's Vice-President Charlie Munger, 94, sleep well.

"Both of us believe it is insane to risk what you have and need in order to obtain what you don’t
need. We held this view 50 years ago when we each ran an investment partnership, funded by a
few friends and relatives who trusted us. We also hold it today after a million or so “partners” have
joined us at Berkshire," Buffett wrote.
"He said that once a decade you have significant drawdowns and if you have leverage at that point
in time, you can be forced out of your position at a really bad time. He is advising caution. But he is
not telling us that it is a peak and get out," Thakkar of PPFAS MF told ET Now.

Thakkar said that the drawdown reference was more in relation to the leverage that people
undertake while acquiring stocks. His reference was that you can have these significant
drawdowns anywhere at 40-60 per cent. And if you look at the timelines he has given for the
drawdowns in the Berkshire stock, they have roughly come about 10-12-13 years after one
another.

3. Buy or sell decision is all about business, not media headlines

Buffett said stocks that Berkshire owns are bought or sold are not based on chart patterns or target
prices of analysts or the opinions of media pundits.

"Instead, we simply believe that if the businesses of the investees are successful -- as we believe
most will be -- our investments will be successful as well. Sometimes, the payoffs to us will be

https://economictimes.indiatimes.com/markets/stocks/news/116-billion-in-idle-cash-buffett-is-still-smiling-5-big-cues-for-stock-investors/articleshow/63077724.cms
4/23/2018 Warren Buffett: $116 billion in idle cash, Buffett is still smiling! 5 big cues for stock investors - The Economic Times

modest; occasionally, the cash register will ring loudly. And sometimes, I will make expensive
mistakes. Overall – and over time – we should get decent results," he hoped.

The market guru noted that if one's borrowings are small and positions are not immediately
threatened by the plunging market, his/her mind may well become rattled by scary headlines and
breathless commentary. An unsettled mind will not make good decisions, he stressed.

4. Value buying is a long-term game

Buffett noted that the connection of value-building to retained earnings will be impossible to detect
in the short term.

"Stocks surge and swoon, seemingly untethered to any year-to-year build-up in their underlying
value," he pointed out.

Buffett recalled the Ben Graham’s famous saying: “In the short run, the market is a voting machine;
in the long run, however, it becomes a weighing machine.”

5. Stick with big, “easy” decisions and eschew activity

Buffett believes that if one invests in one solid business, that could save an investor thousands of
buy and sell decisions.

During 10-year bet, hedge-fund managers made thousands of buy and sell decisions. Most of
those managers undoubtedly thought hard about their calls, each of which they believed would
prove advantageous. In the process of investing, they studied 10-Ks, interviewed managements,
read trade journals and conferred with Wall Street analysts, Buffett noted.

But the ace investor decided to sell his bond investment to move money into shares of Berkshire,
which he believes is a diversified solid business.

The simple guideline: The less the prudence with which others conduct their affairs, the greater the
prudence with which we must conduct our own. The market pundit says that despite recent drought
of acquisitions, Berkshire will have opportunities to make very large purchases.

https://economictimes.indiatimes.com/markets/stocks/news/116-billion-in-idle-cash-buffett-is-still-smiling-5-big-cues-for-stock-investors/articleshow/63077724.cms
4/23/2018 Budget 2018: Earnings blast is coming and it is more powerful than LTCG tax: Raamdeo Agrawal - The Economic Times

Budget 2018: Earnings blast is coming and it is


more powerful than LTCG tax: Raamdeo Agrawal
ET Now | Feb 01, 2018, 03.41 PM IST
5 Talking to ET
Comments

Now, Raamdeo Agrawal, Motilal Oswal NSE -0.08 %


, says the whole focus of the Budget has been on the masses, on
the rural, on the farm side without impacting the corporate side.

Edited excerpts:

The scenario which we were working with in the morning has


If you see the things which are being got challenged and typically in the short term when the
done for the rural India, it is going to
scenario gets challenged markets always react and
give a lot of leg-up to many rural-
sometimes overreact but today even though long term capital
oriented cheap motorcycles or housing
projects gains tax is back and STT stays, markets are not cracking. It is
quite puzzling?
I heard that entire speech of the finance minister. One of the things I heard is that the finance
minister wanted to reduce corporate tax to 25% for everybody but restricted it to the companies
with up to Rs 250-crore turnover. There is a hope that next year there could be a better proposal
on that side. In capital gains, the grandfathering of the gains was not heard of in India. Domestic
investors have not experienced this kind of relief by the government. So, on the whole, the
corporate side is also not impacted. I thought on the whole. it is a very balanced kind of situation
for us.

Company Summary NSE BSE


On the short-term markets, it is all about
Motilal O… -0.75 (-0.08%) sentiment in the medium term. It is about
liquidity and perhaps earnings. What do you
think this Budget has done to ensure that profitability and cash flows go higher because
that is how you will value future companies either on cash flows or projections of growth?
On the whole, I felt that there is lot of focus on the farm side. They have put out Rs 10,000 crore on
fisheries and aquaculture. I think India is going to become shrimp or fishery capital of the world.
So, that is an upcoming new industry and the focus is perfect. They are listening to the requirement
of the industry and that is completely rural in character. There are many other this things and even
Rs 5 lakh of health insurance is great. It is almost like a health insurance for the entire country. I do
not know how that will be delivered effectively but that is also a huge opportunity for the entire
general insurance industry. The whole focus has been on the masses, on the rural, on the farm
side without impacting the corporate side. Basically they are the taxpayers. Without impacting the
direct taxes or corporate tax, it means you cannot expect anything more than this.

There is a mention in the budget speech that Sebi will now make it mandatory for large
corporates to raise 25% from the debt market. That means the government is committed to

https://economictimes.indiatimes.com/markets/expert-view/budget-2018-earnings-blast-is-coming-and-it-is-more-powerful-than-ltcg-tax-raamdeo-agrawal/articlesh
4/23/2018 Budget 2018: Earnings blast is coming and it is more powerful than LTCG tax: Raamdeo Agrawal - The Economic Times

make the debt market more vibrant but that is bad news for banks because a large part of
corporate borrowing is done from the debt market. In that case, whom do banks lend to
because large corporates which have credibility will only get money from the debt market?
If these corporates do not go to the banks then your credit numbers indirectly will start
looking slightly shaky?
But we do not have the data how much actually they are borrowing right now because all the large
corporates do not actually go to the banks because of the intermediation charge. The banks have a
lower rating than the large corporates themselves and the cost of intermediation of the banks --
deposit rates plus your regulatory charges plus operating charges -- all end up at about 8.5-9%.
Most of the corporates are able to borrow at a lower rate than that. I do not see that to be
challenged for the banks but one has to see how much they are already borrowing. My sense is
they are already borrowing more than 25% from good large corporates are borrowing more than
25% from this bond market.

There is also a mention that there would be a tax on dividends given by mutual funds. Is
that bad news for funds?
I do not know about debt funds because I do not do any debt funds but even equity mutual funds
will be at parity. But because the equity mutual fund dividend is only small portion of the total gain,
whereas in debt funds, dividends are the total gains from the funds, the impact will be felt a lot
more by debt funds. But my understanding is very limited on that.

I am amazed that with long-term capital gain tax and STT staying, the reaction did not last
for even days, it lasted for few minutes.
I am not surprised at all. I told you in the morning that there is going to be no impact because the
market is sitting on a very different kind of a demand supply situation. The kind of inflow which has
come in January people have not bought in. Again, there is going to be demand coming through
and the economy is coming back. Actually, what drives the market is what is happening in the
economy.

The corporate results, the aggregate profits are already up by 29% and you will see the March
quarter will be even larger. The earnings blast is going to be there for the next at least four to
seven-eight quarters and it feeds itself. That is more powerful than capital gains tax because in any
case, the stock is not determined by the capital gains tax, it is determined by the corporate
earnings and corporate earnings growth. And that has not been impacted at all.

In fact, if you see the things which are done for the rural India, it is going to give a lot of leg-up to
https://economictimes.indiatimes.com/markets/expert-view/budget-2018-earnings-blast-is-coming-and-it-is-more-powerful-than-ltcg-tax-raamdeo-agrawal/articlesh
4/23/2018 Budget 2018: Earnings blast is coming and it is more powerful than LTCG tax: Raamdeo Agrawal - The Economic Times

many rural oriented cheap motorcycles or housing projects. They are going to get a lot of boost. I
would think on the whole, it is a positive thing but there is event risk also. Ultimately, we have to get
back to the business.

https://economictimes.indiatimes.com/markets/expert-view/budget-2018-earnings-blast-is-coming-and-it-is-more-powerful-than-ltcg-tax-raamdeo-agrawal/articlesh
4/23/2018 stock market: Everyone is talking of 15% market correction, but wait to buy on dips - The Economic Times

Everyone is talking of 15% market correction,


but wait to buy on dips
ETMarkets.com | Jan 31, 2018, 10.43 AM IST
NEW 3
Comments
DELHI:
The Government of India’s Chief Economic Adviser Arvind
Subramanian on Tuesday urged watchfulness over the rising stock
markets, saying the government would be forced to intervene in
the event of a slump.

"We need to be very vigilant," he warned in an interview a day after


"We need to be very vigilant," CEA
the release of the Economic Survey.
warned in an interview a day after the
release of the Economic Survey. But Subramanian is not the only one alarmed by the tearing hurry
at which domestic stocks are rising.

NSE BSE
Two market veterans, Raamdeo Agrawal and
Company Summary
Madhusudhan Kela, on Tuesday said a 15-20 per
Motilal O… -0.75 (-0.08%) cent correction on the indices would be in order at
this stage. And such a correction will be healthy, too.

They talked of a ‘valuation bubble’ in the market, but said at present the same is far away from the
frenzy seen during the runup to the market peak in 2008.

They also said any correction at this point will be bought into.

Valuations are high, and there can be a 10-20 per cent correction from the prevailing levels,
Raamdeo Agrawal, MD & co-founder at Motilal Oswal Financial Services, told ETNow in an
interview.

"I do not think it is similar to the classic peak of 2008. Such an euphoria is not there in the market.
The bubble is not that big," Agrawal said, adding that the economy was pretty much out of
the demonetisation and GST disruptions and is on the cusp of getting back to a high growth era.

India’s corporate earnings-to-GDP ratio has been sliding since the global financial crisis of 2008,

https://economictimes.indiatimes.com/markets/stocks/news/everyone-is-talking-of-15-market-correction-but-wait-to-buy-on-dips/articleshow/62720135.cms
4/23/2018 stock market: Everyone is talking of 15% market correction, but wait to buy on dips - The Economic Times

falling to 3.5 per cent, the Economic Survey released on Monday pointed out. This stands at 9 per
cent for the US.

Expectations of an earnings recovery prior to demonetisation did not pan out as expected, but the
cash ban imposed a tax on holding cash, property, or gold, which in turn made the stock
market attractive for investors.

It would require future corporate earnings performance to rise to meet still high expectations in
order to sustain the current stock valuations, the Economic Survey suggested.

Kotak Securities said a large portion of the incremental profits for FY2019-20 may come from
sectors and companies that should logically trade at low multiples.

It noted that a large portion of Nifty50's incremental profits, nearly 60 per cent, may come from
sectors such as PSU banks, metals & mining (on the back of improved global outlook and price
increase for Coal India), oil & gas (due to higher oil & gas prices and accounting-led higher profits
of R-Jio/RIL) and companies such as Tata Motors (lower hedging losses).

The brokerage said it would not quibble too much about the quality of earnings, given the drought
over FY2015-18E.

"I do not have any doubts that this quarter itself will have good start of the momentum and it will
pick up as we go along," Agrawal said, adding that data readings including the recent factory
output numbers suggesting a 8 per cent growth for December are all hinting at healing of the
economy.

Global economy is growing robustly all across, even Japanese export growth is at 9 per cent.
Europe, Japan and China are all doing well. US, of course, is in a full blast. India is just about at
the cusp of getting the growth back from 6-7 per cent to 8-9 per cent, Agarwal said.

Market veteran Madhusudan Kela said the market was not prepared for any change in tax
structure on equity and equity-linked funds in Thursday's Budget.

"My gut says nothing untoward should happen. However, if any of this happens, there will be a
correction in the market. But it will still not derail the India story," Kela said.

Investors will be looking out for any change in short-term capital gains tax. There could be a
kneejerk reaction in the market if any change is proposed on that front. If the long-term capital
gains tax is introduced for equities or if the definition of long term is revised for equities from one to
three years, the market may no digest it.

However, any correction will be a buying opportunity, because India is in a bull market. All
this liquidity is not going to stop, Kela said.

https://economictimes.indiatimes.com/markets/stocks/news/everyone-is-talking-of-15-market-correction-but-wait-to-buy-on-dips/articleshow/62720135.cms
4/23/2018 Budget 2018: Raamdeo proposes asset-light strategy for infra boost - The Economic Times

Raamdeo proposes asset-light strategy for infra


boost
ET CONTRIBUTORS | Updated: Jan 30, 2018, 04.37 PM IST
0 With barely
Comments

two week left for Arun Jaitley to unveil the Modi


Government’s last full Budget on February 1,
2018, speculation is rife as to how the Union Finance Minister
would balance fiscal prudence with the need for massive
investment across key sectors of the economy and the call for
some urgent attention on the hinterland. As suspense grows, we
invited some top names from Dalal Street to play finance minister
and present their own budget proposals on ETMarkets.com

Government of India is sitting on a Raamdeo Agrawal, Co-Founder & Joint Managing Director
huge pile of monetizable assets. of Motilal Oswal Financial Services NSE -0.08 % , plays FM in this
installment and unveils what he calls a David-like sharp strategy for
Union Budget 2018. Read on...

The two major objectives of the government’s budgetary exercise are mobilisation of resources
and their effective utilization. So, apart from the routine budget proposals, I would propose a
couple of longer-term measures to achieve these two objectives –

1. Banking licence on tap; an


2. Quantum growth in infrastructure spending.

Banking licence on tap


Entry of many new banks will deepen the penetration of banking in the country and bring healthy
competition in the banking sector. It will also ensure proper mobilization of the expected US$ 10
trillion of savings over the next 10 years. These savings can then be channelized to part-finance
the infrastructure build-up discussed in the next point.

Quantum growth in infrastructure spending


India’s FY18 GDP is estimated to be US$ 2.6 trillion, with last 5-year CAGR (compound annual
growth rate) of 7 per cent. I would lay down a GDP target of US$ 5 trillion by FY25 i.e. 7-year
CAGR of 10 per cent. This 3 percentage point increase in growth rate is possible with a quantum
growth in infrastructure spending.

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4/23/2018 Budget 2018: Raamdeo proposes asset-light strategy for infra boost - The Economic Times

GOI is asset-rich, but revenue poor


Government of India is sitting on a huge pile of monetizable assets. At the same time, it is revenue
poor; it runs a revenue and fiscal deficit, and is short of resources to meet its basic infrastructure
needs.

Just one of the government’s multiple asset forms is its shareholding in several listed public sector
companies. This is currently valued at a massive Rs 24 lakh crores. In this case, I would go by the
principle, “The government has no business to be in business.” I would follow an asset-light
strategy for infrastructure build-up. I would budget to gradually divest these holdings, and use the
proceeds as government equity. This can then be leveraged using local and foreign debt to create
a massive resource pool for infrastructure development.

For example, let’s say we sell Rs 1 lakh crore worth of shares in some public sector companies,
such that post the disinvestment, government holding does not fall below 51 per cent. At 2:1 debt-
equity, the resource pool works out to Rs 3 lakh crores, which is about 2 per cent of India’s current
GDP.

If we spend the entire Rs 3 lakh crore in one year (over and above the current level of capital
https://economictimes.indiatimes.com/markets/stocks/news/if-i-were-fm-raamdeo-proposes-asset-light-strategy-for-infra-boost/articleshow/62551522.cms
4/23/2018 Budget 2018: Raamdeo proposes asset-light strategy for infra boost - The Economic Times

expenditure), it will not only create high-quality infrastructure, but also give a huge stimulus to the
economy. Corporate activity will boom and job creation will be massive, leading to a surge in direct
and indirect taxes. The above strategy can be easily sustained for the next 5-7 years, to achieve
the target of US$ 5 trillion GDP by FY25.

Thus, the Government of India is not constrained by resources. We need a David-like sharp
strategy and execution to defeat the Goliath of poverty, and wipe away tears from the face of the
poor.

https://economictimes.indiatimes.com/markets/stocks/news/if-i-were-fm-raamdeo-proposes-asset-light-strategy-for-infra-boost/articleshow/62551522.cms
4/23/2018 Market not in a 2008 type top, euphoria is not there, the bubble is not that big: Raamdeo Agrawal - The Economic Times

Market not in a 2008 type top, euphoria is not


there, the bubble is not that big: Raamdeo
Agrawal
ET Now | Jan 30, 2018, 10.49 AM IST
3 Talking to ET
Comments

Now, Raamdeo Agrawal, MD & CO-


Founder, MOFSL, as the whole world is growing, he has no doubt
that this quarter itself will have good start of the momentum and
will pick up down the line.

Edited excerpts:

What do you make of the pace of the rally? We are up 6% in


The market is at a high. It can correct
by a good 10-20% and that will quieten
this year. In dollar terms, it is about 7%, it is 8% for the
the market
emerging markets. Is this speed slightly scary?
The moment I saw the IIP of more than 8% for December, it was
very clear that things are healing and probably now we are out of the all kinds of downdraft effect
of demonetisation. The global economy is growing robustly all across. Even Japanese export
growth is more like 9%. So, Europe is doing well, Japan is doing well, China is doing well, America
of course is on a full blast. India is just about at the cusp of getting the growth back from 6-7% to 8-
9%. I do not have any doubts that this quarter itself will have good start of the momentum and it will
pick up as we go along.

Company Summary NSE BSE


Are the current market trends exhibiting
Motilal O… -0.75 (-0.08%) irrational exuberance? Is this the last hurrah
before market speaks out because typically
when markets are in this kind of an frenzy mode, the momentum always takes over. Do you
think we are in that last lap sort to speak?
I am the worst guy to even discuss this subject of timing the market. Fundamentally, I do not even
attempt to figure out but I do not think it is a top. It is a high, it can correct by a good 10-20% and
that will quieten the market, but I do not think it is a classic peak of 2008 type. That kind of
euphoria is not there right, the bubble is not that big.

Do you think markets are prepared for any changes in LTCG and can STT as well as LTCG
coexist?
Right now, the entire world wants to reduce taxation per se because it helps improve compliance
and the economy also gets a boost. That is the trend set by America right now. Now at our end,
this long-term capital gains tax has been discussed many times but even if you put it, how much
can you put it? Short term itself is 15%. So you can put at best 7.5% or something like that which I
do not see impacting anybody that much. But if things are working very well after so many years,
we are getting good inflow into the formal economy and from here the money will go to the private
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4/23/2018 Market not in a 2008 type top, euphoria is not there, the bubble is not that big: Raamdeo Agrawal - The Economic Times

equity or the newer firms and the real economy. One should be very careful in tinkering with the
current regime.

If the Finance Minister slips on the fiscal deficit target, could that lead to a sell-off in bonds
essentially and rate sensitives?
They should be fiscally prudent but this 3.2%, 3.25%, 3.3% makes no sense. In any case all the
accounting itself is approximate number and national account is a hugely approximate number. So,
the fiscal deficit slippage of 0.2-0.3% has no meaning. Directionally, you should be conservative
and it should be around 3%, around 4% or 3.5% but to be obsessed about 0.1 or 0.2%... I mean
2.2 trillion GDP economy growing at nominal 10-12%, what is there in few billion dollars here and
there.

What do you expect to hear on the corporate tax rate? Could that be changed as well?
Yes, of course. In fact, Mr Jaitley was ahead of anybody in terms of their intention of reducing the
tax rate. Just that he could not do it so far. I do not know whether the current year is the best year
to reduce the tax rates because we are passing through one of the biggest adjustments in the
taxation laws that is GST and yet the GST itself is not out of woods in the sense that collection has
not picked up the way it was expected. I do not know what is going on their mind but I would think
that they will go very cautious till the GST starts stabilising. I think next year will be the best tinker
to tinker wholesale with the tax rates.

What can the budget do on the expenditure side to kindle growth and perhaps restart the
investment cycle which has been in a slump?
The Budget per se cannot do much but having a very stable tax, predictable tax regime and
understanding the problems of businesses and removing the roadblocks… the government can do
a lot. The government can afford to make some losses here and there, make adjustment in the
long run to the benefit of the businesses.

One of the problem is the creation of jobs by the businesses. So businesses have to be taken care
of like their own children. The so governments can do a lot. It is not only the taxation, but enabling
businesses like capital markets for which things can be smoother, better and faster. We are very
good globally but can we make it a truly global asset management country, the preferred asset
management country in the world. It can be done because everywhere in the world Indians are
managing money. It is a $100-trillion industry. The Budget is a good policy statement occasion and
a lot can be done now.

https://economictimes.indiatimes.com/markets/expert-view/market-not-in-a-2008-type-top-euphoria-is-not-there-the-bubble-is-not-that-big-raamdeo-agrawal/article
4/23/2018 NPAs in HFC biz has peaked at 4.5%, but AMC biz is leading: Raamdeo Agrawal, MOFSL - The Economic Times

NPAs in HFC biz has peaked at 4.5%, but AMC


biz is leading: Raamdeo Agrawal, MOFSL
ET Now | Jan 25, 2018, 04.13 PM IST
0 Talking to ET
Comments

Now, Raamdeo Agrawal, MD & CO-


Founder, MOFSL, says fund-based and asset management
business together account for 60% and broking 40% of the
profitability. Housing finance has no contribution.

Edited excerpts:

We should be able to report at least Your stock is at about Rs 1400 plus now which means that
stable to better numbers in the quarters
your investors and market men are excited to know about
ahead.
what has transpired to lead to the strong numbers for the
quarter gone by. Is it push from AMC or is it push from AMC
as well as HFC?
Actually to my surprise, the capital market segment, the broking segment is expanding very rapidly.
There is some amount of change in the broking business model also where earlier the distribution
piece was very small, now a significant portion of the revenue is coming from distribution of the
third party mutual fund products and PMSs.

Company Summary NSE BSE


The demand for broking services has been rising.
Motilal O… -0.75 (-0.08%) That always happens with the market bull run but
this time around the new entrants in the marketplace
are very few. So, we are seeing gain in our market share particularly the segment where we are
very strong which is research backed cash section. There we are seeing that market share is at all-
time high for us.

I distinctly remember your Q2 numbers in HFC business showed a marginal uptick in NPAs.
Are you getting a sense that in the HFC space, NPAs could be a challenge and if interest
rates go higher, it could have an impact on the borrowers’ ability to pay back?
No, actually and fortunately, in Q3, the uptick in the gross NPA is sharper. It has gone up from
2.7% to 4.5% but now we have seen the peak of it and as time goes by, we will come on top of it
and the recoveries will gather pace.

https://economictimes.indiatimes.com/markets/expert-view/npas-in-hfc-biz-has-peaked-at-4-5-but-amc-biz-is-leading-raamdeo-agrawal-mofsl/articleshow/626501
4/23/2018 NPAs in HFC biz has peaked at 4.5%, but AMC biz is leading: Raamdeo Agrawal, MOFSL - The Economic Times

We should be able to report at least stable to better numbers in the quarters ahead. But yet, I
would not say that the kind of numbers I have seen from the competition is the kind of trajectory we
are not yet in. Though the business has become sizable, there is a growth in the business but the
economics of underwriting and the NPA is still not settled.

Can you also give me a break up as to what was your total profitability, purely from your
PMS business because that is the the meaty part of your business now.
Actually, the AMC itself has become very large. It has become worth Rs 35000-36000 crore as we
talk right now and almost 50% is the PMS and the balance is mutual funds.

What is changing in the entire thing is the mix of the profits like PAT. The mix for capital market has
gone up to 38% and asset and wealth management has become 40%. I remember saying about
two years back 70-80% would be capital markets but now capital market has become 38% and
asset management has become 40% and housing finance has become zero while fund-based has
become 20%.

So, fund-based and asset management together have become 60% and broking has become only
40%. That is the extent of change. Our effort was to make it one-third from AMC, one-third from
HFC and one-third from broking. But because HFC has not delivered, the asset management and
property has become 60% and broking has become 40%. But in the next two three years. this pie
will shift further.

What is the outlook now for your AMC business? Do you think that this kind of growth can
continue? Tell us how much of the AMC business gains are not linked to the market?
The AMC business has two components; one is the fresh inflow and second is the mark to market.
Right now, the inflow till yesterday has been good.

September, October, November, December all were very good months and even January looks to
be a record month. So the flow is very good, performance-wise, the markets are doing very well.
There is no reason to believe that there is any kind of break but the pace at which it has been
flowing in the last particularly two years, can continue for some time. But you cannot expect that
this pace will continue forever. So, we have be to be very calibrated in our estimation.

A good thing about asset management is that it works 365 days. You earn 365 days unlike broking
where you work the day on which there is a trading and that day only you earn whereas the cost is
for all 30 days. This is much more predictable but still the market trends do impact the mark to
market and inflow. The markets will impact this but it is not going to impact as much as the broking
business.

You said that in a breakdown the contribution is miniscule but what are your plans? Do you
think that after this NPA cycle is settled when the economy comes back into the
momentum, how are you approaching the business now? How do you plan to revive this?

https://economictimes.indiatimes.com/markets/expert-view/npas-in-hfc-biz-has-peaked-at-4-5-but-amc-biz-is-leading-raamdeo-agrawal-mofsl/articleshow/626501
4/23/2018 NPAs in HFC biz has peaked at 4.5%, but AMC biz is leading: Raamdeo Agrawal, MOFSL - The Economic Times

What we are doing is to the best of our understanding, whatever is needed. The first thing is there
was no recovery mechanism, so we have put up a recovery organisation. We have strengthened
our credit process. We have extended our due diligence process and with a lot of people joining,
we bring in more focus on to seeing that every aspect of recovery is taken care of.

Motilalji himself is involved in this business, giving as much as possible to get on top it. So, it will
take a little time. But the control is much better now and I hope in the quarters ahead, we will be on
top of it and see that the business we started with a lot of hope do scale up and make it a seriously
large company in the years ahead. But right now, since the underwriting quality displayed by us is
not very good, the results are not good and NPA build up is there.

We are going a little cautiously but we still plan to build it very,very rapidly.

According to our estimates, you are sitting on a lot of unbooked gains in your portfolio.
What is the strategy on that because if markets are so strong, obviously the M2M of your
total investment portfolio will also go higher?
Right now, it is about Rs 525-530 crore and as per the new norm starting from 1st April, we have to
show it in our P&L as unbooked profits by the investments which we are holding.

One is that right now it is not visible to the people that almost 50% of my balance sheet is in the
treasury and the treasury profits are not booked.

Actually, the extent of financial success of this year is not displayed in our Rs 393 crore profit. If
you include the treasury gains, the profit is a lot more. So that will be the first thing that will be
accounted for very clearly next year. But that will also bring volatility because in one quarter, the
profit will be high and in the second quarter, if the market is down, the mark to market will be down
and that is the volatility we had to live with.

Third, as far as the strategy is concerned, the company’s strength is in equity investing so to use
our biggest strength, what we had decided is that our personal money and whatever is the surplus
of the listed corporate by way of treasury, will be invested in our own products. And that is what we
have done and it remains an integral part of our core strategy. So, whether markets are up or
down, the significant presence of our treasury will be there till we get some opportunity to deploy in
real businesses.

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4/23/2018 Motilal Oswal Financial Service: 2018 will be the year of fund raising and market will climb the wall of supplies: Raamdeo Agrawal - …

2018 will be the year of fund raising and market


will climb the wall of supplies: Raamdeo Agrawal
ET Now | Dec 29, 2017, 03.12 PM IST
We have just
1
Comments
seen the fund
raising trailer in the second half of 2017 and in 2018 at least in the
first half till the market completely cools down, it will continue and
the maket will rise, says Raamdeo Agrawal, MD & CO-
Founder, MOFSL in an interview with ET Now. Agrawal says big
movers are all led by earnings and have done well even when the
economy has faltered.
" Ultimately valuation will be driven by
the fundamentals of the company itself. Edited excerpts:
If the company is not making money,
you can push it by 20-30% but very2017 has not been a bad year...
quickly it will come back to the old
Go back to all the gurus and hear what they had said at the
levels"
beginning of 2017 and everybody must have been wrong! Last
year, at this point of time, we are reeling from the demonetisation
effect, there was a sense of slight pessimism. Even I was a little pessimistic. In fact, we did not buy
for 15 days of the flow and then we started buying. So, I must have been very sceptical at the
beginning of the year last year. Whenever you are sceptical, you have a wonderful year and now
everybody is thinking that it is going to be a wonderful 2018 and what is out there, nobody knows.

Is it time to get sceptical?


NSE BSE
Company Summary
I would be. The valuations have gone so stretched.
Motilal O… -0.75 (-0.08%) You get high valuation in one segment of the market
like in 2000 where all the technology stocks were
going berserk and then in 2007, all the realty stocks were going berserk. This time, it is very
widespread anything doing small, mid, large, is quite fancy priced hoping that a big blast in the
earnings are coming. But optimism is quite widespread. A structural shift in the buying for equities
is happening. This is very different time and that is the fun of the stock market -- every day is a new
day.

But for someone who has studied markets and who understand cycles, you know it better
than most that in market nothing changes. History keeps on repeating itself. We may use
different nomenclatures, different scenarios, we may talk about different sectors but
ultimately it is a boom and a bust cycle that markets have to follow?
Again an unprecedented boom is going on, on the back of probably local flows. How long will it
continue because I am coming from my native place Raipur and there again the mood is the same.
The only asset class where people are putting in money is equity. Even a city like Raipur does not
believe so much in buying equities. The culture is not that deep but it is going to be very
widespread and I see the momentum continuing.
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4/23/2018 Motilal Oswal Financial Service: 2018 will be the year of fund raising and market will climb the wall of supplies: Raamdeo Agrawal - …

In December also, the flow was very good. On the back of that, my sense is ultimately valuation
will be driven by the fundamentals of the company itself. If the company is not making money, you
can push it by 20-30% but very quickly it will come back to the old levels. We have to be at least
having the companies which are going to be earning more, which are growing or which are grossly
under priced. Now, the definition of under priced is very different than what it was a year back.
Earlier, if companies were growing at 25% ROE, I would not have borrowed it for more than say 22
or 23 PE multiple, keeping 10-15% PE multiple from my end. Now if I get 25% ROA, 25% growth
even at 27-28% I would think that I am getting a very reasonable deal and betting on the longevity.

Now, the whole game has become the game of betting on the longevity. What is going to happen is
that the returns will depend on how brilliant you are as a fund manager or even how lucky you. The
return in the next two to three years will be very muted and I would not be surprised if it is flattish
but as you go beyond two or three years, markets cannot value what is going to happen because
the capex cycle is yet to happen. Hopefully, it should start next year. And how severe, how intense
the capex cycle will be, will determine the earnings growth. These things are all in the future. One
has to be very cautious in what one is buying. They should not buy junk. Now what is happening is
only junk is left to be looking reasonably priced and when that happens, people sell their good
stocks and buy the junk and finally it topples and you are left holding the junk. That should not
happen.

It is that time of the year where our mailboxes are full of forecasts 2018 how will things
move, which could be the best sector, which could be the best theme. If I take the clock
back in the beginning of 2017, no one told us that bitcoin would be a 10x, real estate index
would give you 100% return and Reliance would give you a return of 60% plus. Would trying
to forecast 2018 be very difficult?
Please take it for granted that nobody can forecast and yet we spend so much of time on that. It is
a complete meaningless exercise and yet we are buying the future. The beauty is what price you
are paying is not for the past or present, you are paying this price for the future. When you look at
the big markets and it becomes very difficult but when it comes to company level, some sanity
prevails when you try to understand the business, try to understand the management. Then, the
recent trends in terms of how the profitability has shaped up, what kind of entry barriers they have
in their businesses, what kind of growth you expect. It is all probability, Future is not about 100%.
Nobody can say 100% yehi hoga. The issue is that when you see anything happening with the a
probability, that is where you bet and in investing nothing can be done without the price at right
place . When you see a high probability event of certain companies and the stock available at

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4/23/2018 Motilal Oswal Financial Service: 2018 will be the year of fund raising and market will climb the wall of supplies: Raamdeo Agrawal - …

reasonable price, which the markets has probably ignored, that is where you have to strike.

In the last two and a half years, we have had two comforts -- political comfort and macro
comfort. Hopefully, political comfort is here to stay for next couple of years but the macro
comfort is missing, inflation is going higher.
While saying that political comfort has been for a couple of years, we have been stable for 60
years. I am not a political pundit. We have to look from a stock market point of view. In 60 years,
we have seen all sorts of things, we have seen assassination of Prime Minister, we have seen
change of the government from a fully dominated one party ruling to crazy coalitions. In fact, in last
30 years, in bulk of the time, we have had the craziest possible political set up and yet markets are
up 340 times. So politics in India does not matter really. So keep that particular variable out of it
being a provider of huge volatility.

That is an opportunity.
Yes, that is an opportunity but on the whole I have seen it does not really matter because of this or
because of that, a stock is doing well or not. The global macro, local macro factors you must keep
into account when you look at the company.

When I ask anyone on my show what could be the biggest risk for 2018, the immediate
answer is global. So let us not go about talk about global uncertainty because we do not
know about that, the day they occur we talk about it. But local, what to your mind could
surprise us and also disappoint us?
One is the oil price. That seems to be going out of hand. More you want it to go down, more it is
going up. The current account deficit and hence again the same problem, pressure on rupee,
pressure on current account deficit all that kind of equation. The equations of 2008 onwards that
brought Raghuram Rajan here and he stabilised things. Fortunately, the oil price was also very
stable. So, times could be challenging on the oil front that is one. It looks to be one immediate
factor and how we tackle it is imprtant.

But remember, when oil prices go up, the Middle Eastern economy, the oil producing countries
which were suffering so far, they get confidence and some of them are our large export
destinations. The global economy overall does very well. Right now, the global economy is
booming. This will further fuel the global economy and that will allow a lot of exports and our
capacity utilisation can go up. It can bring another kind of impetus also.

So higher oil prices are going to hurt us because we are net importers but it will also bring
prosperity in trading and global exports. Otherwise, the rest of the things are manageable and it is
all company specific.

Ultimately markets they will map earnings and earnings will reflect economy and the way to
understand economy is that you look at all the high frequency data points -- what is
happening to car sales, truck sales, air traffic, variety of data points. What is your
understanding of the high frequency indicators, what are they pointing and where is the

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4/23/2018 Motilal Oswal Financial Service: 2018 will be the year of fund raising and market will climb the wall of supplies: Raamdeo Agrawal - …

economy headed?
See there are two parts. One is consumption part of it and second is the investment part of the
economy. Every business cycle brings that capex cycle when you make a nuclear plant or a steel
plant. A three million tonne steel plant costs about say $3 billion. Now that 15-20 thousand crores
expenditure for you is capex, but for rest of the economy it is the revenue and that is where the
change in the revenue trajectory happens. If something is growing at 10%, say cement is growing
at 5% and suddenly 20-30 roads or something comes up which is a capex in the economy and
then cement demand goes up by 12-15%, earnings explode. This is because there is fixed cost
and hence a lot of operating leverage, financial leverage and then the companies start doing well.
That phase has not happened in the last three-four years and that is a very large opportunity.

Now to the extent we have seen there is no business cycle which ends without having a blast in
the capex and that capex cycle should be starting next year. Always it is convenient to say second
half of next year but I think next year should be a better year for the capex and 2019-20, it would
go full blast. I hope it starts in the first half of 2018 itself and that can change the trajectory of the
earnings.

Markets have already moved up in anticipation of strong earnings and somewhere it has
been frustrating that earnings have not come also. When real earnings will come in, would
investors say look we knew this was coming, we already had bought stocks in anticipation
of the earning and the upside could get limited, You could have a situation where earnings
actually start picking up but stock prices may not fall and may stagnate?
It depends on the stocks. How much has the market been discounted and how much are they
surprised? There will be stocks where market has over anticipated, over expected and built in the
price. There it will be muted or it may even correct and in some places, the market was completely
ignorant because earnings estimate is a very crazy thing. Apart from the top line growth, say
cement grows by 10%. But it is not necessary that every company grow by 10%. If a company has
put upon a five million tonne, another five million tonne, it will grow at 100%, maybe even 300%
because the operating leverage and financial leverage both will come to play. But if the demand
does not come by 10% or 12%, then this guy is in deep trouble because he has put up the capacity
and there is no demand. Whenever this kind of upsurge in capex comes and it is a prolonged
capex, there will be lot of surprises and more on the positive side and that is why my sense is that
the earnings blast which is yet to come for five-six years. Whenever it comes, it will not come at 15-
20%, will come at more like at aggregate level 30-40%, 50%...

And that is what could surprise markets and lead to a PE multiple and a stock expansion
phase?
Yes. Life goes on but we are already at one time GDP, at Rs 151-lakh-crore market cap. We are a
little close to our GDP levels. Currently our GDP will be about Rs 160 lakh crore or so. The market
is at Rs 151 lakh crore and it is so good thing that markets are not overstretched on the aggregate
valuation. Our GDP is growing at about 10-11% so that much scope is there but if there is a
fundamentally very rapid expansion in capex and it is very prolonged because this time the inflation
control thanks to Mr Rajan and MPC and all is so tight that we may have slow recovery but it can

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be very prolonged recovery.

The script of how markets have moved in 2016 and 2017, was largely dominated by
government policies and liquidities. Sometimes it was demonetisation, sometimes it was
GST rollout. But can I say that for 2018 and beyond the script of how markets would move
could be a function of earnings?
Yes I mean it is actually overdue, earnings should have dominated much earlier. See the stocks
which have done well have been dominant earnings companies. There will always be exceptions
but big movers are all led by the earnings because while we are saying that aggregate earnings
have not grown, it does not mean that there is not 100, 250 companies which have not grown, in
fact there are companies which have grown like a big time, 100%, 200% and all. There are
companies which have done well say like entire capital market segment, all the three-four
companies we have, all of that, in a situation when the economy has actually not done well. So
there are segments of the markets which have done very well but as the capex starts, what will
happen is there will be large segments of the market which will simultaneously do well and so a lot
many more people will make money.

Very early, I learnt a piece of wisdom from you that when there is a bear market, buybacks
always mark the market bottom and fundraisings always coincide with the market top if I
look at the data of 2017, it has been a crazy round of fundraising, QIPs, government
divestment, IPOs, a new sector called insurance got created and it has a market cap of two
lakh crore. Is this a telltale sign that if not now, but a market top is coming soon?
The good thing is that it is a self-check mechanism and it also shows that our capital markets are
very healthy. The moment you try to push the valuation to say 24-25 all sorts of sellers come,
whether it is foreigners, governments, promoters. Everybody is willing to sell so the supply is there
and that is why you see the IPOs, QIPs and sizes of secondary raisings. India does not need many
more new companies. It is always healthy to have new companies but right now, the existing
number of players are very large, they must bring the scale, they must go global, they must
consolidate. A QIP is very quick and it goes to the institutional investors so even SEBI is pretty
open about that.

My sense is 2018 will be the year of-- we have just seen the trailer in the second half of 2017 and
in 2018 at least in the first half till the market completely cools down -- there will be a massive
amount of raising and the market will climb the wall of supplies. As the supply keeps coming, as
you raise it from say 10400 to 10600, 11000, the supply line will become even bigger. So koi bolta
hai ki some wise man says ki jab bazaar badhta hai to shares asmaan se aata hai. So it will come,
it will come from all over.

You have always tried to identify sectors or themes where there is value migration or
businesses which are at an earnings inflection point. Where do you think there is a serious
scope for value migration and which are the companies, sectors or themes which are on a
cusp of a earnings recovery?
As far as the biggest value migration is concerned, the migration from public sector banks to

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4/23/2018 Motilal Oswal Financial Service: 2018 will be the year of fund raising and market will climb the wall of supplies: Raamdeo Agrawal - …

private sector is still on and a lot is yet to happen. We think that so much has happened in the last
10 years but if there is no effective revival of PSU banks very quickly, then probably the migration
could be faster because the preparation from the private sector side is massive. Look at the
amount of money being raised at the drop of a hat by each and every bank. The entire HDFC
group is proposing a few billion dollars of raising and that gives them enough capital to underwrite
risk and they will be able to underwrite a very large amount of loans. They will give a tough
competition to the other side because they are very efficiently operated and now they will have the
scale also.

I am trying to understand what do you think is at an inflection point in terms of themes,


sectors?
While doing this year’s wealth creation study, we understood the longevity. What happens is that
you buy something at one buck it goes to three, you think enough is enough and after that it goes
up by 100 times, 200 times. A lot of these private sector NBFCs, housing finance companies,
banks they have done very well but many more years of goodness probably could be in store. One
has to be very careful in just booking the profit and getting out and finding new ideas.

Your old ideas which are doing well could be the ones you should stay with. That is one aspect of
it. But second theme is the newer sectors. People love to have new names, new sectors so the
cyclicals could be the ones. Third, IT and pharma, particularly pharma which is actually globally
non seasonal, is a very secular kind of a business. It has suffered in the last one or two years
because of regulatory issues, permissions and a lot of competition but my sense is that India might
be actually becoming stronger in pharma than ever before. These sectors are worth watching,
when what to buy that is anybody’s call but they are very large and very profitable well run sectors
and companies are very good, new companies are also coming up there so they look to be very
opportune sides.

What to your mind has been the most enjoyable moment for you personally in 2017 --the
fact that you officially became a billionaire or the fact that you have completed 10 years of
your fund with very strong market beating returns?
The most enjoyable one is always when I managed a breakthrough in wealth creation studies
because you get actual new gyan and that is what we will use every day. It makes me feel very
nice from inside that now I have another tool which I can use to not only protect the current
performance but also further improve upon it so that my clients can have fun. That is always the
moment whenever we have a breakthrough in the wealth creation study. This year we talked about
longevity, the gap growth advantage period. It is a completely new concept that we have given.

You know one of my favourite wealth creation studies was three years ago when the title of
the wealth creation study said, in stock markets you should have conviction to see, wisdom
to buy and patience to wait. That is one of my favourite quotes which I often borrow on air
as well and I always give credit to your wealth creation study. But QGLP now it has become
a symbol of how a fund manager should really evolve the entire thought process. How
much of QGLP thought process is influenced by Guru Buffett and how much of that is

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4/23/2018 Motilal Oswal Financial Service: 2018 will be the year of fund raising and market will climb the wall of supplies: Raamdeo Agrawal - …

original?
I would say foundation is 100% Buffettian and I think the 2007 annual report of his page 6 and 7
was the foundation of this but actually in our sustained wealth creation studies in 2013 or 2014, we
broke through and said the quality is important but quality will not allow you to go down but we are
not there not to go down, we are there to move forward. So quality will allow you not to go down or
it will protect you from going down but growth is what is going to take you forward. And the rate of
growth will decide at what pace you will go forward. Buffett gave me the Q. The G is our addition.

And LP?
Now this is an ongoing process, the growth being further longevity and growth types.

https://economictimes.indiatimes.com/markets/expert-view/2018-will-be-the-year-of-fund-raising-and-market-will-climb-the-wall-of-supplies-raamdeo-agrawal/artic
4/23/2018 Mega trend of India’s trillion dollar opportunity to accelerate from here: Raamdeo Agrawal - The Economic Times

Mega trend of India’s trillion dollar opportunity to


accelerate from here: Raamdeo Agrawal
ET Now | Updated: Dec 26, 2017, 11.24 AM IST
Talking 4
Comments
to ET
Now’s Nikunj Dalmia, Manish Sonthalia, Motilal Oswal
NSE -0.08 % AMC – PMS and Raamdeo Agrawal, MD & CO-

Founder, MOFSL, discuss India the Next Trillion Dollar Opportunity


(NTDO) Fund and how it has fared through last 10 years,

Edited excerpts:
In next 5, 10 years, even bigger and
many more opportunities will come. Congratulations for completing 10 years of the India the Next
Trillion Dollar Opportunity Fund (India the NTDO Fund).
Raamdeo Agrawal: I look forward to next 10 years because money is managed for a much longer
period. In fact, one of the benefits of hiring outside managers is that you do not have to worry
about the end date of the portfolio. It can go on perpetually.

Let me put out the returns here. We have looked


NSE BSE
Company Summary
at the fund returns and compared the returns
Motilal O… -0.75 (-0.08%) with the benchmark here since its inception over
10 years ago, before the great financial crisis of
2008. There was a bear market which this fund had to digest. In the entire period, they have
managed to beat their benchmark very handsomely. The disclosure of any mutual fund is
that past performance is no guarantee of the future. What you have achieved is great, what
you have delivered are superior and market beating returns. But what happens now? Buffett
says money is not made by betting on yesterday’s growth and these are yesterday’s
performance. What happens next?
Raamdeo Agrawal: It all comes down to the process we follow and the process has become
better. In 2007, we wrote a paper called India: The Next Trillion Dollar Opportunity where we said
India achieved the first trillion dollar in 2007 and it took 60 years for the country to achieve that
trillion dollar and the next trillion were to come in next seven years which happened last year. And
a third will come in four years, and fourth will probably come in three years. So a trillion dollar
opportunity is coming faster and faster. What took 60 years, is coming in much less time. What it
does is that essentially expenditures remain per capita but the discretionary spend builds up very
rapidly and underlying businesses which are catering to the discretionary expenditure are the
businesses that make disproportionate amount of money.

So, this fund, India the NTDOP (Next Trillion Dollar Opportunity Fund) fund, is named after that
particular study and this fund is supposed to invest in ideas which are going to significantly benefit
from that particular mega trend. That is how it has happened. Now that mega trend continues and
is actually going to accelerate from here.
https://economictimes.indiatimes.com/markets/expert-view/mega-trend-of-indias-trillion-dollar-opportunity-to-accelerate-from-here-raamdeo-agrawal/articleshow/6
4/23/2018 Mega trend of India’s trillion dollar opportunity to accelerate from here: Raamdeo Agrawal - The Economic Times

Second, the process of selecting the QGLP stocks only -- quality and growth at reasonable price --
will continue. We actually have written about newer wealth creation studies in 2007. We have done
22 studies. Earlier, QGLP as a framework was just about in nascent stage. We have not even
named it but we are following broadly 80% of that. We have the QGLP framed in 2014 and now we
have two or three more studies after that. I would think that as a house we are more qualified and
processes are tightened, the filters are tightened, the clarity about what to buy, what not to buy and
if you buy how long we hold, how much we hold, what it is going to allocation, how long can we
hold it -- five years, seven years, 10 years, what is the end point and when should we sell – a lot of
clarity has come. Nobody can guarantee the future in equity markets. If there is a 50% chance, it
may be lower and if there is a 50% chance, it can be significantly better also.

Manish, first my compliments on outperformance which you have managed in your scheme.
But I want to take the clock back and talk about when the fund started. Walk us through the
history. How exactly has your thought process? How have you evolved and what has been
the key learning for you?
Manish Sonthalia: There could not have been a worst time to launch the fund, it was launched on
5th of December 2007.

Oh! at the market peak and then came the crisis and then you question yourself why did I
launch the fund?
Manish Sonthalia: No. Markets peaked on Jan 21st 2008, if I am not mistaken and we saw
significant drawn down from the fund. We raised around Rs 100-110 odd crore at that point in time
and actually we saw a drawdown to the extent of 40-50%. Everybody, obviously the clients were
very nervous and then they started questioning the conviction and the entire process that we had
and the entire theme on which we had launched the fund. So, it was a tough task to begin with. But
I think our conviction, our style of investing, the long-term approach to investing, focussing not only
on the near term growth but also the terminal value of businesses, how long that growth is going to
last, reassurance to the clients, holding their hands together all this has taken the fund to where it
has reached today. It is the conviction which has stood the test of time. It is our philosophy and
process and this is where we differentiate from the competition in a big way.

We do not do hanky-panky about the philosophy and the process and as an investor as well as a
fund manager, I have evolved in terms of maturity of how we should look at businesses. I tend to
overlook noise quite a bit these days while the markets in the short-term are all about noise. It is all
about tactical trade what is going to go up today, what is going to go up tomorrow. But we are not
about that. We are about whether we stick to the process and this is what according to me these

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4/23/2018 Mega trend of India’s trillion dollar opportunity to accelerate from here: Raamdeo Agrawal - The Economic Times

businesses can stay for a long period of time. Obviously, there can be periods when short-term
growth is not coming. Do you compromise over those stocks? Stocks go through time correction
and so high level of maturity has come over the last 13 years. I have been with Motilal Oswal for
the last 13 years and have evolved as an investor, as well as a manager.

The ethos of the fund is centred around Rise with India, The Trillion Dollar Opportunity and
that can be crafted into consumption and that can be crafted into the BFSI space. What do
you think could be the next trillion dollar opportunity? The extension of the same or could it
change in next 10 years?
Raamdeo Agrawal: It will further accelerate in the same direction. One of the companies in this
portfolio, say Page Industries, is a fairly new company and came from nowhere in the textile sector
where nothing nothing has happened so far. This company has come out and created one of the
most wonderful franchises out there and we buy into them at an early stage and till date we
continue to be there. How many years it is now?

Manish Sonthalia: It is almost around nine years. It is a 50-bagger and still growing I mean 50-
bagger in a public portfolio.

Why did you allocate more than 15%?


Manish Sonthalia: We gave full allocation of 10% but we have taken money off the table. If this
stock was to remain at the original concentration, it would have become 30-35% of the portfolio.
Obviously, we cannot allow that but it is just that conviction that this business is going to grow at
20-25% for a long period of time and even today the market debates as to how long that growth is
going to last. Even today. I say that for the next 10 years please expect this sort of a growth and
this is what has made the stock a 50-bagger.

Some of the stocks which you owned like Kotak Mahindra Bank, Voltas, Bajaj Finance are
now great businesses but the market positioning is such that some of these companies
have a cheery consensus going for them and great entry points are never discovered when
there is a cheery consensus?
Raamdeo Agrawal: But we have already entered and now we do not need a discover point.

But for someone who is investing in your fund now?


Raamdeo Agrawal: That is his problem that is not my problem. We are already in the stocks
which you talked about. The issue is that should we increase or should we reduce or should we
completely exit so that longevity stays. What he talked about for next 10 years, 15 years is how we
talk. For next 10 years, it is good/ The whole discussion is not about how many new stocks we can
buy. It is about understanding the depth. As Buffett says, I want to know why it is good and why it is
good for a very long time. From where that goodness is coming? Something is good, say return on
equity (ROE) of a company is 35-40%. That is fine on the face of it. But I must understand why it is
good and not for five years or next year or next quarter but for 10, 15, 20, 30 years. That is where ir
works. In some places we understand it and in some places, we do not. My sense is that in next 5,
10 years, even bigger and many more opportunities will come.

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4/23/2018 Mega trend of India’s trillion dollar opportunity to accelerate from here: Raamdeo Agrawal - The Economic Times

Now we do not need many opportunities. Already, the portfolio is filled. Actually it is more stocks
than what is necessary. He has got 24 while we should have only 20-22. Getting one or two or
three new ideas is possible b and it will be like what happened to Page in last 10 years. We can
find companies which will go even faster than that in next five, seven, 10 years because of the
process. Now is it guaranteed that we will get three more ideas like that? There is no guarantee.
Only after sometime, we will see whether it has happened or not.

In India, before you buy a car, the first thing you ask a car salesman is kitna average deti
hai. I am sure investors who want to invest in this fund right now, would ask you what
should be the return expectation for next three to five years?
Manish Sonthalia: As I said that when you talked about Bajaj Finance or Kotak, why are you still
holding it today? We tell new investors that we are buying businesses with the potential to double
their profits in three to four years. There may be businesses which can grow faster than. I know
that the markets give you around 15-16% returns. Can these stocks deliver returns more than the
market? At least I am pretty clear. The whole point is I am buying businesses which can double
their profits in three to four years. I am keeping a margin of safety for my clients and I will do my
best to double my clients money in the next five years.

So 15% compounded is what I endeavour because this is what the markets have given. If I do not
deliver those sort of returns, I may not have done a good job. That is my aspiration. How do I
achieve it? I try to buy businesses which can double their profits in three to four years and these
businesses are not going to deliver profits in a straight line. It is not going to be one way on the
upside; there could be ups and downs. Do you have the conviction to stay through the journey?
That is how I differentiate.

Raamdeo Agrawal: Actually, the question should not the absolute profit because all the return to
the investor is made up of two things; one is a beta and second is what is the manager’s effort in
terms of excess returns. In this fund ,in last 10 years excess return is about of 11% compounded
and on every period basis, it is there broadly. We should be asking him whether he can deliver the
same 10-12% outperformance because if the market does 20%, can you do 30%? If market does
10%, can you do 20% because getting that 10% magical number is most important because my
sense is market should deliver/ I would always expect five years double for the market. But can
you triple? That tripling is coming from 15 plus 10, 25% compounded for three years. Because the
manager can see he has started from 21000. Now, handicapped with the high base, he can do
nothing about it. He has done that 11% outperformance. So his challenge is to keep outperforming
by that kind of margin for next three, four, five years.

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4/23/2018 Motilal Oswal Financial Services: When the earnings come through, it will be explosive: Raamdeo Agrawal, Motilal Oswal Financial …

When the earnings come through, it will be


explosive: Raamdeo Agrawal, Motilal Oswal
Financial Services
By Sanket Dhanorkar, ET Bureau | Updated: Dec 25, 2017, 01.47 PM IST
0 Real
Comments

wealth is created over a long period of


time, Raamdeo Agrawal says, as
he sharesinsights from Motilal Oswal’s 22nd Annual
Wealth Creation study with ET Wealth.

Return on equity of the top 10 consistent wealth


creators has been declining, with outperformance
also subdued. Can you shed some light on this?
This is an outcome of the phase in the economic
cycle. In 2008, when India was at its peak and the
"Things cannot get worse for the PSU space", Raamdeo
global economy was booming, profitability of large
Agrawal Joint MD, Motilal Oswal Financial Services
companies was also at elevated levels.

As economic activity slowed down, a lot of corporates with supernormal profits witnessed lower
and lower profitability. Global facing companies, particularly pharma, IT and commodity players,
that did well earlier, experienced a downturn. However, this is a transient phase. The next 10 years
could be just the reverse. The top 100 wealth creating companies account for 60-70% of the
economy, or listed space. These 100 companies reflect what is happening in the better part of the
economy.

The bellwether index is actually the best part of the economy, because it is continuously changing.
This basket may underperform in the short-term, but on a long-term basis, it is a pristine set of
companies. Indian benchmark indices are very demanding. All high growth companies get in, but
after 8-10 years of growth. So they are left with around 5-7 years of additional growth. Before they
get out, they experience a slowdown or negative growth and damage the index before getting out.
Active managers have a choice—buy early before it enters the index and sell before it gets out.
That is the fund manager’s job.

The share of the top 10 wealth creators has been declining. What does this imply?
Today the total market cap is around Rs 140 lakh crore. But that of the biggest company is around
Rs 6 lakh crore. As market cap grows, the contribution of the biggest companies will shrink. The
largest company is growing at 13-14% CAGR. The rest of the market is growing at 16-17%. So the
top companies are continuously losing market share as companies down the ladder are growing
very rapidly. That is the kind of opportunity we have. After a sustained lack of movement in the
market, when it bounces back, it does so with a vengeance. So when earnings growth comes
through, it won’t be a trickle, it will be explosive. Then, large caps can do really well.
https://economictimes.indiatimes.com/wealth/personal-finance-news/when-the-earnings-come-through-it-will-be-explosive-raamdeo-agrawal-motilal-oswal-financi
4/23/2018 Motilal Oswal Financial Services: When the earnings come through, it will be explosive: Raamdeo Agrawal, Motilal Oswal Financial …

Banking and finance is the top wealth creating sector, and accounts for around 40% of the
index. Is there a likelihood of a sector rotation in coming years?
Logic demands that there should be a sector rotation but it doesn’t look like that on the ground. We
are seeing the biggest value migration from the public sector. The banking industry is growing at
around 14-15%. PSU banks keep shedding market share to the private sector, which is growing at
a scorching pace. The only way the sector growth will get capped is if public sector banks are able
to come to life and effect a turnaround in terms of effective management, thus increasing
competition. Either way, the sector will not grow much beyond 50%. In 2007, when the US
meltdown happened, BFSI had become 40% of the index—the highest historically. Ours is a
mature economy and still emerging, so it can remain irrational for long.

The report says there are signs of bottoming out for PSU stocks. Are we likely to see multi-
baggers from this basket?
Things cannot get worse for the PSU space. Two years back we had said the PSU basket is a
contrarian buy. Hardly two companies from the basket were represented among the wealth
creators and have since increased to 10 companies. The trajectory is looking better. PSU ETFs
should be a good investment in the coming years.

Consider some of the PSU banks—these are large franchises with big loan books and huge
deposit base. These are trading at a fraction of their loan book. If good managements are installed,
there is huge scope for high returns from current level. Most of the other PSUs are monopolies in
their respective fields. Wherever the valuations are depressed and tailwind comes into the sector
or there is a change in management setup, the potential is huge.

The Wealthex has outperformed the Sensex owing to faster earnings growth, but the
broader market has rallied largely on back of PE re-rating. Will the earnings growth justify
the re-rating?
Over the past 4-5 years, the Nifty EPS has hardly moved while the index has soared. So the bulk
of it is on account of re-rating in the hope that earnings growth will come through. The fact is, no
business cycle comes to an end without a blast in the earnings. 2003-07 was a super blast on the
back of Chinese boom. This time, it will be because of Indian capex. The character of the earnings
blast will be different this time. It will be led by domestic capex cycle.

Can you elaborate on the theme of ‘power of longevity in wealth creation’?


Real wealth is created over a long period of time. How do you figure out how long a company is
likely to experience growth? For one, the franchise should remain safe for a long period

https://economictimes.indiatimes.com/wealth/personal-finance-news/when-the-earnings-come-through-it-will-be-explosive-raamdeo-agrawal-motilal-oswal-financi
4/23/2018 Motilal Oswal Financial Services: When the earnings come through, it will be explosive: Raamdeo Agrawal, Motilal Oswal Financial …

(competitive advantage). But just that cannot make money for you because the franchise is already
priced in. You need to have growth in the franchise. The way the market works is it discounts future
growth.

But there is a hitch: it will discount next years’ earnings growth to the maximum, the second year
growth will be discounted to a lesser extent and the third year even lesser, and so on. Beyond a
few years, the share price will hardly discount a fraction of the actual growth. That is where the
investor should be smarter, as there are very few opportunities for compounders. To identify
compounding machines, one should be able to look at the future confidently, and hold on to the
compounders to create wealth.

https://economictimes.indiatimes.com/wealth/personal-finance-news/when-the-earnings-come-through-it-will-be-explosive-raamdeo-agrawal-motilal-oswal-financi
4/23/2018 Motilal Oswal Asset Management: If you get 7 stocks out of 10 right, you are home: Motilal Oswal AMC - The Economic Times

If you get 7 stocks out of 10 right, you are home:


Motilal Oswal AMC
ET Now | Dec 19, 2017, 02.14 PM IST
0 Talking to ET
Comments

Now, Raamdeo Agrawal and Manish


Sonthalia of Motilal Oswal Asset Management discuss how to
get the bets right. Agrawal says typically in a portfolio, one-third will
disappoint you, one-third will work as per plan and one-third will
actually surprise you.
'
Edited excerpts:
It was a learning from our portfolio that
many commodities can also become
How do you create a portfolio that works?
brands.
In a portfolio of 20 stocks, you will find some of
the stocksovervalued. We might be committing a mistake of buying
the right stock but at a wrong price or you could be buying the wrong stock per se where the trend
itself will be negative like say pharma or IT stocks. Those things will happen but I mean happily all
the things do not happen together. So in 2016m IT slowed down, in 2017 pharma took its own toll.
But then do not forget that while this is happening, BFSI is going through the roof, private sector
banks are going through the roof. Oil companies are doing very well. Some of the consumer
companies are doing very well. It is a counter balance. I It is not that in a portfolio of 20, all the 20
are going up. Whatever concerns are there, a lot of it is taken care of by diversification.

In last 10 years, which is one stock you regret buying and which is one stock you regret
that you sold away.

Sold many stocks earlier and this was again a learning. We had a Shree Cement, bought at Rs
1600, that was exited and now today it is may be Rs 17,000. We had an MRF which was at Rs
2000-3000 which is today Rs 70,000. There are many commodity stocks we ended up selling
early.
This was a learning from this portfolio that many commodities can also become brands. Some of
the names, the way the business model evolves in many of these businesses again changes over
a period of time. There were many stocks where we got the cycle wrong like Speciality
Restaurants. Even though it has moved up after I sold and has almost doubled, I bought at Rs 150-
160 odd and exited at Rs 80 and today it is Rs 170.

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4/23/2018 Motilal Oswal Asset Management: If you get 7 stocks out of 10 right, you are home: Motilal Oswal AMC - The Economic Times

Again, this was a very structural story. Our eating out is very low when we compare it with the
developed world. It is still a debt-free company. The EBITDA margin is 20% but little did I realised
that it is very correlated to the economy when the economy goes through a downturn, when we go
through a food inflation cycle our eating out goes for a toss and then the management tries to
balance between footfalls and menu price increase and in this case the management actually took
the entire food inflation on their menu prices. So 17-20% EBITDA margin business goes to zero
and then negative, obviously you cannot handle all those things in a public portfolio.

One little learning for me is when I look at your portfolios is that one should not be
obsessed with price. If you keep on waiting for your ideal price, the good business may not
come at that price and that is how your portfolio is constructed. You buy reasonably good
businesses at a decent price and let the business compound.
Yes, but today in the price, you might be looking for some of the portfolio companies, which might
be looking very high but that is not my purchased price. Purchases have happened much earlier.

But the fresh inflows…


Yes fresh inflows are at the margin. The impact for the guy who is coming in new is the same as
buying at full price today. But a lot of comfort comes from the entry price itself where you made
bulk of the gain at a reasonably low price in the beginning. But the price is important. Nobody can
say that I can buy anything at any price and make money. So price is very critical but when you
have the quality and growth and that too longevity growth of three, four, five years, a bit of the risk
comes from the growth not coming through.

I am willing to put client’s money for the company where the company is going to grow at 25% for
next three years and I am willing to pay the fancy price today. So my risk is coming basically from
the growth not coming through. If the growth comes through, I will make my 25% or 22% or
whatever. But later on when the growth does not come, then people will say you paid too high a
price.

How do we tackle that because ultimately we have to face the music. Again, the diversification
comes to play. In 20 positions, if you have followed the same process, for some you got
reasonable returns, in some you will be punished. Typically, my experience is one-third will
disappoint you, one-third will work as per plan and one-third will actually surprise you. Those
surprises more than take care of the disappointments and typically these are very good
companies. Disappoints are also marginal 5-10% types and the reason why we make money in
stocks. Downside is one 1x, upside came in multiple X.

Where are you betting on your surprise? Where are you safeguarding yourself from
disappointment?
I bet my conviction is in all these 24 names. What is in our control is to project whether the
numbers are going to be 20-25%, That is all that is there in our control. Why has this portfolio
worked in the last 10 years is because we had precisely got the numbers right and this is what is in

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4/23/2018 Motilal Oswal Asset Management: If you get 7 stocks out of 10 right, you are home: Motilal Oswal AMC - The Economic Times

our hands.
We are trying to do more work on understanding the earnings of these businesses. If there is a
finetuning required, if there are red flags as to why this 18-24% compounded earnings is not
possible, of course we will trim the allocations. We will get rid of these stocks but at any given point
in time, if these 24 names are there in the portfolio, we have the full conviction there. Many of
these names will deliver. So, we bet and what has anecdotally been seen is if you get seven stocks
out of 10 stocks right, broadly you are home.

We are not God. If you get it right and if past returns and processes are any indications of what the
returns can be and if outcome is something different, maybe we will try to do better with our
processes but that is entirely in our hands how we look at the process and how we fine tune them.

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-7-stocks-out-of-10-right-you-are-home-motilal-oswal-amc/articleshow/62132884.cms
4/23/2018 Don’t have to find new companies simply because it is a new year: Raamdeo Agrawal - The Economic Times

Don’t have to find new companies simply


because it is a new year: Raamdeo Agrawal
ET Now | Updated: Dec 19, 2017, 09.19 AM IST
Talking 0
Comments
to ET
Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL, says right
now, there are a lot of challenges to making a first-time success. If
you have something which is doing well and it is promising a good
return in the next one or two or three years, it is better to continue
with the same manager, same stock.

" HDFC is doing well for the last 40


Edited excerpts:
years and maybe another 10-15-20 I know you hate to comment on the short term but from a
years, maybe 40 years ahead." market standpoint, the market narrative often is centred
around elections. The verdict of Gujarat is not exactly in line
with what markets were anticipating yet markets closed higher. What does this indicate?
We can be talking about some numbers, that they had expected 130 or 150 for BJP and now there
are 99 seats but the thing is that there is a comfortable majority to form a government. That itself is
a huge achievement after 22 years. This is the sixth time BJP is coming to power in Gujarat and do
not forget there is a change of leadership in Gujarat. Mr Modi is no longer the chief minister. So,
there is a voting for BJP. The continuation is there, there is no surprise on that count at least. If by
chance, there was a defeat to BJP and that too in Gujarat, that could have been a little serious but
it is business as usual from here onwards.

Company Summary
Markets have been isolated from any kind of
NSE BSE
political risk. India always had this political risk
Motilal O… -0.75 (-0.08%) at least in the last decade but thanks to a solid
administration we have not had this political
HDFC Bank -20.15 (-1.03%)
crisis or a political upheaval. Can I safely say
that in the run up to 2019 we should not worry at least about the political risk?
Like we saw in Gujarat, a similar thing should happen in Delhi also. There would not be any
political risk per se. But national election is a big thing because that leads to policy changes of a
huge order. We are seeing the policy changes, change of leadership itself is there so the style of
leadership defines, we have seen the companies and even nations where a leader redefines the
trajectory of the nation itself. We are under the new leadership right now and I hope it continues for
at least another term. But closer to the date, we will see what really happens.

What are the things which will continue from 2017 to 2018? Where you think continuity
of earnings, market assessment of growth, PE expansions will continue?
The companies which are doing well they will keep doing well and one of the things in the
latest wealth creation study, is always that there is urge in investors’ mind to find the new

https://economictimes.indiatimes.com/markets/expert-view/dont-have-to-find-new-companies-simply-because-it-is-a-new-year-raamdeo-agrawal/articleshow/6212
4/23/2018 Don’t have to find new companies simply because it is a new year: Raamdeo Agrawal - The Economic Times

one. HDFC Bank NSE -1.03 % 20 saal ho gaye itna paisa kama liya bhai kuchh naya khojenge
abhi (It has been 20 years since HDFC Bank. We made so much money, let’s find a new one now).

This is where you sell the good stuff thinking that it is overpriced and you buy something very
uncertain and unknown and you walk into a trap. Right now, there are a lot of challenges to making
a first-time success. If you have something which is doing well and it is promising a good return in
the next one or two or three years, it is better to continue with the same manager, same stock
rather than finding complete new name and new manager. That is my learning,

I do not want pre-empt anybody. If somebody is not doing well, I do not want to go and say that this
guy is going to do well. Let him start showing his trick that he is very good and then after that we
will buy because in such a highly competitive economy, once somebody starts doing well, he does
not do well for one or two years. He has fought all the wars and he is going to do well for five,
seven, 10-15-20 years like HDFC is doing well for the last 40 years and maybe another 10-15-20
years, maybe 40 years ahead.

Let us not pre-empt any of the blue chips becoming mega success because the continuous
trajectory of growth is well defined -- 6-7% growth for the last 10-15-20 years and same kind of
thing is visible for the next 10-15 years. So a lot of businesses underlying companies will have a
very predictable future. Whether you make 25% or 20% that one can refine but there are a lot of
compounders and companies which are going to do well . You do not have to find new companies
simply because the calendar is changing from 2017 to 2018.

The fact that BJP is back in Gujarat it means that demonetisation and GST has been
endorsed by what could be called as a business walon ka state?
Yes, but we must also not undermine other state Himachal where they got thumping, almost two-
thirds majority. In fact, there is a lot of emotions. Mr Modi is from Gujarat so Gujarat is becoming a
big battle ground but just now you had UP election, you had Himachal and in both the well after
demonetisation. I would think that those issues are now becoming less and less relevant. One can
have views but overall it is the ultimate voting machine. What we have seen is the voting machine
at the end of it. In true terms, it is the voting machine and they have given their verdict and the
verdict is very well defined.

https://economictimes.indiatimes.com/markets/expert-view/dont-have-to-find-new-companies-simply-because-it-is-a-new-year-raamdeo-agrawal/articleshow/6212
4/23/2018 Chase value, not price, in an expensive market like this: Raamdeo Agrawal

Chase value, not price, in an expensive market


like this: Raamdeo Agrawal
By Rajesh Mascarenhas, ET Bureau | Updated: Dec 11, 2017, 09.35 AM IST
0
Comments

Valuations of Indian stocks are overstretched, but


investors can still make money by buying growth and
quality stocks, said Raamdeo Agrawal, joint managing
director, Motilal Oswal Financial Services NSE -0.08 % . Banking,
housing finance, NBFCs, insurance companies, automobile, oil
marketing and select pharma companies are going to do well in the
near term, he told Rajesh Mascarenhas in an interview.
"India’s market capto-GDP ratio is
about 95%, which was nearly 150%
Edited excerpts:
during the peak in 2007. This gives us
a little comfort."
Last week, the US government cut the corporate tax to 20%
from 30%. Do you think this move will impact fund flows into
emerging markets?
There is an unprecedented equity boom all over the world especially in the US. Earlier this week,
global market cap crossed $100 trillion while the US government cut corporate tax rate to 20%. As
a result, the fund flows to the emerging market could be impacted. Today, the US market is more
attractive than any other country. Emerging markets will have to cut corporate rates to make it
lower than the US. The time has come to lower the rates now. It’s a strange kind of situation in the
US. Despite full employment, there is no sign of inflation. The way Dow is moving and the froth in
the valuations, I think US markets could correct any time from the current levels.

Company Summary NSE BSE


Do you think the domestic flows will continue
Motilal O… -0.75 (-0.08%) despite the steep valuations?
We have tremendous political and economic stability.
M&M 24.80 (3.10%)
What we want now is a clear-cut strategy and
effective implementation to make our $2-trillion economy into a $10-trillion economy. Out of our $2-
trillion economy, our annual savings is around $600 billion of which only 4-5% is going into
equities. Lots of savings is in fixed deposit, gold and real estate. So our equities have tremendous
opportunities in the coming years.

Don’t you think Indian markets especially mid-cap and small cap companies are highly
priced?

https://economictimes.indiatimes.com/markets/expert-view/chase-value-not-price-in-an-expensive-market-like-this-raamdeo-agrawal/articleshow/62015618.cms
4/23/2018 Chase value, not price, in an expensive market like this: Raamdeo Agrawal

Stocks are not cheap. India’s market capto-GDP ratio is about 95%, which was nearly 150% during
the peak in 2007. This gives us a little comfort. Generally investors chase price and not value. In
an expensive market like this, people should chase value and not price. The past two years have
been fantastic for Indian equities but now it’s a challenging time. In the current scenario, the
returns over the next two years would be much lower than what we got in the past two years as
equity valuations are stretched. The only way one can make money from the current valuations is
by buying quality and growth.

Is India’s stock market headed for a big correction?


Correction is must and healthy for Indian stock market. There could be 300-500 points correction in
Nifty in the shortterm. There are lots of people, who are sitting on the fence particularly from north
India — where real estate is big. They will enter stock market if Nifty goes to 9,700-9,800 levels.
These rich people from diamond and real estate industries are not at all exposed to equity markets
till now. However, expectations of an earnings revival in second half of FY18 and FY19 will keep
sentiment positive. Rising crude can act as a source of worry if prices were to rally further. India’s
macros have remained healthy on balance. The key near-term trigger is the outcome of Gujarat
state elections and victory of BJP will be cheered by the markets.

Analysts are hoping of earnings recovery for the last several quarters. When will earnings
bounce back?
Earnings of India Inc have bottomed out. The recovery is around the corner. The government also
has said that there won’t be any disruptive changes in policies. After three years of subdued rural
consumption, there are now increasing signs of a pickup. Two successive years of normal
monsoon, the combination of MSP hikes, direct benefit transfers and farm loan waivers should
drive up disposable incomes. From here onwards, businesses will recover month after month.
Global economy is doing extremely well so Indian economy should also pick up. Corporate
commentary following the September quarter results from FMCG, autos, durables and retail
reaffirms our view. Several FMCG companies have seen rural growth outpacing urban growth after
many quarters. Autocompanies like Hero MotoCorp, M&M and Escorts also highlighted rural
growth recovery. India Inc expects the demand trends to strengthen as we move into second half
of FY18.

Which sectors and stocks within them are looking good?


We are bullish on banking, housing finance, NBFCs, insurance companies, automobile, oil
marketing and select pharma companies. In insurance sector, there are large opportunities. ICICI,
HDFC and Max should do well in the long term.

Do you think these electric vehicles will disrupt existing auto and auto ancillary makers?
Electric vehicles seem to be the largest disruptions of our time. But it doesn’t mean that Maruti,
M&M or Tata Motors are finished. They could also bring the technology ahead of time because of

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4/23/2018 Chase value, not price, in an expensive market like this: Raamdeo Agrawal

their money power. They could also buyout small guys into this business. If there is a window of
say 10 years for electric cars, you need at least 5-6 million cars per annum for next 10 years. And
as a result, profitability of old companies should go up further, in my sense.

In your latest wealth creation study, you wrote about Competitive Advantage Period and
Growth Advantage Period in investing…
CAP (Competitive Advantage Period) refers to period of high profitability and GAP (Growth
Advantage Period) refers to period of high earnings growth. Combination of CAP and GAP is
exponential for company’s earnings growth, and hence for wealth creation. Our study shows that
companies with favourable industry structure and clear strategy tend to enjoy extended high
profitability (CAP). Further, companies with high growth mindset in high-growth industry situations
are likely to enjoy extended high growth in profits (GAP). So, investors should look for companies
where all these four factors fall in place

https://economictimes.indiatimes.com/markets/expert-view/chase-value-not-price-in-an-expensive-market-like-this-raamdeo-agrawal/articleshow/62015618.cms
4/23/2018 raamdeo agrawal: 5 years down, Raamdeo Agrawal expects profit pools in these 5 down-and-out sectors - The Economic Times

5 years down, Raamdeo Agrawal expects profit


pools in these 5 down-and-out sectors
ET Now | Updated: Oct 18, 2017, 11.43 AM IST
1 Talking
Comments

to Nikunj Dalmia & Ayesha Faridi of ET


Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL, discusses
the Street view for Samvat 2074 and that telecom, PSU banks,
power, construction and real estatewill be the comeback sectors
yielding huge profit five years down

Edited excerpts:
" Real estate is down and out. Can we
build a country without having houses?
They will come back."
Ayesha Faridi: Are you feeling happy and festive this Diwali
because there is that left out feeling in the market. HNIs are
wondering about the valuations and so are the FIIs. They are wondering what is the next
stock that one can bet on. Chartists are worrying whether this is a breakout and retailers
are just sitting with that left out feeling. Nobody has participated in this rally. Are you
happy?
Company Summary NSE BSE
I am very happy. I am absolutely on top of the world.
Motilal O… -0.75 (-0.08%) Generally it has been fun to be in the market. The
market is at an all-time high. Your sentiment should
L&T -5.05 (-0.37%)
also be fundamentally at an all-time high.
Businesses have done well. My company has done well. Market cap is at least two to three times
higher than what I thought it will be two-three years back. So, everything is perfect.

Ayesha Faridi: Is it Raamdeo Agrawal the entrepreneur, who is saying my company has
done well? Officially he is a billionaire this year. He is.

Last time we became billionaire was in 2008. It lasted less than two quarters. So, I hope this time it
will be longer.

Nikunj Dalmia: Since you follow Warren Buffett, we all know the public data on Warren
https://economictimes.indiatimes.com/markets/expert-view/5-years-down-raamdeo-agrawal-expects-profit-pools-in-these-5-down-and-out-sectors/articleshow/611
4/23/2018 raamdeo agrawal: 5 years down, Raamdeo Agrawal expects profit pools in these 5 down-and-out sectors - The Economic Times

Buffett that he has made 99% of his wealth after he turns 60. You have just turned 60. So I
guess…

You can multiply. You can do maths.

Ayesha Faridi: But is the market looking too expensive?

It is a little expensive but not so much that you should run away from the market. You have to win
the game. There is no low-hanging fruit that you can go and pick but go and buy and build a
portfolio. You have to do deeper research. You have to be very thoughtful on what you buy, how
much you allocate, how you monitor. All those things will be required. Obviously it is a tough time
and in this kind of baluation, your prospective returns come down.

If you are making 25% -- like we used to in last 10-15 years -- may be, we will make 20%, 18%.
Maybe we are in for a good nice 10-15% correction. Anything can happen but it is fun time. You
see the private equity listing. You see the new issue listings. You see the kind of oversubscription
which is there and there is a structural shift.

It is a very different world and as Buffett said that interest rate is going to be a huge deciding factor
in valuation of the equities. When we are saying that 25 PE multiple is very high, we are still not
adjusting to the lower interest rates which is literally half. I mean today mortgages you can get for
8%, commercial papers are about 8%. One has to make an adjustment for prolonged low interest
rates in valuation of equities apart from the earnings growth which is going to hit at some point of
time.

Ayesha Faridi: Talking about valuations, if one looks and assesses the market environment
right now, corporate banks are the most hated, most loved are the financials. You have got
retail which is looking very expensive and within financials, NBFCs are looking very
expensive. What do you think is going to be the composition of market? When we are going
to be talking next Samvat? Do you think it will be status quo or will there be any jugglery
within this pack?

There will be jugglery. There will be a lot of surprises. The market is made for giving you surprises.
I am pretty clear that earnings will come. In 2003, it was so pessimistic and you could not see what
is going to happen and one year it happened. I used to tell my guys we are going to double the
business next year, second year again we doubled. Then third year those guys themselves are
again say sir again we doubled. So, when it comes… right now people are giving up but when it
comes, it was almost 8x to 10x expansion of the index earnings, forget about the portfolio and all
between 2003 bottom and 2007-2008 peak.

This economy has a huge potential. It is a work in progress kind of a situation where some of the
things have to come from government policies not so much but global growth. We had expanded
the steel sector and that is now recovering. The power sector is recovering. The PSU banks have

https://economictimes.indiatimes.com/markets/expert-view/5-years-down-raamdeo-agrawal-expects-profit-pools-in-these-5-down-and-out-sectors/articleshow/611
4/23/2018 raamdeo agrawal: 5 years down, Raamdeo Agrawal expects profit pools in these 5 down-and-out sectors - The Economic Times

been a huge disappointment between 2008 and now. Once these two-three sectors start doing
well, automatically half the problems of PSU banks will get sorted out.

As the economy does well, it sorts of the one of the biggest problem of the economy today is public
sector banks and once public sector banks slippages stop and its recovery becomes bigger than
the slippages and you have a full dhamakar Diwali ahead. And it will happen one day. is it six
months away, is it one year away to that much we cannot forecast.

Ayesha Faridi: In the mean time, do you think they will continue to underperform and lag the
rest of the market?

Anything can happen. They are not there in my portfolio, so I do not care so much about it but what
I am saying is when you discuss the aggregate market, these are the factors which are holding
back.

Today if you consider it is peak and 2008 as peak, I am 3x at a portfolio level. If I am 3x, lot of guys
who are smaller or those who are directly managing themselves, they buy small-caps and
multibaggers and all, they must be 4x, 5x up.

Nikunj Dalmia: If I look at the concentration of your portfolio, the number of stocksin your
portfolio have come down, while the weightages have gone higher. There are two recent
entrants in your portfolio. This is again public information. One is Max Financials and two is
RBL. Can insurance be that big a theme? What private banks did in last 10 years, can
insurance do in next 10 years?

Yes my understanding of insurance is weaker compared to banks because when we were growing
up, we were doing CA. That time banking companies had audited all of them. So we know…

Ayesha Faridi: No one understands insurance rationale….

No but you are not investing. I am investing. So I have to be very clear because this is real money.
What we put is real money and now we are running public money and a significant amount. We
have to be very careful how we allocate and where we allocate. I do not mind missing some ideas
but I do not want to be over confident on some thing.

Ayesha Faridi: Are you selective within insurance right now or is it more like a PE kind of
investment -- buy it all and something will work out?

Like Buffett says never test the depth of the water with both the feet. So I am not using both the
feet.

Ayesha Faridi: Where do you think the next profit pool will come from? Would it continue to
be financials and within that NBFCs or would it be emergence of a new sector?

https://economictimes.indiatimes.com/markets/expert-view/5-years-down-raamdeo-agrawal-expects-profit-pools-in-these-5-down-and-out-sectors/articleshow/611
4/23/2018 raamdeo agrawal: 5 years down, Raamdeo Agrawal expects profit pools in these 5 down-and-out sectors - The Economic Times

We keep seeing the profit pools, every wealth is in study so one of the thing is that… see the
conventional ones like your banking, pharma, IT will stay. They will grow little slower. Banking of
course private sector banking is growing so PSU banks which are down and out right now, can
they come back? I do not have any doubts. They will come back. They will come back.

Nikunj Dalmia: Telecom…

Yes so now and in fact the new profit pool could be from telecom itself because now the
consultation is real and opportunity size is becoming too big.

Ayesha Faridi: But how can they make profit when they are competing to cut prices?

You asked me where the profit pool is going to come from? It is not going to happen in next 12
months but it can be a seriously large profit pool.

Ayesha Faridi: In next five years….

Whenever it starts. In 2002-2003, Bharti earned minus Rs 200 crore. In 2008, they earned Rs 7000
crore. That is the pace at which telecom came up because it is a huge operating leverage. Your 50,
60, 70 thousand crores turnover with literally no profit. When it comes back, I mean the EBITDA
margins are 35-40%, net margins will be more.

There will be a huge profit pool. otherwise the big boys who are investing they would not be doing
that. Clearly that is there. PSU banks also will come back actually. How much it will come back that
is a different issue. It will come back. And we are not very far from that. The power sector can
come back. It is in very bad shape but if you see for last two-three months your power demand is
good. The prices have gone up.

Their economics will improve. They went through all kinds of problem and they will improve. Then
you have exports booming. I mean export was growing at about 7-8%. Last month it shot up to
28% despite all the GST troubles.

It is a change of the trajectory because the global economy is really booming. So in 2003, 2008 the
biggest contribution was not from domestic economy, it was fired by 35-40% growth in exports and
so what will export, whom will export, at what price… I mean those things cannot be answered but
it will happen. There are lots of positive things which can happen and pools will be created.

Construction can boom and L&T and all who are not. Except for L&T, no construction company
makes serious money but this country cannot be built unless you give construction profit to
somebody.

https://economictimes.indiatimes.com/markets/expert-view/5-years-down-raamdeo-agrawal-expects-profit-pools-in-these-5-down-and-out-sectors/articleshow/611
4/23/2018 raamdeo agrawal: 5 years down, Raamdeo Agrawal expects profit pools in these 5 down-and-out sectors - The Economic Times

So there are lot of profit pools possible. Real estate is down and out. Can we build a country
without having houses? They will come back.

https://economictimes.indiatimes.com/markets/expert-view/5-years-down-raamdeo-agrawal-expects-profit-pools-in-these-5-down-and-out-sectors/articleshow/611
4/23/2018 raamdeo agrawal: Raamdeo Agrawal is bullish on these 2 sectors, here's why - The Economic Times

Raamdeo Agrawal is bullish on these 2 sectors,


here's why
ET Now | Updated: Sep 27, 2017, 05.22 PM IST
3 Talking
Comments

to Supriya Shrinate of ET Now, Raamdeo


Agrawal, MD & Co-Founder, MOFSL says affordable housing and
private banks remain long-term bets.

Edited excerpts:

Is it time for the big ticket investment to start breaking


"Housing is big. Not only affordable ground?
housing, housing per se. This country
is a brown piece of land. There are not
Every company is not dependent on so called capex coming in.
enough houses here."
You are looking at companies which are growing at 25-30%. There
are some 200 companies which are growing and
even my company is growing at 100%. Now you will
Company Summary NSE BSE
say that your company is a beneficiary of
Motilal O… -0.75 (-0.08%) capital market boom. So, you have to figure it out.
This is not the time when there is a general boom in
the market in the corporate side, the way it was in 2007-2008 but still at 5.5%-6% growth rate, you
have 200-300 corporate which are doing very well and these are good companies. Why the good
companies are good companies and they do well even in bad times. You are actually advocating
all these stimulus for bad companies. Good companies are very well off, there is no problem.

Affordable housing know is something that is close to your heart. Is that going to be the
next long term bet for you?

Yes, clearly, housing is big. Not only affordable housing, housing per se. This country is a brown
piece of land. There are not enough houses here, maybe Delhi has some but...

Many more can be built.

We are just about 30-32% urbanised, can be stretched to even 50% urbanised. With unitary
housing. you can imagine how many houses are needed. That is one industry for which you do not
https://economictimes.indiatimes.com/markets/expert-view/raamdeo-agrawal-is-bullish-on-these-2-sectors-heres-why/articleshow/60856437.cms
4/23/2018 raamdeo agrawal: Raamdeo Agrawal is bullish on these 2 sectors, here's why - The Economic Times

have to import any technology or material. It is very labour intensive. Even in US, the housing
starts and cars are two leading indicators of economic revival.

So I am glad you have mentioned cars. I know you are a big believer in the automobile story
of India. Passenger vehicle sales are up 22.23% in August and we are still talking about a
slowdown. What does that tell you about the sector as well as demand because if
commercial vehicles sales are up by over 22%, that means we are transporting goods, we
are doing something which is not reflecting perhaps in the macros. What is your take on the
sector and of course its larger implication otherwise?

This is very patchy. You do not get very consistent numbers across the sector. I do not believe in
aggregate numbers. I prefer to talk to some companies. When I look at real estate, they are clearly
in the dumps. You sit in Lower Parel in Mumbai, you see those 30-40 towers. None of the cranes
are moving and I do not know what they are doing with that. Clearly, real estate is in a very slow
mode but they had gala time over the last 10-15 years. They must remain slow for next 10-15
years so that other asset classes can do well.

Gold has been very slow. That I understand but FMCG is not moving. We are talking about Lever
and all these guys are talking about 5-6% volume growth. That kind of unnerves me.

Is there a hit on consumption?

It looks like these are very well reported numbers.

Are we seeing any signs of consumption revival because that has been the mainstay of our
economy for some time now?

Except for automotive, I do not see revival anywhere.

So automobiles is where you are seeing some traction.

Very, very strong.

Another sector that you have been very bullish on is telecom. You have been a big believer
in telecom. You spotted Bharti, you studied the company you are a believer in telecom and
still we have seen a huge disruption in telecom. The sector is asking for a lifeline of sorts.
The cut in IUC rates, does it worry you or do you continue to be a believer in telecom?

Yes, I have a telephone in my pocket, that is a lifeline but I think the industry economy has gone for
a toss. There is no case for investment. I have made my maximum money in Bharti telecom, I
bought at Rs 24 and in next two years-two and a half years, it went to Rs 1180. Little did I know
that something is cooking here. I sold at Rs 650 but I made 25-30 times in two years’ time and am
very happy. In a country where telecom and now internet demand is so intense, there can be a

https://economictimes.indiatimes.com/markets/expert-view/raamdeo-agrawal-is-bullish-on-these-2-sectors-heres-why/articleshow/60856437.cms
4/23/2018 raamdeo agrawal: Raamdeo Agrawal is bullish on these 2 sectors, here's why - The Economic Times

very healthy telecom industry. I do not have any prescriptions but right now they are in dire straits.
All of them are making losses and it looks like that next 12 months is going to be more challenging.

So telecom is not something that anyone should touch with a bargepole. Is that your
advice?

At least I am not investing. I cannot advice anybody else.

What about PSU banks? I know that there has been a lot of nervousness around that sector
now that there is this talk about a stimulus and a recapitalisation. Does that change your
view on PSU banks or is that something again that you do not want to?

I am very bullish on banks because PSU banks are not doing well.

That is a contra call of sorts.

The value has migrated completely from commanding heights of PSU banks to private sector
banks. Now these are banks where you need a whole lot of things apart from capitalisation. You
need the bankers. These are banks literally without bankers and it has become so competitive with
all the good assets being taken by private sector banks and NBFCs.

The PSU banks are left with literally low quality assets in their books. How do you handle that and
you have a deposit guarantee of Rs 70-80 lakh crore which you have to return. This is sovereign
guarantee. so the problem is much deeper.

It is not say BSNL, where the extra employees will retire in due course. So you can sustain that but
here you have to return with interest Rs 70 lakh crore. So, the natural burden is massive.

I am glad you are being candid here but I will take a quick question on IPO marketsand I
know we have been talking about this for a while. What a boom we have been seeing.
Everybody seems to be in the market to raise capital. Does the boom make you nervous?

No, no it does not make me nervous but there is a froth. This is a country with six business
channels and instead of 10000 bucks for 10 seconds, the moment you make it Rs 1 lakh for 10
seconds, many channels will come . If you start giving a 100 PE multiple, 200 PE multiple to any
company, the guys cannot believe that they got the money, I know for sure. The after-IPO parties
are quite unbelievable!

https://economictimes.indiatimes.com/markets/expert-view/raamdeo-agrawal-is-bullish-on-these-2-sectors-heres-why/articleshow/60856437.cms
4/23/2018 Funding the failures for creating 'jobful' growth - The Economic Times

Funding the failures for creating 'jobful' growth


ET CONTRIBUTORS | Updated: Sep 19, 2017, 10.21 AM IST
12
Comments

By Raamdeo Agrawal

Fundamentally, businesses create jobs. So, how do we create


more businesses? Businesses need two types of funding support –
equity and debt. Getting equity for very small businesses is the
starting point to create a business revolution and ‘jobful’ growth.
However, mortality rate of such small businesses is very high,
One of the suggestions to incentivise upwards of 90 per cent in first 10 years. Those who survive, go on
domestic venture capital funds is to
to become the Infosys NSE 0.78 % , Bharti and Motilal Oswal of this
exempt them from long-term capital
world.
gains in line with its secondary market
peers.
However, both failed as well as successful businesses create jobs
in the economy, and incidentally, the failed businesses create more jobs than the successful ones,
because they are more in numbers. Hence, we need an institutional framework to fund early-stage
equity of a large number of small businesses, in effect, “funding the failures”.

Company Summary
Further, most of India’s savings are today collected
NSE BSE
by banks, insurance companies and
Motilal O… -0.75 (-0.08%) pension/provident funds. These institutions are
geared up to provide only debt, whether to the
Infosys 9.25 (0.78%)
private sector or the government for its fiscal
requirements. They are restricted from funding any kind of equity investment opportunities.

Hence, currently, most new businesses get their initial funding from foreign-owned venture
capital funds. This needs a major correction because, increasingly, successful Indian businesses
are owned by foreigners. So, India must have a vibrant, domestically funded venture capital
industry which the savings boom can now support.

One of the suggestions to incentivise domestic venture capital funds is to exempt them from long-
term capital gains in line with its secondary market peers.

https://economictimes.indiatimes.com/markets/stocks/news/how-to-use-12t-savings-for-big-growth-with-loads-of-jobs/articleshow/60509288.cms
4/23/2018 Funding the failures for creating 'jobful' growth - The Economic Times

Create tailwind to create jobs


Businesses get created successfully wherever there is a tailwind i.e. an enabling, profitable
demand environment. The government with its various policies can create multiple tailwinds. For
example, cement in the 1980s (deregulation), metals in the 1990s (de-licensing), IT and telecom at
the turn of the century (massive tax breaks).

Telecom, for example, got created for the opportunity of massive profits emanating from large user
base and dire need to connect people. The regulation allowed private sector companies to make
money. Between 2003 and 2006, the sector boomed and there was a promise of good profits. So
much so, that one of the companies was among India’s top 5 most valuable companies. This
incentive of profits and market capitalization led to telecom investment boom which is still on in its
second avatar. In the bargain, the government has got massive revenues, the country has got the
second largest mobile network in the world, and thousands of jobs have got created.

Can such success stories be repeated in many sectors like defence, tourism, healthcare,
education, infrastructure, and so on?

Infrastructure – the local-equity-global-debt model


India’s spend on infrastructure has been doubling every five years – about $250 million in 10th
Five-Year Plan (FY03-07) to $500 million in 11th Five-Year Plan (FY08-12) and $1 trillion in 12th
Five-Year Plan (FY13-17). Assuming fresh infrastructure stock of $10,000 per capita, India may
need to invest about $10 trillion over the next 10 years. If we manage to channel $3-4 trillion as
equity into infrastructure projects, the same can be leveraged 2 times through low-cost foreign
debt.

Wanted: A focused group on savings and investment


Effective management of savings and investment is critical for the economy. The NITI Aayog must
seriously consider creating a focused group on savings and investment, which will be responsible
for creating a road map to channel both domestic and global savings into the right investment

https://economictimes.indiatimes.com/markets/stocks/news/how-to-use-12t-savings-for-big-growth-with-loads-of-jobs/articleshow/60509288.cms
4/23/2018 Funding the failures for creating 'jobful' growth - The Economic Times

avenues.

India is at the cusp of a savings boom – an estimated $12 trillion over the next 10 years. The
country urgently needs a jobs and infrastructure boom. Imaginative use of savings can make this
happen. The key to a jobs and infrastructure boom lies in creating a business revolution. And the
key to a business revolution lies in evolving a sound mechanism to fund potential business failures.

(Views of the author are personal. Raamdeo Agrawal is Joint MD, Motilal Oswal Financial
Services NSE -0.08 % )

https://economictimes.indiatimes.com/markets/stocks/news/how-to-use-12t-savings-for-big-growth-with-loads-of-jobs/articleshow/60509288.cms
4/23/2018 motilal oswal: If market stays here or even corrects 5-7%, it will be healthy: Raamdeo Agrawal - The Economic Times

If market stays here or even corrects 5-7%, it will


be healthy: Raamdeo Agrawal
By Sanam Mirchandani, ET Bureau | Updated: Sep 05, 2017, 10.29 AM IST
3
Comments

Raamdeo Agrawal, joint managing director


at Motilal Oswal Financial Services NSE -0.08 %
believes that a correction would be healthy following the sharp
run-up in the Indian equity market this year. In an interview to
Sanam Mirchandani on the sidelines of the 13th Motilal
Oswal Annual Global Investor Conference, Agrawal said he sees
“no major upheaval“ in the market if global central banks start
The good thing about GST is that withdrawing their liquidity support going forward.
consumers are not disturbed, only
backend, suppliers, supply chain, book
Edited excerpts:
entries have been affected. I hope one
year is good enough for all companies
to cope with these changes and show You have always been bullish on the market but of late you
the results. have talked about moderation of expectations of returns.
Where is the market headed?

So far this year, India's market has run up 20-22%. If


NSE BSE
Company Summary
the market stays here or even if it corrects 5-7%, it
Motilal O… -0.75 (-0.08%) will be very healthy. Whenever the market goes up
very quickly, supply comes. It can come
Pnb 0.50 (0.53%)
from FIIs who are selling continuously or new
United Sp… 37.20 (1.08%) issuances or from the government. Supply will keep
EXPAND TO VIEW ALL getting bigger as the market goes higher. Domestic
flow is also very strong. That tussle between
domestic demand and flow is there so markets will stay here or it should correct a little bit and that
will make it very healthy. Let's see how this quarter (July-September), things shape up, post GST. I
am hopeful that the second half should give a good clue how corporate earnings are going to
shape up.

If global central banks start withdrawing liquidity support in the coming months, how will
Indian markets fare?

It will have a major bearing on the global markets and hence India should also be participating in
that. They are supposed to be going very slow without affecting the market but they also want to
withdraw the liquidity. Markets have built in some amount of action already but there should be no
major upheaval in the next six months on account of this particular factor.

https://economictimes.indiatimes.com/markets/expert-view/if-market-stays-here-or-even-corrects-5-7-it-will-be-healthy-raamdeo-agrawal/articleshow/60371051.cm
4/23/2018 motilal oswal: If market stays here or even corrects 5-7%, it will be healthy: Raamdeo Agrawal - The Economic Times

Earnings growth is tepid but stocks are moving up, getting more expensive. How long can
this dichotomy continue?

Markets are irrational in the short term. Excesses will happen in some of the counters where
valuations are more, particularly the new companies which have been recently listed. Their
valuations are way above their current counterparts.

So more hope and exuberance over fundamentals?

To some extent, yes. Not widespread but in a few companies.

One of your favourite bets Eicher Motors NSE -0.27 % has recently become the most valuable
two-wheeler company. Can it maintain its edge?

We think the company is doing well.Its third plant has just about started.They will be able to supply
more to the market which is continuously looking for more and more products.Their exports
strategy should be bearing fruit in the next few years. We still think there is steam left in that
product. Everybody is trying to jump into that particular segment. Bajaj and whole lot of guys are
trying to get in there. That segment still has potential.

The liquor industry has been hit by various issues recently. With regulatory woes still
continuing, what is your take on this space?

The industry has gone through hell in the last 12 months. They have gone through
the demonetisation effect, highway ban, and GST. Now, at least on the highway ban, some relief
was there. From here onwards, the industry should have a slightly more peaceful time. It is a
growing economy with increasing income. The competition is very unique. So United Spirits
NSE 1.08 % or the other big players have a very unique position. We are still sitting on the stock. We

hope that it will do well.

InterGlobe Aviation is interested in the international operations of Air India. How do you
read the move?

In aviation, the leadership is very clearly established. InterGlobe has 40% share, Air India has 15-
16% and rest is fragmented. It (Air India deal) will be the most watched out because Air India is a
very significant global international carrier and they have a reasonably good domestic business
also. If it gets sold it will do a lot of good to the nation because international traffic which is
booming year after year is benefiting Emirates, Singapore Airlines etc. For anybody who gets to

https://economictimes.indiatimes.com/markets/expert-view/if-market-stays-here-or-even-corrects-5-7-it-will-be-healthy-raamdeo-agrawal/articleshow/60371051.cm
4/23/2018 motilal oswal: If market stays here or even corrects 5-7%, it will be healthy: Raamdeo Agrawal - The Economic Times

cater to that particular segment, the opportunity is very large.

The IT and pharma sectors have been shunned due to changing industry dynamics. What is
your outlook?

Indian pharma has its own unique position in the international space. Now the competitive situation
that has changed in the US is what we are seeing in terms of margin decline for these companies
but that should be a passing thing. They had a great 10-12 year run. Clearly, economics have
somewhat deteriorated. We need to really see if it is permanent or will something change. In IT, the
legacy model is facing challenges but digital part is doing very well. Maybe in twothree years more
when digital becomes large, maybe 40-50% of their pie, then growth rate will start accelerating.
That will take another two years and they will again start growing better than the way they are now.

Are the golden years over for both the sectors?

Maybe the golden period in terms of margins might be over but there is a lot more volumes to be
done.

You are always asked about the next HDFC Bank NSE -1.03 % . Do you see any of the newly
listed financial services firms having that potential?

HDFC Bank has grown from just about `1,000 crore (market-cap) in 1996 to more than `4.5 lakh
crore now. That is a very tremendous track record to hold for 20-25 years. To say which are the
entities which can parallel that kind of track record is very tough to say now because these are new
banks and they got listed less than a year back. After two-three years we will get to see who has
got that traction.Business, market and opportunity is same and PSU banks are vacating their
space so clearly it is a booming opportunity for competent, well managed private sector banks.
Growing loan book from `2,000 crore to `20,000 crore is easy but again doing 10x from `20,000
crore to `2 lakh crore is challenging. That's the success of HDFC Bank. From every base they have
scaled up by 20-25%. It is too early to say which one will do that.

Are any of them showing promise?

All the new listed companies-AU Financiers, RBL, PNB NSE 0.53 % Housing-they all look to be pretty
good.

https://economictimes.indiatimes.com/markets/expert-view/if-market-stays-here-or-even-corrects-5-7-it-will-be-healthy-raamdeo-agrawal/articleshow/60371051.cm
4/24/2018 Warren Buffett: 5 issues Warren Buffett is likely to address in his speech to AGM - The Economic Times

5 issues Warren Buffett is likely to address in his


speech to AGM
By Rahul Oberoi, ETMarkets.com | Updated: May 06, 2017, 07.19 PM IST
2 The
Comments

stage is set for the annual general meeting


of Berkshire Hathaway. As ace investor Warren
Buffettreadies to deliver his much-looked-forward address to the
AGM, investors worldwide are keenly awaiting to hear his views on
the health of global stock markets, many of which are currently
trading near their peak levels.

Besides, investors would also want to know his future plans and
his take on favourite stocks.

Berkshire Hathaway AGM 2017: Catch all the action here

Going by what analysts are expecting, here is a list of five issues the Oracle of Omaha is expected
to address:

Take on technology

This question is high on investors’ mind after Warren Buffett said he had sold about one-third of
Berkshire Hathaway’s big stake in IBM Corp, reducing a bet by the famed investor that had
surprised many and which has so far not proved successful.

Views on his favourite bets

The legendary investor may also answer questions on his surprise bets on Apple and the four
biggest US airlines.

Possible successor

The investor world is early expecting hints on who is going to succeed Buffet and Charlier Munger.
According to Reuters, Buffett has already delegated substantial work to his lieutenants like Ajit
Jain, Gregory Abel, Tracy Britt Cool and Todd Combs.
https://economictimes.indiatimes.com/markets/stocks/news/5-issues-warren-buffett-is-likely-to-address-in-his-speech-to-agm/articleshow/58550472.cms
4/24/2018 Warren Buffett: 5 issues Warren Buffett is likely to address in his speech to AGM - The Economic Times

Big acquisition on the cards?

Buffett may also drop hints as to how he plans to deploy the $86.4 billion cash, equivalents and
treasury bills that Berkshire currently holds. Berkshire already has more than 90 subsidiaries,
including clothing, furniture and jewellery firms. It also has major investments in companies such
as Coca-Cola and Wells Fargo.

Take on insurance sector

Market experts expect him to answer some questions related to insurance. In a chat with ETNow,
Raamdeo Agrawal, MD & Co-Founder, Motilal Oswal Financial Services said, “Insurance will
always be a discussion point. What happens to auto insurance, for instance. It was discussed
earlier in his annual letters and I am sure some questions will come regarding that. But I think the
real discussions will be on his $100 billion cash hoarding, what exactly is going on in his mind and
how he wants to dispose it off.”

“Today he (Buffett) is sitting on $100 billion and he does not have time to do a half-a-billion dollar or
$1 billion deal. My sense is he is looking for a seriously large one. He is going to look for
something really large like Nike. He has appreciated Shoe Dog. God knows, he might be having
Nike on mind,” said Agrawal.

https://economictimes.indiatimes.com/markets/stocks/news/5-issues-warren-buffett-is-likely-to-address-in-his-speech-to-agm/articleshow/58550472.cms
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

If you get 2-3 new stocks a year, that's more


ideas than you can execute: Raamdeo Agrawal,
MOFSL
ET Now | Updated: Aug 05, 2017, 03.12 PM IST
Talking 2
Comments
to ET
Now's Nikunj Dalmia, Raamdeo Agrawal, MD & Co-Founder,
MOFSL, says he follows quality, growth, longevity, price (QGLP)
approach to arrive at winners.

Edited excerpts:

One of the biggest achievements of the


You have done 21 wealth creation studies. The last one was
wealth creation studies is we have got released in December 2016 and I have studied some of your
a distinct philosophy of QGLP, quality, wealth creation studies. If you really have to summarise your
growth, longevity, reasonable price. It is 21 essence of your 21 studies, what would be your final
a soup.
conclusion be because we may feel that things will change
but markets never change the rule of investing are always the
same courses remain the same it is just the horses they change?

NSE BSE
One of the biggest achievements of the wealth
Company Summary
creation studies is we have got a distinct philosophy
Motilal O… -0.75 (-0.08%) of QGLP, quality, growth, longevity, reasonable price.
It is a soup.
Hpcl 5.25 (1.76%)

Sbi 1.25 (0.52%)If you ask me what is the most valuable thing
EXPAND TO VIEW ALL in Motilal Oswal NSE -0.08 % it is their own philosophy
and it is not about the philosophy you can read the
book and you can understand what it is and I am willing to spend many hours and there are so
many videos on that. The issue is having faith and practicing it is my philosophy, and it works, If
you see across the AMC it works wonderfully well. The world will take notice of it much later. When
you manage $3-$4 billion nobody bothers about you in this world of trillions but it works and that is
a huge achievement. After 22 studies to have a time tested, investment philosophy, 360 degree
well rounded kind of thing because you write something and then you see for yourself it does not
work.

In six months, one year, two years, three years' time you realise that it does not work but I see it
works even better and we are releasing version 2, and version 3 because market is continuously
changing and we are adopting to the market every day. The QGLP is a very flexible approach in a
continuously changing market. That is the biggest achievement of our all those studies and that
has changed me.

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

The way I was as an investor in 1985, the way I was in 1994, the way I was in 2000 and even till
2007, 2008, 2009, it was a work in progress. Till 2003, I did not have courage to take anybody's
money, even my sister's money. I said I will do whatever with my money but I will not take
anybody's money. In 2003, we started taking some amount of money from the public. Till about
2014, we had Rs 1500 crore and now we are managing Rs 25000 crore and I do not feel scared at
all. This is a very big amount of money and it is in trust. Somebody has put faith in us which is a
very huge responsibility but I do not feel burdened or anything like that. I do not feel stressed about
that and that is thanks to QGLP.

If my process is right, outcome has to be good. If outcome is not good, it is bad luck and if there is
run of bad luck for two years, we will also have a run up of good luck. That much faith I have in the
system.

The entire construct of the way you manage public money is centred around QGLP. Quality,
growth, Longevity and Price. I will start with the last, price?

In this you have to look at it last. That is why we have kept it last, otherwise we would have said
PQGL. We are saying QGLP because it could come in any sequence but it has to be last. The first
three letters are Q, G, L; quality, growth, longevity, these are three things you have to figure out
when you look at a business. Value is what you get, price is what you pay. This is one of the
simplest dictums but this is an ultimate, I mean Buffett says that in his AGM. Price is known to
everybody. It is there on a flicker of a button but what about the value? Who is going to do the hard
work of understanding what is the underlying value and value is always approximate number and
value could be different for you and value could be different for me for the same thing because of
the background of understanding and things like that.

And the time horizon.

Time horizon also. Altogether, value is only one because price is only one. So the issue is that
what is your process of figuring out value and there are many processes. Every person has a
different process. There are a million guys, millions processes but still you can bucket it. You know
somebody calls him a contrarian, somebody calls him whatever… there are different investment
philosophies. We say we will do QGL. I say do you have QG? Top quality business and growth?
These two are very important for me. If there is no QG it is a no because out of 4000 companies,
3980 companies are not there in my portfolio. Day and night, 24x7, I had to keep saying no, no, no
I have said one yes in six months. It is very difficult for to say no to companies which look very

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

attractive at many times.

On an average at the AMC, you identify one or two stocks?

Yes. If you get two-three new stocks in a year, you have more ideas than you can ever execute.

Now since you manage public money, the portfolio of AMC out in the public domain and as
we speak we will also flash it. At what CAGR growth do you think this portfolio could grow?
I am not talking about price performance I am talking about earnings performance?

Both will be same eventually.

That is a indirect way of asking you.

So far we have done upwards of 25%.It would be good for our managers if they can deliver 25%
plus in every single product. We have only six products, Within six products also,
every product has only about 15 to 20 ideas. So it is a very focussed strategy. We do only equities.
Do the confusion is not much, We would try to achieve that kind of bidding the benchmark and
doubling money in three years. That has been the track record. Only time will tell whether we are
able to continue with that or not.

Every market follows a cycle -- best phase, boom phase, bubble phase, and burst phase.
Where are we right now in the market cycle, how young is this bull market?

I would not say it is very young. Starting from 2016, I would say three and a half years for sure.
Markets have been rallying since Modi ji has been nominated as the Prime Ministerial candidate in
Goa. That rally is still on and so the India hope story is still on. The collapse in the oil price and the
global liquidity boom is a coincidence.

The US is in an unprecedented bull run and so it is definitely giving cover to equity as an asset
class and we are on a roll because of lower interest rates, lower inflation, good fiscal deficit, better
governance, good possibility that earnings growth will finally happen.

This year, even before coming in the morning, the first thing I sent to my research chief was what
do you think this year's earnings EPS would look like finally? He sent me 496 for the year for Nifty.
I said what do you think is your view and he said 470-475 should come which is also a good
improvement more like 12-15%.

At least this is not contracting.

Yes, we are not stagnant or we are moving and next year he is saying 600. We are almost there, I
hope there is no further disruption after demonetisation and whatever challenge from GST.

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

My sense is now with a good monsoon, stable inflation and a stable currency also, you have
almost $400 billion of reserve nobody has noticed but reserve has cost 390-392 every week we are
going up by 2 billion and I think RBI has to intervene to keep the rupee at Rs 65 or otherwise it will
go up a little more.

This is a very amazing kind of situation -- you have fiscal deficit is under control, inflation under
control, political stability is very high which is the first important thing in emerging market and a
country like India. Everything is right. The macro backdrop is fantastic and good companies are
doing very well.

Valuations are somewhat stretched and it is looking like a boom type of PE multiple of 24-25 or
current TPS. That is scaring people but that is not the only ratio you look at when you are looking
at future other possibility. If you are hopeful about the future I mean market can always correct by
5%-10%, 15% even deeper 20% correction but it is not down and out or is not have done things.

We are not going to die without having earnings growth cycle coming in and it will explode
whenever it will come because capex cycle has just not happened. You have to have a one full
fledged excessive capex cycle to come last time it was steel and cement, this time it will be infra or
I do not know what it will be that is the beauty of the future but it will come.

But the mean reversion is coming, earnings mean reversion is coming.

Earnings mean reversion is coming and capex mean reversion will also come. From a zero capex,
some where capex will build up. From the infrastructure government side, they are pushing very
hard, private capex is yet to take up because there is some slack in the capacity and all in power
sector, in steel sector and some of the consumer companies also but it is just a matter of time.

It is say like automotive. Maruti is putting up capacity every day because they need a capacity so
private investment will come as the demand picks up. Today's interest rate decision is going to be
very crucial not for per se 25 bps or 50 bps makes a difference but the consumption economy is
very sensitive to these things whether it is demand for durables are concerned, demand for
housing is concerned it does I mean lower interest rate will help.

Before I get into some myopic questions which is themes and sectors, I have one follow-up
question. The reason why stock markets are getting supported at these levels is because
there is a hope that earnings recovery will happen, it could happen in this quarter or next
quarter. But like you said an earnings recovery is going to happen. But stock prices have
already run up in anticipation of earnings when the real earnings recovery would happen,
markets would say look we knew this would happen and stock prices have gone up is that
a risk?

When earnings come, market may refuse to go up buy on rumour sell on news. We are buying on
the rumour of earnings recovery see because what has happened is that independent of earnings,

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

for our valuations. one of the parameter is market cap to GDP. Three-four months back, it used to
be 65%-70%. I used to say that market correct 10% to 15% but it cannot remain there on a one-
year basis because 70% is very low.

When US is trading at 1.6 we are at 0.7. We are the growth economy and so it has to correct. Now
we are at about 134.6 or something. So at 135 lakh crore, our GDP is about 150. Our market cap
to GDP ratio is 0.9, which is not low but more like a middling kind of thing because next year where
our GDP would be 165 and market cap is at 135, there is a 20 lakh gap, leaving enough room for
recovery. So 12-15% in 12 months kind of prospect is still there. So the market can correct by
15%-20% and that correction could be quite good and that will make the market much more
healthier.

In 2007, we peaked at 1.7 times 45 lakh crore of GDP and market cap of 73. GDP say in two
years, three years be 175 and you will have to do 1.5 so you are talking about 250-260. So literall,y
market cap can double and that can happen in two-three years' time. There is lot of potential on
the upside of course you have to be always careful that it could correct. These things are little
longish in calculation. Market will surprise you otherwise it is not market. If there are no surprises,
there is no fun.

Of course but thank you for beautifully explaining that it is not a bubble yet because that is
what everybody is bothered about.

That is what I think but I hope I am right.

A couple of years ago, you identified the opportunity in Eicher, zeroed down on Bajaj
Finance NSE 1.01 % as an opportunity. They had ordinary businesses in 2009 or 2010. The RE
invention had not happened, Bajaj Finance had just spun off as a subsidiary for the Bajaj
Group from the elder brother. You were able to catch both these stocks or both these
stories. Why did you zero down to them and how?

Finding the stocks is a matter of to some extent luck and your process when process and luck both
come combined then you have a kind of a multibagger. So, the Raamdeo Agrawal: Stocks to some
extent is a matter of luck and your process. When process and luck both combine, then you have a
multibagger. Process is clearly QGLP. It must have been in a slightly nascent form, but my idea
was always to find a great company and look for growth. Initially, I didn't much understand the
difference between a good company and great company. Any business takes 5, 7, 10 years of
struggle and then it comes out with profit. First year profit typically in a small business will be say
Rs 10-15 crore. The idea is that Rs 15 or 20 crore can become Rs 2000 crore in very quickly.
Earnings in stock marketis stagnant for many years but whenever it takes off, it will go from Rs 400
to Rs 800 in a breath-taking pace.

So, we are at an inflection point?

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

We are at inflection point. This is what happens in companies. You are struggling with a below
breakeven and then the breakeven comes and in one sweep, the profit goes from Rs 20 crore to
Rs 200 crore.

So would you say that AMC business..?

Yes, we have to but then the market is not so smart in valuing those companies they would say 30
PE hogaya, 40 PE hogaya arey bhai this is going at 50-60%. Eicher also happened like that. When
we looked at the company four-five years back, it was held at about Rs 2000 crore, the profit was
about Rs 100 crore. At that point of time, we bought it as a truck story and what happened was we
thought that RE is a back up if truck does not happen this will not allow us to sink. My call was the
worst that it could do in next five years would be to double or if you are successful, it will go to 10
times. I say downside is 15%, upside is 40-45% compounded. It worked out.

25% CAGR growth even on our base. I looked at the July numbers.

That time, they were growing at 70-80% and the stock was available at 20 PE. Your earnings
growth for next three-four years is going to be say 2x of your PE. If your PE is 20 but you expect
the growth to be 40, you are sitting on a multibagger. So you know the formula that we have done
up right from that compounding and how it works and all these are gift of wealth creation study. I
have it in back of my mind. Whenever I get any good quality stock at half the peg, you have to pile
on.

You have always hinted what you are looking at. Two years ago, you told me it was United
Spirits NSE 1.08 % and HPCL NSE 1.76 % . Is there a hint you would like to throw at us?

One of the businesses which I am very close to is AMCs.

Because you understand that business.

Yes, I understand that business and it is very exponential in character and a lot of money is coming
in and among good AMCs, all the bigger ones are getting listed now. That would be a great
opportunity and this is the largest business in the world. Today, the largest is BlackRock which
manages about closer to $6 trillion single-handedly. The very nature of the business is very
confident in character and we have just about begun in India. The equity flows have started and it
will become much bigger because equity mutual fundassets are just about Rs 6 lakh crore out of
Rs 135 lakh crore and your deposit base is Rs 100 lakh crore.

It is just a sunrise industry and in that you get the biggest and the best to invest. It is a free cash
flow business with rapid growth opportunity and brand equity. Can we get it at some reasonable
price? That is one area where you might get this opportunity but we do not know which one comes
when and at what price it comes.

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

Then the banking system is still looks to be pretty good in the sense that the newer banks have
come in. I hope they open the licence on tap and when I saw today's paper that incremental
deposit accretion of the public sector bank is only 34% where installed basis is about 78%. When
the installed base shifts from the current 22-23% for private sector to even 50% in next 10 years, it
will be a stunning kind of opportunity for any of the well managed banks.

A word which you have freely used in perhaps your recent wealth creation studies is value
migration.You give the example of Bharti and Indian Pharma companies. Now we have seen
value migration happening in private banks because they gained market share from PSU
banks. Do you think the next leg of value migration could happen to some of these NBFCs
which are now becoming banks and a couple of them are AU Small Bank, Ujjivan, Equitas?

Value migration is a broader thing. What is happening in value migration today is the banking
opportunity is moving from PSU banks to private sector banks that is a broad theme. Now private
sector bank is also in the form of NBFCs. NBFCs get the liability from the banks, banks stop at the
branch and the NBFCs go up to the doorstep of the customer, that is how NBFCs are supposed to
be doing.
Clearly NBFC plus private sector banks are one concentrated lot which is benefiting from the
current slowdown or whatever NPL problems or manager problems what PSU banks have. That is
directly a benefit in disguise. Now it is such an opportunity because it is happening not in a static
world, it is happening in a 15% growing world.

The size of the banking opportunity is growing at 15% and then you are shifting the share from 10-
15% to 50-60%, Even if the share becomes 50-50%. At that point of time the number one private
sector bank could be worth Rs 40-50 lakh crore.

So size and scope is enormous.

Look at HDFC Bank NSE -1.03 % today it has 6-6.5%-7% share, SBI NSE 0.52 % is 22%. Forget about
22%. Even if you go to 12-13% in next 5, 7, 10 years what will be the size of that expanded
banking system?

Nikunj Dalmia: You are always optimistic, is that a necessity for a good investor?

Raamdeo Agrawal: It is a must, it is a first starting point if you are not optimistic, may be not
overly optimistic like me but you have to be positive guy.

When we started in 80s there were no good managers, there was no mutual fund concept. Today
you are a professional, you are earning wonderfully well and you do not have to sweat about which
stocks to buy. You find one good manager give the money and it is done.

Nikunj Dalmia: Far more money is lost in anticipating the correction than when the actual
correction comes may.

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 Multibagger: If you get 2-3 new stocks a year, that's more ideas than you can execute: Raamdeo Agrawal, MOFSL - The Economic …

Raamdeo Agrawal: Yes, timing the market is the biggest curse. Yes, if you can time it successfully
you make some money, you save some but if you are wrong, while your timing you lose so much
that it is bad. I mean you lose 10 and you gain 2 so for that 2, people are losing 10

Nikunj Dalmia: I read your presentation which talks about 0 se 1000. When do add another zero
to 10000? When will you make that kind of quick assumption?

Raamdeo Agrawal: It will be much easier because and from zero to 1000 has taken 30 years but
from 1000 to 10000, if it does not happen in less than 10 years, we have done a bad job.

https://economictimes.indiatimes.com/markets/expert-view/if-you-get-2-3-new-stocks-a-year-thats-more-ideas-than-you-can-execute-raamdeo-agrawal-mofsl/artic
4/23/2018 multibagger: Raamdeo Agrawal on how to spot a multibagger - The Economic Times

Raamdeo Agrawal on how to spot a multibagger


ET Now | Updated: Aug 04, 2017, 12.38 PM IST
Talking 2
Comments
to ET
Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL, says when
process and luck both combine, then you have a multibagger and
that AMCs and banks sectors could provide next multibagger
opportunity.

Edited excerpts:
Opportunity is coming every six
months-eight months. We will get one, How do you spot a multibagger?
it is not there as 20 ideas. I do not have
any idea like that right now Stocks to some extent is a matter of luck and your process. When
process and luck both combine, then you have a
multibagger. Process is clearly QGLP. It must have
Company Summary NSE BSE been in a slightly nascent form, but my idea was
always to find a great company and look for growth.
HPCL 5.25 (1.76%)
Initially, I didn’t much understand the difference
United Sp… 37.20 (1.08%) between a good company and great company. Any
business takes 5, 7, 10 years of struggle and then it
comes out with profit. First year profit typically in a small business will be say Rs 10-15 crore. The
idea is that Rs 15 or 20 crore can become Rs 2000 crore in very quickly. Earnings in stock
market is stagnant for many years but whenever it takes off, it will go from Rs 400 to Rs 800 in a
breath-taking pace.

So, we are at an inflection point?

We are at inflection point. This is what happens in companies. You are struggling with a below
breakeven and then the breakeven comes and in one sweep, the profit goes from Rs 20 crore to
Rs 200 crore.

So would you say that AMC business..?

Yes, we have to but then the market is not so smart in valuing those companies they would say 30
PE hogaya, 40 PE hogaya arey bhai this is going at 50-60%. Eicher also happened like that. When
https://economictimes.indiatimes.com/markets/expert-view/raamdeo-agrawal-on-how-to-spot-a-multibagger/articleshow/59912217.cms 1/3
4/23/2018 multibagger: Raamdeo Agrawal on how to spot a multibagger - The Economic Times

we looked at the company four-five years back, it was held at about Rs 2000 crore, the profit was
about Rs 100 crore. At that point of time, we bought it as a truck story and what happened was we
thought that RE is a back up if truck does not happen this will not allow us to sink. My call was the
worst that it could do in next five years would be to double or if you are successful, it will go to 10
times. I say downside is 15%, upside is 40-45% compounded. It worked out.

25% CAGR growth even on our base. I looked at the July numbers.

That time, they were growing at 70-80% and the stock was available at 20 PE. Your earnings
growth for next three-four years is going to be say 2x of your PE. If your PE is 20 but you expect
the growth to be 40, you are sitting on a multibagger. So you know the formula that we have done
up right from that compounding and how it works and all these are gift of wealth creation study. I
have it in back of my mind. Whenever I get any good quality stock at half the peg, you have to pile
on.

Are you seeing that opportunity somewhere?

Opportunity is coming every six months-eight months. We will get one, it is not there as 20 ideas. I
do not have any idea like that right now but quite possible when you go out from your office you
might get that idea.

You have always hinted what you are looking at. Two years ago, you told me it was United
Spirits NSE 1.08 % and HPCL NSE 1.76 % . Is there a hint you would like to throw at us?

One of the businesses which I am very close to is AMCs.

Because you understand that business.

Yes, I understand that business and it is very exponential in character and a lot of money is coming
in and among good AMCs, all the bigger ones are getting listed now. That would be a great
opportunity and this is the largest business in the world. Today, the largest is BlackRock which
manages about closer to $6 trillion single-handedly. The very nature of the business is very
confident in character and we have just about begun in India. The equity flows have started and it
will become much bigger because equity mutual fundassets are just about Rs 6 lakh crore out of
Rs 135 lakh crore and your deposit base is Rs 100 lakh crore. It is just a sunrise industry and in
that you get the biggest and the best to invest. It is a free cash flow business with rapid growth
opportunity and brand equity. Can we get it at some reasonable price? That is one area where you
might get this opportunity but we do not know which one comes when and at what price it comes.

Then the banking system is still looks to be pretty good in the sense that the newer banks have
come in. I hope they open the licence on tap and when I saw today’s paper that incremental
deposit accretion of the public sector bank is only 34% where installed basis is about 78%. When

https://economictimes.indiatimes.com/markets/expert-view/raamdeo-agrawal-on-how-to-spot-a-multibagger/articleshow/59912217.cms 2/3
4/23/2018 multibagger: Raamdeo Agrawal on how to spot a multibagger - The Economic Times

the installed base shifts from the current 22-23% for private sector to even 50% in next 10 years, it
will be a stunning kind of opportunity for any of the well managed banks.

https://economictimes.indiatimes.com/markets/expert-view/raamdeo-agrawal-on-how-to-spot-a-multibagger/articleshow/59912217.cms 3/3
4/23/2018 Raamdeo Agrawal: Major correction unlikely in near term: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

Major correction unlikely in near term: Raamdeo


Agrawal, Motilal Oswal Financial Services
By Rajesh Mascarenhas, ET Bureau | Updated: Aug 04, 2017, 08.16 AM IST
0
Comments

There is a definite confidence among investors that


earnings growth will come any time which is what is
pushing up valuations, said Raamdeo Agrawal, joint managing
director, Motilal Oswal Financial Services NSE -0.08 % . Private
banks, NBFCs, housing finance, oil, consumer and auto
companies are going to do well in coming quarters, he said in an
interview with Rajesh Mascarenhas.
The good thing about GST is that
consumers are not disturbed, only
Edited excerpts:
backend, suppliers, supply chain, book
entries have been affected. I hope one
year is good enough for all companies Can the market sustain these highs despite weak earnings?
to cope with these changes and show
the results. Though the Indian market is fairly valued, a major correction is
unlikely to happen in near term until there are
excesses like in 2008 or 1995.Correction is required
Company Summary NSE BSE for a healthy trend, but currently there is a bullish
atmosphere everywhere. Optimism is at its peak,
Motilal O… -0.75 (-0.08%)
foreign and domestic fund flows are very good, some
L&T -5.05 (-0.37%) of the leaders of the sectors are doing very well. I
think this trend will continue for some more time.
There is a definite confidence among investors that earnings growth will come any time. This is
what is pushing the valuations. Market always has the tendency to discount the stock prices first
and then earnings follow, which is very logical.

Many participants believe It is not attractive valuations but it is abundant liquidity which is
taking markets higher. Do you agree?

True, to a certain extent. This kind of flow comes once in a while but will remain at least for five
years if you refer to history. There was a solid correction after every five years of bull run like 1985,
1992, 2000, 2008. All these rallies started for a right reason, but ended miserably. The current rally
which started in September 2013 is yet to complete five years. We are in the excess zone but not
excess to excess zone. Once it becomes excess of excess, one should be cautious. There is a
huge pile of cash in the system waiting to be deployed, that will act as a shock absorber at every
weakness. Barring any global event, the outlook is positive.

https://economictimes.indiatimes.com/markets/expert-view/major-correction-unlikely-in-near-term-raamdeo-agrawal-motilal-oswal-financial-services/articleshow/5
4/23/2018 Raamdeo Agrawal: Major correction unlikely in near term: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

When do you think earnings growth will be back?

Earnings picked up last year, but demonetisation pushed back India Inc's earnings recovery few
quarters. Again GST implementation has distorted the earnings recovery.Now, the government
should give enough time for the companies to cope with these changes without making any further
policy deviations. The good thing about GST is that consumers are not disturbed, but only
backend, suppliers, supply chain, book entries have been affected. GST rollout has been far
smoother than expected. I hope one year is good enough for all companies to cope with these
changes and show the results.

Which are the sectors that will lead the bounceback?

Earrings recovery should come from infrastructure space especially companies like L&T. Their
order book must balloon. So far, only the government is spending as there is no demand. The
moment demand picks up, private sector will also go for capex overnight. Currently, there is a pain
in the system because of demonetisation and GST.This is where exactly lower interest rate is
important.

Which are the sectors you are bullish on?

The whole economy is running on the banking system. So, private banks, finance companies and
housing finance companies will continue to do well. NBFCs have a huge potential in a growing
economy like India. Banks wont's go beyond their branches. It's NBFCs who do the business.
Housing finance companies would be more exciting though they will not give the return what they
gave in last 10 years but they will outperform. Oil, consumer and automobile companies are also
going to do well in near term. Pharma stocks look promising at the current valuations. There are
some challenges but that sector should recover fast.

What should retail investors do?

Investors should not focus too much on timing the market. If you ask me for the next 12 months, I
would not expect a return more than 15% which is a long-term average. The current market is a
warm market; it doesn't mean there are no excesses.About 10-20% correction is possible and will
happen any time. Equity market must correct and go up. In equity markets, downturns are
temporary but upsides are permanent. Currently, there are no across-the-board ideas. We have to
find one or two ideas from different sectors.

How significant this week's rate cut from the market standpoint?

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4/23/2018 Raamdeo Agrawal: Major correction unlikely in near term: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

We need one or two percent lower interest rate from the current level.It will give also a
psychological boost to corporates that RBI is also with us.

https://economictimes.indiatimes.com/markets/expert-view/major-correction-unlikely-in-near-term-raamdeo-agrawal-motilal-oswal-financial-services/articleshow/5
4/23/2018 Raamdeo Agrawal: Net margin fell to around 18% in Q1, to catch up the rest of the year: Raamdeo Agrawal, MOFSL - The Economi…

Net margin fell to around 18% in Q1, to catch up


the rest of the year: Raamdeo Agrawal, MOFSL
ET Now | Updated: Jul 28, 2017, 02.30 PM IST
Talking 1
Comments
to ET
Now, Raamdeo Agrawal, Co-Founder, MOFSL, discusses the
consolidated Motilal Oswal Financial Services NSE -0.08 % numbers.

Edited excerpts:

First quarter shows some good growth in the


The first PE fund - India Business
consolidated Motilal Oswal numbers driven by AMC, by fund
Excellence Fund -- is coming to a close based income segments. Give us some key highlights for the
and there are two investments which consolidated entity?
are waiting in the wings for exit; Dixon
Technologies and GR Infra
This quarter has been a fantastic quarter for some businesses.
This is Motilal Oswal Financial Services built up of
four segments; first is of course the mother brand
Company Summary NSE BSE
that is broking, second is the asset management
which is newer but growing very aggressively, third is
Motilal O… -0.75 (-0.08%)
a housing finance which is also growing very rapidly
and the fourth is a treasury.

The treasury is almost 50% of the balance sheet of the company. What has happened is that
broking has grown about 40-45% in terms of top line. Housing finance has grown at about 60%,
your asset management has grown at about 120% upwards of 100% and I-banking in broking side
I-banking has grown at above 100%.

So there is a lot of bright spots in the top line kind of situation but what has happened is that
because of Q1 situation and some slowdown in some businesses in terms of the margin
expansion, operating leverage has not worked and in Q1, the profit growth is only 30%. So there is
a decline in the net margin from 21-22% to around 18%. We will catch up in the rest of the year.

Congratulations from everyone at ET Now for having completed 30 years. You have been an
integral part of that journey as well how does it feel?

https://economictimes.indiatimes.com/markets/expert-view/net-margin-fell-to-around-18-in-q1-to-catch-up-the-rest-of-the-year-raamdeo-agrawal-mofsl/articleshow
4/23/2018 Raamdeo Agrawal: Net margin fell to around 18% in Q1, to catch up the rest of the year: Raamdeo Agrawal, MOFSL - The Economi…

I remember every single day of last 30 years and the market is a place where you keep getting
refreshed if you remember the 80s and 90s and the Y2K boom I mean where the technology was, I
mean the internet was not there till about 2000 and then internet came. Dot.com was a big boom.
Then came the Lehman crisis and now in all sides optimism is just building up. We might become
old, but markets are always young.

Let us talk about broking and the fund based income business. What has been the client
addition and any exits plan in the PE business?

Yes, so as far as the PE business is concerned, there are two funds. The first one - India Business
Excellence Fund -- is coming to a close and there are two investments which are waiting in the
wings for exit; Dixon Technologies and GR Infra. In this quarter or probably in early next quarter,
we are going to see exit of Dixon and the process is in full swing and most likely in next three-four
months, we will see exit in Dixon and the second one also by end of the year. It may overlap into
the next year but that will complete fund one, a major exit coming from private equity in 2017-2018.

Let’s talk about Aspire Home Finance. The asset qualities over there seemed to have
worsened. Even the net profits is a bit muted over there as is growth. over there. What are
the factors behind this?

That is one business which has expanded quite a bit in terms of branches, in terms of people and
in terms of even AUM it has grown by 55-60%. But the margins have not expanded because cost
has gone up and second, the credit quality has worsened because of demonetisation. The worst
affected segment is the affordable segment because the people out there are mostly low-income
group people and their repayment really got impacted for a quarter and hence the credit cost went
higher and our guys are on top of the things but lot of management energy went in collecting the
EMIs rather than focussing on the business and that led to our conclusion that we need a separate
collection team on top of the business team and that effort has taken a little more cost and in
between it has slowed down the business progress.

Starting from Q2, there much more balance between the credit cost management and business
growth. So we hope to recover the top line. Top line is there in the first quarter, only the bottom line
has been impacted because the management effort went a lot in managing the credit cost. So Q2
should be much better and we hope that rest of the year will find better traction.

Any equity raising plans in the pipeline and how much additional investment if any are you
making into Aspire for this year?

We have already made a Rs 100 crore of infusion at the end of the first quarter, in the last week of
June or something like that. So that part is done. Maybe another Rs 100 crore we need to do to
see that this year’s capital requirement is funded and then we expect there will be a reasonably
good amount of profit from the operations itself. The combination of operating profit and this Rs

https://economictimes.indiatimes.com/markets/expert-view/net-margin-fell-to-around-18-in-q1-to-catch-up-the-rest-of-the-year-raamdeo-agrawal-mofsl/articleshow
4/23/2018 Raamdeo Agrawal: Net margin fell to around 18% in Q1, to catch up the rest of the year: Raamdeo Agrawal, MOFSL - The Economi…

200 crore should be sufficient to fund the current year’s growth plan of Aspire. But this is a
business which will keep making money, at some point of time we have to raise external capital for
Aspire.

Give us a sense of the broad growth strategy for Motilal Oswal. What is the outlook over the
next two to three years? Any separate listing plans for the home finance business, is that
on the cards?

Home finance business by its very nature will keep needing capital and so it has to be listed. We
have given separate sops to all the employees of the company in the MOFSL. At some point of
time, we will need the liquidity event, whether it is a year away or two years away is to be seen.
Right now, there is no plan for public issue or anything like that. It will take some time but clearly it
will be a separate listed company in the near future. At the outset, it will be about 2.5-3 three years
but it will be a separate listed company. But apart from that, I do not see any more listings from
here.

As far as growth plans are concerned, this is a company built up of four genres, capital market,
asset management and HFC in terms of real businesses and all three are in growth phase right
now. It is very difficult to forecast how much it will grow. Can it grow 100% for two years or will it
grow at 40%, 50%? The first two businesses do not require any capital, only the third one requires
capital and wherever you require capital you can calibrate your growth. In housing finance ,we can
calibrate our growth whether we want to grow at 40% or 80% or 100% but in AMC and broking, the
growth calibration is not in our hand. It is a lot more tailwind driven and right now tailwind is very
strong.

How long it is going to remain very strong, you would know better. We think that at least this year is
looking to be very strong for rest of the year and at least the second quarter is shaping up very
well.

https://economictimes.indiatimes.com/markets/expert-view/net-margin-fell-to-around-18-in-q1-to-catch-up-the-rest-of-the-year-raamdeo-agrawal-mofsl/articleshow
4/23/2018 20 yrs and counting: What makes Motilal Oswal's Raamdeo Agrawal a Warren Buffett 'bhakt'?

20 yrs and counting: What makes Motilal Oswal's


Raamdeo Agrawal a Warren Buffett 'bhakt'?
By Rashmi Menon, ET Bureau | Updated: Jul 05, 2017, 08.49 AM IST
3 It's
Comments

hard to miss Warren Buffett's presence as you enter the corner office of Raamdeo

One of Agrawal's favourite Buffett quotes is, "Price is what you pay, value is what you get."

Related Agrawal, co-founder and joint MD, Motilal Oswal Financial


Motilal Oswal's daughter Services, in Prabhadevi, Mumbai. Plaques of the investment guru's
encouraged him to give employees quotes, books written on and by him and his principles, and even
ESOPs
an image of the American octogenarian (which he received as a
'Warren Buffett’s Ground Rules'
dissects the Omaha-based
gift) are kept near his table.
billionaire’s approach to investment

18 books billionaire Warren Buffett Calling himself a Buffett bhakt, Agrawal says he has been
thinks everyone should read attending the Berkshire Hathaway annual meeting held by Buffett
in Omaha for the past two decades. He recently completed his
20th trip to the meeting.

The Omaha jamboree

In the past two decades, Agrawal has seen the meeting grow in size and go the commercial route.
https://economictimes.indiatimes.com/magazines/panache/20-yrs-and-counting-what-makes-motilal-oswals-raamdeo-agrawal-a-warren-buffett-bhakt/articleshow/
4/23/2018 20 yrs and counting: What makes Motilal Oswal's Raamdeo Agrawal a Warren Buffett 'bhakt'?

"It now feels like a mela, a big jamboree," says Agrawal describing the event. The scale is evident
in the number of attendees: from about 3,000 in 1994 when Agrawal first went to the meeting, to
about 40,000 this year. Agrawal recollects a time when it wasn't a problem getting access to
Buffett, shake his hand and get an autograph. "It felt intimate," he says about his trips during the
1990s and early 2000s. In fact, Charlie Munger, vicechairman of Berkshire Hathaway, used to
stand with the attendees to enter the room, Agrawal recalls.

The Berkshire Hathaway annual meeting has grown from about 3,000 attendees in 1994 when
Agrawal first went to the meeting, to about 40,000 this year. (Image: BCCL)

Now, everything has grown in scale including the discounted shopping (companies where Buffett
has bought stake sell their products or services). "He makes money out of it. It's a time of serious
business for him," he says, adding that just a decade back attendees would get giveaways.

Agrawal points out that from about $20 billion in 1994, Berkshire Hathaway's market cap is about
$500 billion now. "The bulk of it, say about $400 billion, has happened before us in the past 23
https://economictimes.indiatimes.com/magazines/panache/20-yrs-and-counting-what-makes-motilal-oswals-raamdeo-agrawal-a-warren-buffett-bhakt/articleshow/
4/23/2018 20 yrs and counting: What makes Motilal Oswal's Raamdeo Agrawal a Warren Buffett 'bhakt'?

years," he says.

What is also noticeable is the increase in the number of Chinese delegations, which Agrawal
guesses is because the country is in the nascent stage of value investing practices.

The investor's pilgrimage

Considering the meeting is streamed on TV and the internet, does it still make sense to go for it in
person? That's a question, Agrawal says, he has asked himself multiple times.

"It's like the difference between watching a cricket match in a stadium - where you are dealing with
humid temperature, a crowd and even from the best seat you can't figure out how the ball looks -
and watching it on TV in the comfort of your home, where you can peacefully see the players and
how the ball is swinging. You still enjoy going to the stadium because of the ambience, energy,
seeing the action," he says.

Raamdeo Agrawal (right) with Warren Buffet. (Image: BCCL)

For Agrawal, the annual trip has become more of a pilgrimage, which he couples with client
meetings in the US. "You meet different people and discuss about investment. You also talk to
clients. You get a sense of what's happening in the US. At the end of it, that's the mother of all the
markets," he explains.

Business learnings

Picking some of the key takeaways from his numerous visits, Agrawal shares one of his favourite
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4/23/2018 20 yrs and counting: What makes Motilal Oswal's Raamdeo Agrawal a Warren Buffett 'bhakt'?

Buffett quotes. "Price is what you pay, value is what you get."

The key is to become better at estimating that value. "In every meeting, there is some new insight
he [Buffett] shares. This time, it was really good, 10 out of 10. What he said was that the world of
capitalism has changed. The top five valuable companies - Facebook, Alphabet, Apple, Amazon
and Microsoft - in the world don't use capital. It's a different phase of capitalism. It will happen in
India too. Keep looking for them," he says.

Indian Buffettology

Giving a spin to what he calls Buffettology, Agrawal has created an investment philosophy that he
adheres to - QGLP. Q is for quality of business and able and trust worthy management, G is for
growth, L is for longevity of the competitive advantage and P is reasonable, fair price. "I have given
it an Indian context because [investor and author] Phil Fisher says before starting to get into any
market in the world, first understand the context in which the money is made in that country. Also,
Buffett says buy what you understand. That's profound," says Agrawal.

"Whenever I am confused or undecided, I go to this [philosophy]. It has helped me say no, no


matter how mouth-watering the investment may be," he adds.

Life lessons

Apart from investment, Agrawal also follows Buffett's life advice. For instance, Agrawal says he still
remembers Buffett's comment in the aftermath of the scandal that hit the Salomon Brothers in the
early 1990s. "He said, 'Lose any of the firm's money and I will be understanding, but lose an ounce
of the reputation and I will be ruthless'. He repeats this every year in the film [a 60-minute
compilation of films screened before the meeting]," he says.

This has helped Agrawal immensely during recruitment, where he looks for the candidate's
integrity. "If he has energy and competence but no integrity, he becomes very dangerous. We do
money management and people can do crazy things. So, maintaining our reputation is very
important," he says.

Another thing he learnt from Buffett is distributing knowledge. "Someone once asked what other
career would he have chosen and he said a teacher. Whatever he learns, he passes it on," says
Agrawal, who is also the owner of a $1 bill signed by the investment guru.

As the meeting draws to a close, one can't help but ask about the photo of his son Vaibhav with a
smiling Buffett. His son got the opportunity to meet Buffett through his college, The Wharton
School. "My son got more personal time with him than I ever have," Agrawal says with a smile.

https://economictimes.indiatimes.com/magazines/panache/20-yrs-and-counting-what-makes-motilal-oswals-raamdeo-agrawal-a-warren-buffett-bhakt/articleshow/
4/24/2018 This self-made $900 million trader warns rally in Indian stocks not based on facts - The Economic Times

This self-made $900 million trader warns rally in


Indian stocks not based on facts
Bloomberg | Updated: Jun 07, 2017, 01.47 PM IST
5 By
Comments

Nupur Acharya and Tom Redmond

For India to thrive, it needs something more concrete than the


optimism driving its equity market to record heights.

That’s the view of Raamdeo Agrawal, the stock picker who helped
build Motilal Oswal NSE -0.08 % Financial Services Ltd. into a multi-
Raamdeo Agrawal helped build Motilal billion dollar company. From the firm’s high-rise in a fast-growing
Oswal Financial Services into a multi-
business district in central Mumbai, he has seen
billion dollar company.
the benchmark index set fresh records most every other day.

“This is price to hope,” he says. “Hope is hope. It is


Company Summary NSE BSE
not real.”
Motilal O… -0.75 (-0.08%)
Agrawal points to the congested roads below, and
Kajaria 4.20 (0.75%)
talks about the stalled plans for a much-needed
second airport in Mumbai, India’s financial capital.
The government says the project, first proposed in 1997 when Bill Clinton was US president, will
be partly operational by 2020.

“We have a reasonable building,” Agrawal says of his office. “But you see the roads. I can’t go and
build the roads. They have to be built by the government,” he says. “We need a very high-quality
airport and there’s no dearth of land or money. It is about sheer execution.”

Investors have been betting Prime Minister Narendra Modi will develop infrastructure and
create jobs in the world’s largest democracy. The S&P BSE Sensex’s 17 per cent advance so far
this year means it’s valued at 23 times reported earnings, among the highest in Asia. The gauge
rose 0.3 per cent to 31,291.4 at 9:45 a.m. in Mumbai.

https://economictimes.indiatimes.com/markets/stocks/news/this-self-made-900-million-trader-warns-rally-in-indian-stocks-not-based-on-facts/articleshow/5903330
4/24/2018 This self-made $900 million trader warns rally in Indian stocks not based on facts - The Economic Times

In this year’s federal budget, the government proposed a record 3.96 trillion rupees ($61.5 billion)
to build and modernize railways, airports and roads. In March, junior road minister P.
Radhakrishnan told lawmakers that construction of highways was slowed by delays in acquiring
land and environmental clearances, protests and poorly performing contractors.

‘Strict Headmaster’
If anyone can smash the logjams that keep India below Namibia and Azerbaijan in the World
Economic Forum’s infrastructure ranking, it’s Modi, according to Agrawal. He says the prime
minister, who took office in May 2014, still has “massive” political capital, citing the goods and
services tax due to start on July 1 as a reason for hope. A thumping win for Modi’s party in key
state elections in March added to optimism.

“Now we have a very strict headmaster,” Agrawal said. “India has the chaos of 60 years of
leaderlessness. You know what happens when a strict principal comes in at school? All the chaos
is over.”

Agrawal, a longtime Warren Buffett fan, was fresh back from his annual pilgrimage to Omaha for
Berkshire Hathaway Inc.’s shareholder meeting. Like Buffett, the 60-year-old advocates buying
only a few stocks and holding them.

Agrawal began his career as a sub-broker on the Bombay Stock Exchange in 1987, crowding
inside a hall and shouting orders under the open outcry system. He worked with partner Motilal
Oswal to build a $2.5 billion company whose shares have returned an average of 19 per cent
annually since going public in 2007, twice as much as the Sensex. Motilal Oswal’s asset
management arm, which focuses on value investing targeting small and mid-cap stocks, oversees
https://economictimes.indiatimes.com/markets/stocks/news/this-self-made-900-million-trader-warns-rally-in-indian-stocks-not-based-on-facts/articleshow/5903330
4/24/2018 This self-made $900 million trader warns rally in Indian stocks not based on facts - The Economic Times

about $3.6 billion.

Agrawal and his family hold 36 per cent of Motilal Oswal, according to the company. That’s worth
about $900 million, data compiled by Bloomberg show.

Agrawal, who’s seen many boom and bust cycles over three decades investing in Indian equities,
says the market will correct when people least expect it. Even Modi’s shock junking of 86 per cent
of the currency in November to fight graft only briefly halted the rally, he notes.

While Asia’s third-largest economy expanded 7.1 per cent in the year ended March, making it an
investor favorite, India can enjoy a decade of double-digit growth if Modi accelerates reforms,
Agrawal says. Within that, the key to successful investing is to back ambitious first-generation
entrepreneurs like himself, he says.

Motilal Oswal’s India Opportunity Portfolio Strategy Fund holds 15 to 20 companies from industries
including financial services and building materials -- sectors the money manager believes will show
the fastest growth. The 24.6-billion rupee mutual fund for wealthy individuals has returned about 19
per cent a year since it started in February 2010, beating the 15 per cent annual gain in its
benchmark.

https://economictimes.indiatimes.com/markets/stocks/news/this-self-made-900-million-trader-warns-rally-in-indian-stocks-not-based-on-facts/articleshow/5903330
4/24/2018 This self-made $900 million trader warns rally in Indian stocks not based on facts - The Economic Times

Its biggest holding, Development Credit Bank Ltd., is a Mumbai-based lender whose shares have
more than doubled since February last year. Kajaria NSE 0.75 % Ceramics Ltd., another top pick, has
seen its stock surge nine-fold in the past five years, guided by Ashok Kajaria, who founded the tile
maker 28 years ago.

For all his optimism, Agrawal isn’t afraid to entertain his doubts. Despite considering Buffett a
personal hero, he sold all his Berkshire shares last year after realizing the company couldn’t meet
his growth criteria.

On India, he says he has both hope and some impatience.

Asked which feeling is stronger, he doesn’t hesitate.

“Hope,” he says.

Then he pauses for about 10 seconds before breaking the silence.

“We have become perennially patient,” he says.

https://economictimes.indiatimes.com/markets/stocks/news/this-self-made-900-million-trader-warns-rally-in-indian-stocks-not-based-on-facts/articleshow/5903330
4/24/2018 Sensex: Why your smallcap, midcap portfolio could hit air pocket - The Economic Times

Why your smallcap, midcap portfolio could hit


air pocket
By Sanam Mirchandani, ET Bureau | Updated: Jun 02, 2017, 08.25 AM IST
1
Comments

Mumbai: Mid and small-cap shares have fallen


sharper than blue chips in a swinging market in the
past one week, making investors wary of such stocks. While
rebounds have been equally strong, investors may have to brace
for heightened volatility in the days to come as many stocks are
precariously perched after the scorching rally in the past three
years.
Between May 22 and May 24, BSE
MidCap and SmallCap indices lost
“Mid and small-cap stocks always carry higher volatility, but now as
about 3% each, but recovered all the
they have moved much ahead of their fundamentals, coming days
losses in the short covering-led rally in
the last two sessions of the previous would be not so great for them,“ said Raamdeo Agrawal, joint
week. managing director, Motilal Oswal Financial Services. “Markets,
especially midand small-cap stocks must cool down so that long-
term money enters these segments to lower volatility."

The ride has been topsy-turvy in the midcap and smallcap space over the past week. Between
May 22 and May 24, BSE MidCap and SmallCap indices lost about 3% each, but recovered all the
losses in the short covering-led rally in the last two sessions of the previous week. On Monday ,
these in dices fell about 1% each but again recovered some losses.

The story was the same with Retail individual stocks


NSE BSE
Company Summary
as well. For investors instant should, Kaveri Seed
Kaveri Se… 10.40 (1.96%) NSE 1.96 % avoid Company taking which fell 12.4% be

hefty tween May 22 and 24 has leverage bounced


back 18.6% since then.positions, Rashtriya Chemicals & market say Fertilizers recovered 14.8%
experts in the last four sessions after falling 14.5% between May 22 and May 24.

“Midcaps are a brave heart's game now," said Hemant Nahata, derivatives analyst at IIFL. “The lot
sizes of various midcap companies' futures are very high, costing as high as Rs 12 lakh for one lot.
In this case, if there is a big fall, retail investors tend to lose significantly .Retail investors should
avoid taking hefty leverage positions,“ said Nahata.

From their respective lifetime high levels, BSE MidCap and SmallCap indices are down 5% and
5.7%, respectively . The carnage is deeper at the stock level and one should not hope for a major
recovery, said analysts.

https://economictimes.indiatimes.com/markets/stocks/news/why-your-smallcap-midcap-portfolio-could-hit-air-pocket/articleshow/58955248.cms 1
4/24/2018 Sensex: Why your smallcap, midcap portfolio could hit air pocket - The Economic Times

“Most of them (midand small-cap stocks) are richly valued, so there's very little scope for them to
move up,“ said Amit Khurana, head of research, Dolat Capital.

https://economictimes.indiatimes.com/markets/stocks/news/why-your-smallcap-midcap-portfolio-could-hit-air-pocket/articleshow/58955248.cms 2
4/23/2018 Motilal Oswal: Market mood has been improving for last 3 years and is at its peak now: Raamdeo Agrawal, MOFSL - The Economic …

Market mood has been improving for last 3 years


and is at its peak now: Raamdeo Agrawal,
MOFSL
ET Now | Updated: May 23, 2017, 02.32 PM IST
In a 0
Comments
chat
with ET Now, Raamdeo Agrawal, MOFSL, says once the smooth
operation of GST starts, it will provide a huge unifying factor for the
country.

Edited excerpts:

Market mood has been improving for How did you enjoy the Berkshire AGM?
last 3 yrs, at its peak now: Raamdeo These events are happening for years. I am going for last 20 years
Agrawal but ET Now Tanvir and your team went there and she was lucky to
get the direct interview with the great old man Mr Buffett. All those
things create excitement. But this time, even AGM itself was full of lot of positive
questions. Buffett was in a great mood right from the beginning. From the word go he was in terrific
mood and there were a lot of questions on investing. It was a full 10 out of 10 AGM this time. We
extracted lot of value out of this entire event and I am very happy that it worked for everybody.

NSE BSE
What was your key takeaway from the Berkshire
Company Summary
Hathaway AGM?
Motilal O… -0.75 (-0.08%)
An important thing which has kind of stuck to my
mind is when Charlie Munger said the world has changed. The top five companies in the world are
worth $2.5 trillion and they do not need any capital. Now you do not need money to make more
money. Internet-based businesses, unique businesses -- whether it is
Amazon Google, Microsoft or Facebook -- do not need any capital. He was saying that this is a
new form of capitalism where you do not need capital to create fresh capital. You are talking about
a scale which is humongous, in trillions. India is going to participate in this particular journey. If you
ask me today what is the next Facebook from India, I do not have any answer. But we must keep
looking out for those opportunities which will happen from India I do not have any doubts.

The entire philosophy of investing in India is also expanding at a great pace.


The markets are at record high now that you have come back. You see this wave really has
gathered pace here in India with markets going high. Do you think more people are getting
attracted towards investment as a practice?

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-market-mood-has-been-improving-for-last-3-years-and-is-at-its-peak-now-raamdeo-agra
4/23/2018 Motilal Oswal: Market mood has been improving for last 3 years and is at its peak now: Raamdeo Agrawal, MOFSL - The Economic …

We run one of the largest pan-India brokerages. We can clearly see the excitement in mutual
funds inflows. I can clearly see that people are far more excited particularly after demonetisation.I
think the tide has turned towards investing three years back. On the eve of election and
immediately after his nomination, a positive period started. From then till now, there has not been a
month of break when money has not flowed into the funds. Now, of course, it has become a gusher
and larger amounts of money are flowing in.

Generally, the mood has been improving for the last three years and it is at its peak right now. We
are on the eve of GST implementation and the good thing is that GST does not make anybody
significantly better or worse. They are just trying to collect whatever is the taxation right now. But
what it does, if it is implemented successfully, which I do not doubt will happen. It is like a broken
egg, you cannot roll it back. You have to make it and then consume it.

There will be some teething troubles but in the next 6 months to one year, once the smooth
operation of GST starts, it will provide a huge unifying factor for the country and provide ease of
doing business for the whole nation, tax collection will rise. Today it is about 10.5-11%, it must see
at least a percentage higher in 12 to 18 months time and that will give the necessary resources to
the government to further build infrastructure up because we need trillions of dollars and despite
our savings of about $600 billion and all, we are not able to channelise the savings into building the
nation. People are buying gold, people are buying all sorts of things but $600 billion is good
enough to build the country, the issue is how do you do it.

We run one of the largest pan-India brokerages. We can clearly see the excitement in mutual funds
inflows. I can clearly see that people are far more excited particularly after demonetisation.I think
the tide has turned towards investing three years back. On the eve of election and immediately
after his nomination, a positive period started. From then till now, there has not been a month of
break when money has not flowed into the funds. Now, of course, it has become a gusher and
larger amounts of money are flowing in.

Generally, the mood has been improving for the last three years and it is at its peak right now. We
are on the eve of GST implementation and the good thing is that GST does not make anybody
significantly better or worse. They are just trying to collect whatever is the taxation right now. But
what it does, if it is implemented successfully, which I do not doubt will happen. It is like a broken
egg, you cannot roll it back. You have to make it and then consume it.

There will be some teething troubles but in the next 6 months to one year, once the smooth
operation of GST starts, it will provide a huge unifying factor for the country and provide ease of
doing business for the whole nation, tax collection will rise. Today it is about 10.5-11%, it must see

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-market-mood-has-been-improving-for-last-3-years-and-is-at-its-peak-now-raamdeo-agra
4/23/2018 Motilal Oswal: Market mood has been improving for last 3 years and is at its peak now: Raamdeo Agrawal, MOFSL - The Economic …

at least a percentage higher in 12 to 18 months time and that will give the necessary resources to
the government to further build infrastructure up because we need trillions of dollars and despite
our savings of about $600 billion and all, we are not able to channelise the savings into building the
nation. People are buying gold, people are buying all sorts of things but $600 billion is good
enough to build the country, the issue is how do you do it.

We are busy in the stock market and the stock market has done very well. I keep travelling to the
other parts of the world. I was there in the US for an extended 10-15 days’ road show. Everybody
is looking at India and Mr Modi’s leadership with a lot of expectations. He is promising bigger
things like housing for all. It is a huge motive.

This is a huge movement and this is a simple thing in the sense that it does not require foreign
technology and it does not require foreign capital. It requires Indian material and the need is real. If
you are able to broadly deliver on that promise, you can galvanise the entire economy to a different
level altogether. Something is rumbling, policy paralysis has gone, there is a lot of self respect,
there is a lot of self confidence. It is not only incredible Gujarat now, there is incredible all the 29
states. Competitive state development has started. If you do not develop, you may not come back
to power. There are a whole lot of good things. Cumulative, there is massive political capital with
the ruling part. How they convert that political revolution into economic revolution, only time will tell.

Is the good news in the price because the market is also at a record high?

That is a good question. A lot of it is in the price and India is a country with a lot of potential and it
is not a potential of one or two years or five years, even of a decade, it is a multi decade
opportunity. The markets have the tendency to over discount the short term but under discount the
long term. What you are saying is right, they might be reading too much into the next 12 months
and we might be in for some disappointment also or slow growth but in the longer run, the
possibility which is being built, like the things which you talked about is crazy in the sense that we
have now current account deficit less than 1%, oil price is very stable, there is energy revolution all
over the world, there is a digital revolution which is already on. India has benefitted in the last 15
years.

Energy revolution is there that has brought down the energy cost and solar is almost knocking at
everybody’s door. So a lot of positive things are there and for building any nation and building a
massive opportunity. What you need is the committed political leadership which wants to convert
their political capital into economic revolution and that is the promise which Mr Modi himself is
giving everywhere. People are reading into that, people are saying that there is a high probability
that these things will happen successfully.

What phase of the market are we in right now? People are scared if it gets euphoric also.
How are you analysing things?

It is not euphoric but it is not depressed for sure. And the PE multiples are a little higher and

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-market-mood-has-been-improving-for-last-3-years-and-is-at-its-peak-now-raamdeo-agra
4/23/2018 Motilal Oswal: Market mood has been improving for last 3 years and is at its peak now: Raamdeo Agrawal, MOFSL - The Economic …

shorter term, the guys who are coming for a year or two could be in for a little bit of a surprise. We
have done 35-40% in the last one year. If I make 5% or 7% also in the next one year I am fine but I
am not quitting the market.

One thing good about the market and the biggest excitement is nobody knows where the market is
headed. From day one, when I started buying, index was 100-150 today it is 30000. So the market
has gone up 300 times right in my short stint in the market. The future is brighter. This is the time to
find those great companies and stay invested. Now whether you will make 15% or whether you will
make 25%, 35% in three years, five years, 10 years, it is a lot of being lucky also. At times you
need to get one multi bagger in your portfolio and that heralds your arrival but this is a country of
multi baggers.

Right now, the periodicity with which multi baggers for the next one year are being hunted,
indicates that a little bit euphoria perhaps, at least the excitement is quite high?

Raamdeo Agrawal: There is too much of search for the multi baggers. Multi baggers do not come
by giving notice, they happen. You do a normal investing or doubling in three years or four years
and it turns out that it has gone up by 10 times or 30 times. At least in my experience, I bought
something thinking that it will grow 100 times and it has done 100 times, it has never happened like
that. And I have not seen anybody who knows that.

How about the earnings, the quality or earnings, the quality of management commentary
you yourself listen to or watch closely? Are we on a trajectory of improved earnings?

This quarter was not very good. Many more companies like consumer companies which typically
used to do 10-12%, 15% were all hurt by Ramdev Baba’s Patanjali challenge. They have done well
but the growth has been eaten away by him. So a few companies are there.

There is a massive telecom intensity. Jio has been launched and some of the telecom companies
are in subdued condition. IT is in any case in a slow mode. Pharma also had a series of
inspections. A lot of segments of the markets where investing was happening has this thing but
there are some more newer options opening up.

A good thing is that on private financial side, whether it is NBFC or housing finance, the banks are
in a good shape and some of the companies, say some specific automobiles are doing well. And
now a more recent trends we are seeing is post demonetisation the demand for the consumer
goods and durables and are picking up. I believe the summer sales of air conditioners and all are
very buoyant. Hope is building up and I hope GST also is rolled out very smoothly and second half
is bumper time for the economy.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-market-mood-has-been-improving-for-last-3-years-and-is-at-its-peak-now-raamdeo-agra
4/23/2018 India is still not ripe for Buffett kind of deals: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

India is still not ripe for Buffett kind of deals:


Raamdeo Agrawal, Motilal Oswal Financial
Services
ET Now | Updated: May 07, 2017, 04.31 PM IST
4
In Comments

India,
70-75% of the active managers are beating the index hands down.
Passive investing is a little away in Indian context, says Raamdeo
Agrawal, MD & Co-Founder, Motilal Oswal Financial
Services, talking to ET Now. Agarwal is on the on the Buffett trail
to attend the Warren Buffett’s Berkshire Hathaway AGM.

" I want to very clearly hear from him is Edited excerpts:


between passive and active, what is
going to be the shape of investing?
Tell us something about your own experience with Berkshire?

Actually it is always fun to come here. This is a


NSE BSE
Company Summary
weekend where we get to see a lot of local people
Motilal O… -0.75 (-0.08%) here and I have been coming for 20 years. When I
used to come 20 years ago, Mr Buffett used to visit
Unilever -15.05 (-1.03%)
here. I do not know whether today he is going to
come. Typically he gives a surprise visit. In 1995-1996, when I used to come here, there used to be
4000-5000 people and he could find time for us to sign the dollar bills. But now it has become a big
game. They sell $200 million worth of stuff in one day. This is like the world’s biggest jewellery
shop and they give special discount for all the shareholders and you have the cocktails. Tomorrow
morning is the AGM and yes the show goes on. It is a big show.

There are shareholders coming in from across the world just to get a glimpse of Mr Buffett,
Mr Munger and to be a part of that five-hour marathon Q&A session. Do you sense a
renewed excitement for the event or after 20 years, it is a case of I have been there, done
that?

Every year, the main event is the Q&A but the party has become bigger and bigger. His market
cap, which when we started was $20 billion or something, today is worth $400 billion. He is larger
than life. He has got $100 billion cash reserve, he is got earnings of $25-30 billion. He is a man to
watch. Apart from his money, he has taught people like us so much about investing.

https://economictimes.indiatimes.com/markets/expert-view/india-is-still-not-ripe-for-buffet-kind-of-deals-raamdeo-agrawal-motilal-oswal-amc/articleshow/5854886
4/23/2018 India is still not ripe for Buffett kind of deals: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

There are so many people here who are billionaires or multi millionaires because they have those
shares or their parents have given those shares.

Buy and hold forever?

That is it.

I was going through some of the data. In 1955, when the shareholder meeting started there
were only 12 shareholders who attended the meeting. Last year, it was 37000, the year
before that it was 40000. This year, we are expecting more than 40000?

I do not know. Let us see tomorrow what happens but it is very different in the sense that for me
networking in US, seeing the guys and listening to him for six hours is so much of fun. In the
morning, there is a lot of rush. After lunch, the crowd is almost half but then the serious talk is on.
So it is always a unique experience.

What is that he is going to address in tomorrow’s Q&A session?

I have no clue but one of the subjects I want to very clearly hear from him is between passive and
active, what is going to be the shape of investing? Also how does the madness about passive
investing going to impact active investing? It is going to have a huge impact on the profession of
investing, money managers and all. Trillions of dollars are sitting here under this roof.

And it is also important because in India the mutual fund industry is booming. While he
might tell an average salaried professional in the US to actually invest in index funds, it will
be interesting to know what he would say or advise a similar profile person in India because
the market in India is less efficient than the US markets?

That is why what is happening is that the active guys, 70-75% of the managers, are beating the
index hands down . So passive investing is a little away. Apart from the institutions like pension
funds, employee provident fund and all, they do not have the courage to first come in the equity
markets. After coming to the equity markets, they would not like to go after the managers. That
itself can become a little messy.

So, rightly they are going for low cost index funds. Index itself in India does more than 15-16%, that
is a lot of money compared to your fixed income. So India is an evolving state, passivity is a little
away from here and so we are a bit secure. But here one of the biggest subjects is the passive and
active. There will be a deep discussion on that.

The second topic would be the geopolitical issues which are developing world over.

https://economictimes.indiatimes.com/markets/expert-view/india-is-still-not-ripe-for-buffet-kind-of-deals-raamdeo-agrawal-motilal-oswal-amc/articleshow/5854886
4/23/2018 India is still not ripe for Buffett kind of deals: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

Third is the global economy and how he is seeing it. Is it going to come back? So cyclicality of the
businesses and the impact of tech because today morning I saw he has sold a large portion of his
IBM holding. I do not know what is going on his mind. I never understood why he bought IBM and
now he is selling it and the same way what he thinks about Apple?

So a discussion on technology because here it is very large, you have Amazon, you have Google,
today I was talking to somebody from Microsoft, a very senior guy and he was talking about their
own strategy.

I met somebody very senior from Microsoft and he was saying what kind of thing the Cloud is going
to become such a big place, everything is-- even your phones will become dud and everything is
going to go to the Cloud and there will be only three players, Amazon, Google and Microsoft and
Microsoft probably will be the big winner. So you know these kind of discussions will be there.

At the end of the day he has often talked about the fact that one should invest in one’s
circle of competence and he has never stepped out of it . So there is much debate on how
he himself is qualifying these decisions where he is buying technology stocks. Of course,
he has sold IBM but he has bought a big share in Apple, he is buying aviation companies,
he is buying banks, he is buying annuity based businesses. Would you want to know from
him whether his investment philosophy is changing per se or whether he is expanding his
circle of competence?

The very concept of circle of competence was given by him only because of his style of investing.
He keeps saying that you have to keep expanding circle of competence as otherwise you will not
be able to buy newer stocks . But having hated the technology companies more particularly in the
200-2002 in Y2K era, the dotcom bubble, he got sucked into buying IBM.

https://economictimes.indiatimes.com/markets/expert-view/india-is-still-not-ripe-for-buffet-kind-of-deals-raamdeo-agrawal-motilal-oswal-amc/articleshow/5854886
4/23/2018 India is still not ripe for Buffett kind of deals: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

People will be relieved that he finally has sold something?

But you never know. If you could understand why he is buying then he becomes a very common
man. So everybody keeps lookingm does he know something more than what we know? But it
happens in investing that most of the masters do not agree with each other and yet it makes huge
money for different reasons.

What about the India angle, I know you are saying that unless it is a big ticket acquisition
and he is particularly looking at controlling stakes in businesses. he is not going in for
minority stakes right now but do you think that he can touch upon his emerging market
strategy in this AGM?

I do not know, let us see I mean...

Do you think he should?

I do not think-- his ticket size is too big.

But he invested $ 500 million in Petro China?

See that was 5-10 years back. Today he is sitting $100 billion dollars and he does not have time to
do a half a billion dollar or $1 billion deal. My sense is he is looking for a seriously large one. He is
going to look for something really large like Nike. He has appreciated Shoe Dog, God knows he
might be having Nike on mind.

Also with 3G Capital, Unilever acquisition...

There will be an angle to that-- they might have acted like they were trying to take over Unilever
itself. So they must be thinking really large.

And that was $146 billion.

So very large so between them and 3G and the Global Capital, they can do very large deals.

For a consumer investor like Mr Buffett, it is interesting to know and perhaps understand
his mind why he has not invested in the consumer story in India?

https://economictimes.indiatimes.com/markets/expert-view/india-is-still-not-ripe-for-buffet-kind-of-deals-raamdeo-agrawal-motilal-oswal-amc/articleshow/5854886
4/23/2018 India is still not ripe for Buffett kind of deals: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

One is that the consumer market in India is very interesting but where can you invest a few billion
dollars in India unless you buy out? Sso you buy a Parle G full thing? Those kind of deals are not
there in India and the promoters do not want to leave the company to functional managers.

My sense is that India is still not ripe for Buffett kind of deals.

What about his view on the market because world markets are at record highs?

That is what people are waiting for. In 2007, just before the collapse he was asked what does he
think of the market and he kept saying that he does not do macro calls. Mortgage defaults had
started happening in 2008. But that time he said I think it will work out very well, the economy is
growing very well, lot of jobs are there.

But he is an eternal bull, he has to say that?

That is why I like him. That is the meeting point. So the point is that his macro calls are suspect, he
is a big guy but still people listen but I do not think it is that big in the sense that macro anybody
can have a view and he himself does not care about anybody and nobody cares about his macro
view.

People care about his market philosophy and that will be...

Investing philosophy.

His investing philosophy as well.

Every year he talks about something. The best of all was 2007 when he talked about great, good,
gruesome, there are three types of businesses in the world. I mean he started investing 1941 and
after say 50 years of investing he realised that there are only three types of businesses very good
business, good business and a whole lot of bad businesses.

It takes a little time for him also to realise the concepts and then talk to the people to the benefit of
the-- and they are so generous in parting with the wisdom I think they want to give almost
everything to the society so that generosity is what people love.

https://economictimes.indiatimes.com/markets/expert-view/india-is-still-not-ripe-for-buffet-kind-of-deals-raamdeo-agrawal-motilal-oswal-amc/articleshow/5854886
4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Buffett is underperforming big time for last 10


years: Raamdeo Agrawal, Motilal Oswal
ET Now | Updated: May 06, 2017, 07.22 PM IST
3
In a Comments
chat
with ET Now, Raamdeo Agrawal, MD & Co-Founder , Motilal
Oswal Financial Services, Aashish P Somaiyaa, MD &
CEO, Motilal Oswal AMC and Gautam Sinha Roy, Fund
Manager, Motilal Oswal AMC discuss the upcoming Hathaway
Berkshire AGm which they are going to attend and expected gems
from the master investor.
Even with his knowledge, his
connectivity, Warren Buffett is not too Edited excerpts:
great on macro. His real insights are on
the investing and looking at the
companies, looking at managements,
All geared up this time for the 53rd AGM of Hathaway
human behaviour, investor behaviour, Berkshire?
market philosophies, those kind of
things.
Raamdeo Agrawal: As usual. we have booked our
tickets, we have booked the hotels. I believe flying
Company Summary NSE BSE into Omaha on that day is becoming quite pricey. So
you have to land somewhere around Omaha and go
Motilal O… -0.75 (-0.08%) there because the crowd is like 40,000 strong. Again
Indigo -16.95 (-1.13%) we are expecting it to be a fun event and will get to
meet lot of interesting people and of course get the
Q&A.

Berkshire Hathaway AGM 2017: Catch all the action here

You mentioned that going to attend this AGM could be pricey. You are not talking like a true
value investor?

Raamdeo Agrawal: Price has gone up but the value still remains way above that. Still, if we learn
one thing in his five-six hours of discourse, that is good enough because now the learning is going
to be incremental. Your lot of questions are already answered by him and if the question comes on

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4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

what he is going to say, you are looking for a completely new question depending on the situation
and what he has to say right now.

Top of the mind, one of the question which I am struggling with is what are his thoughts on the
active and passive investing because right now, the entire developed world is in turmoil.

India is having a gala time with the active investors but--- Europe and America are really going
through this entire tectonic shift from the active to passive and it is not running a few billion dollars.
It is almost a trillion dollar kind of situation and they are saying that by 2022 or 2025, it will become
50% passive and 50% active. There is a lot of lay off. Here you do not get a good manager, there
you are getting dozens. This entire investment management industry is the biggest game in town
at $70-$80 trillion which is going to become $150 trillion. How exactly to manage that, who are
going to be the winners, what will be the rules of the game, how the compensation to the managers
will happen, a lot of these things will be discussed in detail.

There are a lot of issues related to technology. Now they are getting into Apple. So what do they
think about this new generation technology? How internet is going to be changing our lives more
particularly the investing, your Amazon which is all over now so all the discussions we are looking
forward to.

Also active versus passive investment is going to be very important from an India
standpoint not just because what is happening domestically but also a lot of the money
which was coming into India through allocation in benchmarking against the MSCI Index is
now going to be coming through passive investment. ETF money has created a lot of
volatility in the market?

Raamdeo Agrawal: We know that active does very well in India. Our game is how do you play
those guys who are coming with passive mandate and bringing billions of dollars? Some insight is
needed. We are going to do active, we are going to follow our stocks but the issue is what will be
the impact of disproportionate global allocation to passive on the active stocks because ultimately
they are going to buy stocks? That is the biggest challenge for me. How do I overcome that
particular challenge as an active manager, so some thoughts will definitely come there.

Gautam, it will be your first time at the AGM. Why are you going all the way since it can be
seen on the net?

Gautam Sinha Roy: As a practitioner of investing, it is almost like going to Mecca or to a


pilgrimage. You can always say that god is everywhere, why do you need to go to a pilgrimage? It
is like having the feel of the place, hearing the man speak live and it is a first in a lifetime
opportunity for me. It is definitely something that I have always looked forward to and finally will be
able to do it.

It is one thing to not just hear the man himself but Raamdeo is going just like that. Thousands of

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4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

great investors from the world are going to go there and it will be an exchange of ideas. There is
this Yellow Berkshire night before the evening before. There would be a serious amount of
exchange of ideas. Already I am speaking to fund managers in the US, exchanging ideas and
looking forward to meeting them. It is not just hearing the speech, it is the entire experience around
Berkshire which is very important.

One always has questions about the US as an investor because most of the things we have learnt
about investing have been learnt from the great practitioners in the US and now that country is
talking about passive investing as being superior to active, is a big conundrum in my mind.

I sincerely do not believe that passive investing per se is superior to active and I want to challenge
their thought and I am going with a very open mind and probably also to explore whether we can
come up with ideas in the US because as you know my fund focus 35 can invest in the US too.

Apart from selfies, which I am sure a lot of you would be taking, what more is in store for
the CEO and for the other team members who would be accompanying you?

Aashish P Somaiyaa: So one of the key things about our industry in the last many years is that
there is lot of focus on product and performance and my whole learning is that performance is an
outcome.

If you buy the outcome, you are not assured of a sustainability. The last four years, we worked very
hard to talk to the market that look at the process because consistency and quality of input is what
results in output. We all worked very hard to educate people on our process and philosophy and I
am taking actually some of our partners along so that they can understand why our investing style
or philosophy is influenced by Charlie Munger and Warren Buffett.

So from my perspective it is very important that people see where the thought process comes
from, they hear a lot from Gautam, they hear a lot from our Chairman Mr Agrawal but I would like
people to do a more educative kind of trip along with us and see where we learn from the source
itself.

https://economictimes.indiatimes.com/markets/expert-view/buffett-is-underperforming-big-time-for-last-10-years-raamdeo-agrawal-motilal-oswal/articleshow/5845
4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

With each AGM the world also changes a bit and the last 12 months the world has changed
a lot. Now aside of talking about the micro environment, the macro environment is a
geopolitical environment which is rapidly changing. We just had the announcement of snap
polls in the United Kingdom in June. Do you think that this time around, Buffett perhaps
might be pushed to give comments on that because that could be a bit of an uncertainty?

Raamdeo Agrawal: He is always pushed for a serious view on politics and all this macro stuff.
Last year, it was on the eve of this Trump election and clearly he had very strong views against
Trump and for Hillary but he avoided speaking out. I do not think in these AGMs, he will talk about
that. The whole world is watching. He generally avoids and he does not guide the investors to give
too much of weight to the entire macro stuff.

Even in 2007, I was there before the collapse and he was not that bearish. People asked him as
you can go and check the notes of 2007 and there he was asked what do you think about this
problem had which started surfacing. He was asked what he thought of this. He said the economy
is growing very rapidly and the new horses required are very high and somehow this thing will be
taken care of and the ultimate collapse for US was six months ahead.

So even with his knowledge, his connectivity, he is not too great on macro. His real insights are on
the investing and looking at the companies, looking at managements, human behaviour, investor
behaviour, market philosophies, those kind of things. Like right now they are buying these half a
trillion dollar companies. When he buys, he sends $5-$10 billion like change. He does not talk
anything less than a billion, so when he is buying anything meaningful, in a $3-billion balance sheet
you buy 5%, you buy $15, $20, $30 billion and he is a not a 20-stock portfolio guy.

His incremental allocation is sitting on $100 billion of cash in hand that was last quarter. Maybe, it
has become $110 billion. His cash in hand is very large. Again another interesting thing will be
what he plans to do with his $100 billion of cash hoards. He says his guns are loaded he is looking
for elephants. So those kind of things he talks about.

At the last ,AGM he was questioned about the negative interest rate regime He made a
comment on that. The negative interest rate regime thankfully is behind us but I am sure in
this AGM, big questions would be centred around why he has bought airline stocks, why is
he going out of core competence. He has always maintained that technology is not his core
competence, Bill Gates is a very dear friend but he has only bought 100 shares of Microsoft,
he has bought IBM which I have been told is his second largest holding now. Is the entire

https://economictimes.indiatimes.com/markets/expert-view/buffett-is-underperforming-big-time-for-last-10-years-raamdeo-agrawal-motilal-oswal/articleshow/5845
4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Buffett approach of investing is changing because he is selling Wal-Mart as he is worried


about Amazon competitiom.

Raamdeo Agrawal: There will be intense questioning on airlines also. It is very exciting in India.
We had our own version of all the stocks listed here. It is one of the fastest growing markets in
airlines but Indigo and all have not made serious amount of money after the listing. So what are his
thoughts? I saw one of the interviews where he was being asked this but he did not give a very
good answer there. I expect some more fireworks to come here because people keep asking till he
gives the answer to their satisfaction.

Do you think Buffett is the best investor in the world?

Gautam Sinha Roy: Going about the track record that seems to be true. One thing about investing
is that the length of the track record because many people obviously have better spreads, a three
year spread, a five year spread but many people also got killed. The biggest of the names had a
huge mistake and went out of business. So staying in business for the longest time and without
having that kind of markdown is the hallmark of the guy.

So Buffett is the best investor in the world and whatever he has invested and his success
rate is great. You have bought Berkshire Hathaway, a stock you adore and you admire the
Buffett style of investing. Yet in a individual capacity and a fund capacity you sold
Berkshire Hathaway. Is not there a conundrum there?

Raamdeo Agrawal: My portfolio target is to make 25% for my customers. I can personally be
emotionally connected, I may worship him or I may be a bhakt but the portfolio objective cannot be
compromised.

We did buy a 5% of initially. The amount was small but still it was $10-15 million. I spent one full
day researching Berkshire Hathaway as an investment then I changed my role and I actually did
the research/ I went and met a guy who is one of the largest holders with $3-$4 billion worth of
Berkshire Hathaway stocks. His job is only to take care of Berkshire Hathaway 24x7. Saturday,
Sunday you will get appointment to talk to him. I went and met with him with a help of a friend and
then we discussed and we figured out that best possible growth rates cannot be more than 8-10%
if you are lucky. Then I said the gap is too much for me and so I must not put my money and then
we withdraw that.

So that was really an investment decision.

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4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Raamdeo Agrawal: It was purely an investment decision.

If you two are given a chance to ask a question to Mr Buffett or Mr Munger, what would that
be?

Gautam Sinha Roy: This time he has written on shares he purchased and you are seeing IT
stocks which are not going up but the share purchase seems to be the main theme there. He has
said that “I would like managers of companies to approach the share purchase of their own
company in the same way that they will approach the share purchase of another company that is
merger or a takeover. So dispassionately get this target price in mind.” That is a brilliant point.

I would ask him to talk a little bit more on that because every share purchase is not a good thing for
minority investors especially in companies which are definitely going to degrowth from here. What
if you could have the company you could have bought more shares with the same amount of
money once the price comes down? That is a very important perspective for the minority investor
and I would like to hear more about that.

Aashish P Somaiyaa: A couple of areas actually since he sits on hoards of cash and then there is
pretty much zero interest rates and he himself complains about the fact that there were not
investment opportunities. On the other hand. he writes a lot about that he is blessed to be born in
America and stuff. So the point is if you have $100 billion of cash and yet you say you are blessed
to be born in America, why do you not start investing outside? That is one area, why does not he
invest outside and where would he like to invest if he invested outside the US?

The second point is about active and passive investing. What I read into his statements is that if
you are not Warren Buffett you better go for passive investing. I do not think he is marketing
passive. I would definitely like to ask him for a clarification of that.

The other thing that struck me was that he has always advocated buy and hold for ever.
Seldom does he take sell calls. Do you think that applies really well to an emerging market
high growth market like India because their new business is coming every now and there
every 10 years. The knowledge base gets upgraded. He himself has realised that in the last
10 years, may be 2005 onwards new opportunities, new investment ideas came through.
Does the buy and hold forever seem realistic in today’s market environment?

https://economictimes.indiatimes.com/markets/expert-view/buffett-is-underperforming-big-time-for-last-10-years-raamdeo-agrawal-motilal-oswal/articleshow/5845
4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Raamdeo Agrawal: A very important point. Here also discussion will come because he is
changing his operating manual. What he is saying is that the investment portfolios are of two types
-- one is marketable securities, the securities which are available for selling and ones which is for
actually forever . The businesses he has bought forever like say a GEICO and those kind of things
are the operating business which are not listed.

But then there are listed stocks like Washington Post, American Express, Coca Cola, Wal-Mart or
now Apple. They are all saleable. He is saying there is a mistaken belief he has written that. There
is a mistaken belief that any of this marketable securities are for selling actually. They are not
available. They are being held forever. So he is correcting that mistake and he is saying that it is
available for selling.

He may say he is not going to hold it for one year, two year, three years but clearly he is saying
that he is also feeling because he is underperforming big time for last 10 years. He has
underperformed the benchmark reasonably by a good margin. Unless he corrects some of the
stocks which are like Wal-Mart, which has been hurt by technology. Wal-Mart is the ultimate
franchise but today Wal-Mart is being hit by Amazon and all this resellers on the internet. So
clearly he has taken that view of this forever investing, particularly if you are buying marketable
securities at full price, he is rethinking on that.

If I look at the Buffett portfolio 70s, 80s, 90s, during the TMT boom and the bust, he
underperformed but then he recovered. But if I look at the current stack of the top five or six
companies in terms of market cap, he has not identified even one, he never identified
Google, he never invested in Microsoft, Apple he has jumped when Apple has become one
of the most valuable companies in the world. The companies where he is invested in are
facing challenges. For example, Wells Fargo, Coca Cola on the entire sugar issue. Is he
losing his touch?

Gautam Sinha Roy: The growth is coming largely from technology in California and this classically
has been the region where he has never focussed on. If you are not focussing on the area which
has become the largest in the world, largest value creator, wealth creator in the world, naturally you
are not going to be able to participate in that and somewhere his buying of Apple is also an
acknowledgement that yes this is an area which is there to stay and we have missed out on it.

Remember in 2000 all the great investors were saying that tech will come down. That has
happened but tech as a business has only vaulted. It has leapfrogged from there. Tech has
become much more mainstay today in fact and we can also see that he is selling of Wal-Mart

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4/23/2018 Warren Buffett: Buffett is underperforming big time for last 10 years: Raamdeo Agrawal, Motilal Oswal - The Economic Times

because of and tech nothing else. So the importance of tech is being recognised by him. He was
not fishing in the pond from where the biggest fish came.

Raamdeo Agrawal: But one correction there. For last 15-20 years, he is not buying minority
stakes in the companies. He is buying more 100% stakes like in Burlington or whatever he bought,
he bought bulk of them on a 100% basis. Now his fund has become so big he is not going after this
$5 billion of monetary equation there.

Do you think India will figure in the the six-hour-long Q&A?

Raamdeo Agrawal: Yes, unfortunately it never came up that strongly that India is not being
discussed but we should be asking those questions, somebody should be from India or people like
us we should be putting those questions whatever we want to hear anything about India. He came
here four years ago and so he is clearly interested.

So he did not come back again he came in 2011.

Raamdeo Agrawal: But he should have investible opportunities here like insurance which is one
thing where they wanted to buy but nobody was willing to give 51%. One project where they could
have started big from the base that is not available and now he is not buying any minority stakes.
$5 billion will make waves here and for him it is nothing so…

The challenge of size when the AMC business started it was about Rs 1000 crore, it is about
Rs 12000 crore now.

Raamdeo Agrawal: Rs 20000 crore.

Are you going to be expecting any words of wisdom on how to approach in emerging
market investing?

Raamdeo Agrawal: In the six hours you do not know from where the insights will come and many
times I have seen he speaks whatever he feels like talking. The insights can be very different for
everybody else but insights are timeless and it can be about emerging markets, it can be about
investing, it can be about interest rate, it can be about anything. I do not categorise that from where
to get the insights just we should be able to hear it properly 100% out there.

https://economictimes.indiatimes.com/markets/expert-view/buffett-is-underperforming-big-time-for-last-10-years-raamdeo-agrawal-motilal-oswal/articleshow/5845
4/23/2018 Raamdeo Agrawal: Don't expect broad-based earnings recovery in next 4 quarters: Raamdeo Agrawal - The Economic Times

Don't expect broad-based earnings recovery in


next 4 quarters: Raamdeo Agrawal
ET Now | Updated: Apr 20, 2017, 11.38 AM IST
In a 2
Comments
chat
with ET Now, Raamdeo Agrawal, MD & Co-
Founder, MOFSL, says hopes to catch 15-20 companies in
the portfolio which will have good prospects and
good earnings growth potential.

Edited excerpts:
Don't expect broad-based earnings
recovery in next 4 quarters: Raamdeo What is your view on the entire government PSU space? After
Agrawal OMCs, do you see government taking up fertilisers?

These are clearly very big opportunities. These are huge monopolistic enterprises and they are
catering to essential needs of the farmers or some segments of the society. Business possibilities
are very high. However, the profit gets impacted because the bulk of their products are subsidised
and the government keeps the rates low. So the question arises how will these enterprises make
money for the shareholders? Also, since it is subsidy, the compensation to most of the
manufacturers are based on cost plus. It is very difficult to see the future of these companies and
the stock market is only about seeing the future. So you can never give high PE multiple where the
future of the companies are not certain.

You can make very limited amount of money despite high profits of the PSUs. Plus, the
government must deregulate with a very firm conviction that this is to be done irrespective of
whatever happens. Once the market gets confident on the new set of laws or new rules of the
game, it will rerate these companies.

How are you assessing the reform process? Are they playing on expected lines and
delivering as per the commentary?

Yes. The headlines have changed, the quality of commitment, the talk of the ministers, the
decisions taken, the pace of decision making, understanding of the problems everything is right. At
times, they are taking unpopular decisions which nevertheless are good for the people.

https://economictimes.indiatimes.com/markets/expert-view/dont-expect-broad-based-earnings-recovery-in-next-4-quarters-raamdeo-agrawal/articleshow/5827426
4/23/2018 Raamdeo Agrawal: Don't expect broad-based earnings recovery in next 4 quarters: Raamdeo Agrawal - The Economic Times

How would you map the FY18 earning scenario? The general consensus is that earnings
recovery is round the corner.

No. I am not that hopeful on a broad-based earnings recovery but select companies will do very
well and that is going to remain the trend of the market. For the next four quarters, the earnings will
be very sector or company focused rather than very broad based. We are hoping that we can catch
have 15-20 companies in the portfolio which will have good prospects and good earnings growth
potential.

In a market where it is difficult to find value, how are you putting your money to work?
Where are you investing incrementally?

Starting from January 2014, the flows have been very strong. But for the last two-three months, the
flows have become even stronger. March was month of very large flows. April is also shaping up to
be a record month. Now with the flows, the markets are also very high. My portfolio valuation
remains more attractive at the current level but the challenge will be to find new quality stocks at
reasonable prices. Quality stocks are there but finding them at reasonable price and putting them
in the portfolio in substantial quantity remains a challenge. But I still think we have enough ideas
where we can deploy current flow of investors’ money.

What is it that you are making of the risk reward currently for the overall market?

When the market goes up from say 8000 or 9000, your prospective return for one or two years get
impacted significantly. But for the guys who are coming for three to five or seven years, the impact
is minimal. It is not worthwhile timing too precisely whether to buy at 9000 or 8700 because the
NAVs are continuously moving up and out-performance is there.

In some schemes, the out-performance is as high as 15% per annum. Even if you get the bottom,
you may not get the bottom of the NAV. If the NAV of the scheme is higher, you do not get benefit
even if you timed it right. It is futile to time the market precisely and people spend too much of time
timing the market and eventually they end up buying at wrong price.

What is that new book which has caught your attention currently?

I am reading a very small book called Forever Investing. It is very close to the way we do things but
often in books, you find ideas which are better. In Forever Investing, the author is saying that all the
serious money in the world of the stock market has been made by the guys who broadly followed
forever investing. All Fortunes 500 guys including Buffett are forever investing. So Buffett talked
about forever if the company and management both are good. In that case, the typical holding
period is forever. That is from where the forever investing started. If you look at Bill Gates or Mark
Zuckerberg or anybody who is in the Fortune 500, they are all forever investors in their own
enterprises.

https://economictimes.indiatimes.com/markets/expert-view/dont-expect-broad-based-earnings-recovery-in-next-4-quarters-raamdeo-agrawal/articleshow/5827426
4/23/2018 Raamdeo Agrawal: Don't expect broad-based earnings recovery in next 4 quarters: Raamdeo Agrawal - The Economic Times

He is taking the cue from there and saying that every day flipping or buying too many stocks and
too frequently trading is not the way to make serious money.

https://economictimes.indiatimes.com/markets/expert-view/dont-expect-broad-based-earnings-recovery-in-next-4-quarters-raamdeo-agrawal/articleshow/5827426
4/23/2018 We have reduced holding in aviation as we have lost money: Raamdeo Agrawal - The Economic Times

We have reduced holding in aviation as we have


lost money: Raamdeo Agrawal
ET Now | Updated: Feb 28, 2017, 01.47 PM IST
0
Comments In a
chat
with ET Now, Raamdeo Agrawal, MD & Co-
Founder, MOFSL, says while Warren Buffett may be investing in
aviation stocks, the situation is different in India.

Edited excerpts:

" The economics in both the countries


is probably different but the dragging If you ever meet Warren Buffett, what will be your first
force in airline was the lower cost of
reaction?
fuel and consolidation. We did not buy
so much airline as much as IndiGo."

I will be speechless. I keep thinking what will I speak


Company Summary NSE BSE
to him if he has half an hour or one hour. I do not
Indigo -16.95 (-1.13%)
know what to ask him.

Motilal O… -0.75 (-0.08%) Why is he buying aviation stocks?

He has written so much. Literally everything is in the press and yesterday the three hour interview
was there in public. He is so open. There is nothing left which somebody else has not asked and
he has been so painfully clear in various forums, various universities in interaction with students.
There are a lot of Indians who go as a group and he has the celebrated Mr Ajit Jain. Please do not
avoid doing the trade, he said. Do the trade if you have to swap one guy. Please swap Ajit for me.

What Warren Buffett says besides his view on individual stocks, companies etc. it is like
going to a dietician. You know what not to do. He says make most of it when the world is in
panic as that is the time to buy. That is something that you also have been propagating.
There is nothing new in that, Do you think there could be some time when we could see
some sort of a panic bottom being hit?

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-we-have-reduced-holding-in-aviation-as-we-have-lost-money-raamdeo
4/23/2018 We have reduced holding in aviation as we have lost money: Raamdeo Agrawal - The Economic Times

You are anti Buffett you know…

Not at all.

You are starting with a question of timing the market. Just forget that. Investing ends with the
timing issue. You got to avoid the complete extremes when the market reaches and it reaches in
seven-eight years and from there, the market collapses. The index collapses everybody’s portfolio
also collapses. We are not in that kind of situation and by various measures whether it is IPOs or
valuations, whether it is earnings boom or some kind of excess in some segment, I do not see it
here. Our market cap to GDP is about 75%-80%. In this recent rally, it has gone up from 70% to
80% but I do not see that kind of euphoria. One of the broad measure for euphoria is when market
cap to GDP rises more than one and a half times. It was 1.8 in 2007. When we collapsed, our GDP
was Rs 45 lakh crore and market cap was Rs 75 lakh crore. What more do you want? It was 30
PE. Companies were valued, somebody would announce 5000 acres land have been acquired
somewhere and suddenly that stock will be up 10-20%. That kind of madness was on. When the
stock started moving away from the earnings on things like page views, land bank, those are the
signs of…

Are you saying that we are far away from that?

At least in India we do not have that. In US, yesterday, the government or somebody put a sell on
Uber and it promptly fell 5-6%. There is no earnings. They are raising money left, right and centre.
Of course it is a wonderful model, it is an innovation of the century but the stock market is about
earnings. We must not forget that while you can have a wonderful story, you need the numbers
and narrative to go together. When the story is wonderful and the number is yet to come, you can
build the stories.

That is why I asked because price is something you cannot be blind to?

You cannot be. Investing is all about the price but at the same time, if every day you keep asking
on every 5% move is it done, is it done, then when do you do it? In a bad market, it will collapse
further. So do not buy and in a slightly warm market you say is it done. So neither you want to buy
in day time nor in the night time. You just stay on the side, go and buy your fixed income.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-we-have-reduced-holding-in-aviation-as-we-have-lost-money-raamdeo
4/23/2018 We have reduced holding in aviation as we have lost money: Raamdeo Agrawal - The Economic Times

Since we are talking about Uber, for the first time in many years the number of people
travelling by subways has actually come down in the US and a lot of people attribute it to
models like Uber. But if we look at the letter, in many ways, in his tribute to Jack Bogle,
Warren Buffet has devoted three pages to this 10-decade old bet as well about passive
investing. It, however, ends here. Does that model work in a country like India right now?
Attribute it more to passive investing and less to active investing. Would that be different
for a country like India and for Indian investors?

You are asking the right person because I spent four years of my life trying to build a passive ETF
company -- Motilal Oswal AMC and we were ahead of time. The whole concept has not taken off in
India and may do do in another 10-20 years because unlike in US, almost 70-75% of active
managers are doing well here as there is a 50% management block while 20% or about one-third
is held by Indian institutions, mutual funds and retail investors. FIIs are 20%, DIIs are about 17%
and retail is about 13-14% or something like that. FIIs and DIIs are the smart lot compared to retail
and promoter groups.

So long as the promoter group is very large, active managers will do very well.

The reason why fund managers are struggling to outperform benchmark index is because –
a) there is a charge a fee and b) markets are becoming efficient. That could be the situation
for Indian markets as well going forward.

Yes. So clearly one is the fee structure. But first we have to be clear which place we are talking
about. In US, it is very competitive. Fundamentally all the active managers are competing with
themselves and they are a brilliant lot. So obviously 50% are likely to do worse than other 50% in
aggregate.

Second, hedge funds, by their very nature, are not seeking the highest returns. They are not long
only hedge funds. They are long short. When you do long short, what you are avoiding is the less
draw down. When the market goes down by 50%, what I have seen is that they want to be long as
well as short and market neutral in short. In that process, they might earn lower in terms of return
but volatility will also be felt less, This is the whole objective of being hedged. So on say 10-year
basis versus active managers or an index, the hedge fund guy is not doing so well. This probably is
understandable and on top of it, there is a 3-5% fee which comes on back of performance. When
there is no performance, there is no punishment. That really is the problem of hedge funds. The
downside is zero and upside is you participate all the way and 2% fee in any case comes in. So the
excessive fee charging from the pool is the source of underperformance and the competition.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-we-have-reduced-holding-in-aviation-as-we-have-lost-money-raamdeo
4/23/2018 We have reduced holding in aviation as we have lost money: Raamdeo Agrawal - The Economic Times

After making fun of the airline industry for years now, Buffett finally has bought into airline
stocks and I was watching Charlie Munger on global network and he said that we criticised
rail-roads a couple of years ago but now the airline industry is getting consolidated. So are
you secretly happy that you bought airline stocks and Buffett has also bought airline stocks
after you?

The economics in both the countries is probably different but the dragging force in airline was the
lower cost of fuel and consolidation. We did not buy so much airline as much as IndiGo. The size
of opportunity is massive even now but we did not make money. So we have not made any money.
We have lost money in IndiGo.

Is the stage set for aviation to make money in India? It is said there is very little probability
of crude staying above $60-65 for foreseeable future...

Predictions are of no use.

But you work with an assumption in aviation.

Yes.

So what is your assumption right now?

In India, low-fuel price means low ticket prices and that means high affordability. So in Mumbai-
Delhi route, if it is Rs 5000, X number of guys will come. If you charge Rs 10,000, then the number
of people who can afford will drop dramatically but your capacity has already been built and
capacity charge nobody is going to pay. So your operating leverage will work against you. It is a
very crazy business. There are a lot of moving parts in terms of fuel price, other competitive forces,
the capacity utilisation, at what price you are selling, what are the seasons etc- a lot of moving
parts. We have found it difficult to make a predictable model. Otherwise, cash flow is very good,
profitability is very good, managements are transparent. They are accessible but in investing what
you need, is there some kind of grip over the numbers?

Are you still holding on to InterGlobe?

We are holding on to some. We have definitely reduced this thing and we have lost money. That is
the bottom line.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-we-have-reduced-holding-in-aviation-as-we-have-lost-money-raamdeo
4/23/2018 There are multiple Apples in India as it is the fastest growing economy right now: Raamdeo Agrawal - The Economic Times

There are multiple Apples in India as it is the


fastest growing economy right now: Raamdeo
Agrawal
ET Now | Updated: Feb 28, 2017, 01.43 PM IST
In a 3
Comments
chat
with ET Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL,
says there will be lots of growth companies in India and you have
to figure out which one makes sense.

Edited excerpts:

Multiple Apples in India as it is fastest What is your one conviction – so to say the Applestock of
growing economy: Raamdeo Agrawal India ?

Do not get into that ...

There is no Apple?

No, no there are multiple Apples because see India is the fastest growing economy in the world
right now and it is going to remain so far next 10-15 years. It will probably accelerate further from
the current levels.

So there will be lots of growth companies in India and you have to figure out which one makes
sense. You have to differentiate between a good quality company and a bad quality company and
then growth is common factor. Once you do Q and G, that is where you will be able to find some
wonderful companies -- whether it is private sector banks, whether it is oil companies, whether it is
consumer companies or auto companies.

Maruti is expected to deliver some 20% additional volume this month. What I am saying is which
country has this kind of a volume growth in cars and predictably for many years to come and they
are putting up more and more capacity. China and India both we used to consume about less than
a million cars. In fact, India has a marginal higher consumption in 2000. Today China does
upwards of 20 million, India is doing 2.5-3 million. So can we catch up in next 10 years.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-there-are-multiple-apples-in-india-as-it-is-the-fastest-growing-economy
4/23/2018 There are multiple Apples in India as it is the fastest growing economy right now: Raamdeo Agrawal - The Economic Times

Buffett has bought Apple. His logic is he found it ubiquitous and realised the fact that Apple
has become a consumer brand now. But along with Apple, he also owns IBM. Does this
logic count in India?

One of the logics he follows does not much count for investing in India. We look at only the
current earnings and earnings growth and the PE multiples here but in the US, the buyback is a
very important part of it, if there is free cash flow there. It is a guarantee thing. If the growth is not
there from the current levels, so the $40-$50 billion whatever they are earning, they will end up
buying 5%, 6% of the stocks every year. If you are buying at say 10 PE, 10% is earnings, another
5-6% you can gain by way of buyback.

So buyback along with modest growth and current low PE, these companies are also available at
very low PE multiples. So low PE multiple, high free cash flow yield and very predictable buyback
opportunity are the things which are working.

In IBM also, the pitch is same that they will keep buying back. IBM is also at an all time high but
what is happening is the moment you open, Buffet gives a 15-year history of performance and
there he talks about the market matching the intrinsic value growth of the company. So intrinsic
value has grown at 19.5% or something like that. By intrinsic value, he means book value, the first
indicator of intrinsic value is a book value.

So book value over 52 years ago when he bought at 1967 or 1965 at $17, is now $172000 or
something. So it has compounded at the rate of 19.2% and the stock in terms of listing has given
about 20.5%. Basically he is saying that market moves in tandem with the intrinsic value change.
In the short run, we can be a bit confused but in the long run, it is a very predictable machine. The
pace of increase in your intrinsic value is going to be the pace of your return in the stock that is one
message.

Second is that right now, his net worth last year has grown by around 10.5%. He is saying that now
he has become so big that he cannot grow his intrinsic value by more than 10% or 11%. That we
realised four-five years back when I was having the stocks in my portfolio. I tried from all sides with
best of my understanding, can he do 15-20% ? It looked almost impossible because his intrinsic
value cannot grow by more than 8%-10%. So his ROEs are also less than 10% right now. The only
thing left is that he is holding about $100 billion worth of cash or cash equivalent for quite some
time now and he is hoping some day there is again going to be a complete collapse in the market.

That is why he has talked about two types of fears. There are two types of fears; good fear and
bad fear like cholesterol. He says you should not forget two things, a) why fear is being spread?
Fear is your friend as an investor which helps you with bargains; b) personal fear is your enemy,
public fear is your friend because it gives a cheap stock. So he is saying you should not be fearful
in the market and must know the underlying value of the stocks you are purchasing. The problem
comes from not knowing the underlying value and only focussing on the price. So, you should be

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-there-are-multiple-apples-in-india-as-it-is-the-fastest-growing-economy
4/23/2018 There are multiple Apples in India as it is the fastest growing economy right now: Raamdeo Agrawal - The Economic Times

fearless irrespective of the market levels.

Let us look at what Buffet is trying to address. He is trying to buy stocks when they are
cheap. He is trying to buy companies where cash flow predictability would be huge and he
is trying to buy companies where you know that the future cash flows will be given back to
shareholders. I get a sense that Indian IT companies are embarking on that same pitch.
These are good, well-run companies, going through a cyclical downturn. They are cheap.
PE multiples are just north of 10-11.

I think one of the main thing is he always looks for unbreakable franchise, the companies with
massive edge. Everyone of us has iPhone. Right from say Federer to Buffett to you, me,
everybody has the same phone, same colour, same features. It is very rare to find any other
consumer product like this and it is addressing almost the entire planet earth. Affordability is a
different issue and day by day everything is coming into the phone. If you miss out on a wallet, it is
okay but do not miss out on your phone.

You have bought global stocks in the past. If I look at your declared portfolio in 2013 or 14
you had Berkshire Hathaway. Would you be looking at buying something like an Apple or an
IBM going forward?

Not these two stocks. Maybe Apple as I understand it to some extent but IBM, I do not. It is a
question of understanding and your conviction and my style is QG, his style is Q&P -- he wants to
buy high quality, free cash flow with very low price because he is sitting on $100 billion. For him to
get to deploy that $100 billion is the biggest challenge and still $30-40 billion is flowing and now
one of the big change he has done is he has talked about marketable security.

We all think that Buffett is about holding forever if you buy anything. So he has categorised
investments into two categories – marketable securities and permanently strategic investments. He
is saying that in marketable securities, please remove your misconception that these things are
forever. Clearly he is realising that because of internet or whateverm over a period of time the
companies are becoming challenging, obsolete and he has to chuck out some of the companies.

So he is preparing the ground and in his operating manuals, he has made those changes. So
clearly that is another big one where holding forever that notion is taken away as far as marketable
securities is concerned. Marketable securities you cannot do this, I mean you have to think about
selling at some point of time. Every company has a limited lifecycle and at the peak of the lifecycle
or close to the peak of the lifecycle if you are not exiting….

You do not sense Indian IT is close to that stage, do you?

Not all the companies. My understanding is limited. I am still struggling to figure out how it will
shape up the next round. They renewed two-three times. This time the digital economy is
becoming bigger. I have to understand how will they come back because digitisation is happening

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-there-are-multiple-apples-in-india-as-it-is-the-fastest-growing-economy
4/23/2018 There are multiple Apples in India as it is the fastest growing economy right now: Raamdeo Agrawal - The Economic Times

very rapidly. We will need a lot more services but probably different type of services are needed
rather than what we are doing right now. So that challenge is there.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-there-are-multiple-apples-in-india-as-it-is-the-fastest-growing-economy
4/23/2018 In insurance, public sector will lose influence like in banks: Raamdeo Agrawal - The Economic Times

In insurance, public sector will lose influence


like in banks: Raamdeo Agrawal
ET Now | Updated: Feb 28, 2017, 02.22 PM IST
0 In an
Comments

interview with ET Now, Raamdeo Agrawal, MD &


Co-Founder, MOFSL, says there is a very strong case for having
private sector insurance companies in your portfoliothough right
now they look to be pretty expensive.

Edited excerpts:
" We will always have 20-21 stocks. If I
add three more stocks, three have to
be chucked out."
Warren Buffett has spoken a lot about the small global
acquisitions that his teams are doing. He praised
his two fund managers too. But he spoke
Company Summary NSE BSE
extensively about his benchmark business which
SBI 1.25 (0.52%)
is insurance and said that while they have grown
at a disproportionate rate, the growth is still to
Indigo -16.95 (-1.13%) stay. Is insurance by and large a uniform
business across the globe? Should the same
model be replicated across the world? In India the sector is just starting to kind of take
shape and form. Do you think what Berkshire Hathaway did with its insurance business
maybe not at the same rate but some of the Indian insurance companies could do that, is
the marketlarge enough for that?

In insurance, you have two types – one is life insurance and second is causality and property and
all. Most of these are in public segment in India. There are some which are listed like Bajaj Allianz,
But that part is very predictable and it is a simple business.

You take the premium today and you claim ratio is there, you invest and make money. So it is a
very settled thing. It is a one year, two year, three year kind of situation. Whereas in life insurance,
you buy it for 25, 30, 40 years. A 10-year-old takes it for 60 years. So all the profits are based on
estimates. There are a lot of futuristic assumptions and all. So there what the management is
saying in terms of data and what has been their track record in terms of achieving that whatever
position they did that is very important and scale is of utmost importance. So reputation and scale
are important.

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-in-insurance-public-sector-will-lose-influence-like-in-banks-raamdeo-ag
4/23/2018 In insurance, public sector will lose influence like in banks: Raamdeo Agrawal - The Economic Times

We have Max HDFC, ICICI Pru and SBI NSE 0.52 % Life which are clearly in different leagues,
different legs and in India one of the more added advantage is that there is a value migration from
complete 100% PSU LIC to the private sector.

As we go along, like banks, the public sector will keep losing the edge and as prosperity increases,
the acceptance of insurance will increase. We are a grossly underinsured country. A lot of these
forces, demographic profile, the rising income levels and the value migration where one of big
player is vacating the space and within private sector also it is consolidating, will make for a very
strong case for having private sector insurance companies in your portfolio though right now they
look to be pretty expensive.

The government is looking at making GICs of the world public so the sector is getting
created. If you have to summarise your AMC’s activity in a simple newsletter form,
explaining that what you did last year, what you bought, what you have sold and where do
you see growth for the next two or three years, how would do that?

We keep writing every quarter, we call it Buy Right Sit Tight Newsletter, BRST newsletter.

I do enjoy reading it. That is why I am asking you. If you were to write it for what you did last
year and what you propose to do, you would be doing for the next two or three years?

My thoughts are shaped by in investing in my own wealth creation studies. If you go through the
formula, what really matters is to create an edge because you have to create advantage to beat
the market, okay. One is that you have to beat the market and you have to beat the peer set. To do
that, you have to create edge in understanding the companies, because price is available to
everybody, there is not much of advantage in that.

There are two types of advantages you can create for yourself; one is the information advantage
and second is analytical advantage. Now information advantage, thanks to internet is just closing
down one by one. Yet, there is a lot of merit in meeting the management, meeting the ex-
employees, meeting the dealerships and really looking at the product. Of course, the information to
some extent is going to help but that edge is clearly coming down. Earlier, insider trading was
there, after one year or 15 months, you used to get the copy of a balance sheet, today you are
getting electronic copies right there.

Information is available to all at the click of a button.

Some of these channels are doing a wonderful job of reaching out to the management, asking
tough questions. So the information side is done but analytical side still remains. The prowess of
the people who have the frameworks, how to look at competition, how to look at terms of trade,

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-in-insurance-public-sector-will-lose-influence-like-in-banks-raamdeo-ag
4/23/2018 In insurance, public sector will lose influence like in banks: Raamdeo Agrawal - The Economic Times

how to look at demographics. So there are a whole lot of things how to look at quality, how to look
at the management, what are the characteristics you should look for in the management and how
to look at valuation, what is the mathematics of compounding.

If you ask me one thing, one title they have not given to Warren Buffet is King of Compounding. He
is the ultimate guy in compounding.

But a Buffet newsletter also talks about what he has bought and what he has sold. What will
you say if you have to summarise the part two of your newsletter?

We will not say, he is not a regulated guy.

I am just trying to understand the thought process, for example, you can give me a thought
process of the construct of your portfolio for next three years in terms of a weightage, you
can give me a sense of where are the pockets you are looking at reducing your ownership. I
am sure when you look at a portfolio it has to be combination of both buying and selling?

We will always have 20-21 stocks. If I add three more stocks, three have to be chucked out. So the
portfolio is very static. If you look at the portfolio six months back and today, you say Raamdeo you
have done nothing and why have you charged me fee? But actually, there is a lot of change. One
or two names will change and allocations will change. Allocations are very dynamic, we can go
from 3% to 9% and 9% to 3%. These things keep happening which is as much as selling.
In IndiGo NSE -1.13 % , we started with 9.5% on day one, We were so bullish we bought literally
everything and then the stock just flew. There are a lot of very interesting companies which are
getting listed in the next 12 months. For the
the first time, we will get to see a retail company going public.

You will get a lot of no-brainers. This is of course hyped up big time so you have to pay the price
for the hype,. But the world’s most promising stock exchange is coming up with a very large IPO,
hopefully in this year and then many more little less known companies but probably they will have
franchises which are as powerful. We have to figure out where are the strong franchises there and
where is growth ahead because all the new banks and a lot of MFI banks, will also come up.

This is even more promising to me than anything where you have an edge in terms of
understanding the business and understanding the management.

Business broadly everybody understands, but understanding the management and comfort with
the management and what the management can do is very important. Ultimately, it is the
entrepreneurs call’. What is Mukesh Bhai doing? He is building one of the world’s most promising
telecom companies out of nowhere. If somebody is not committed to building something, how will
one build it?

https://economictimes.indiatimes.com/markets/expert-view/motilal-oswal-financial-services-in-insurance-public-sector-will-lose-influence-like-in-banks-raamdeo-ag
4/23/2018 Union Budget 2017: Best budget is if you do not change anything, do no harm, implement well: Raamdeo Agrawal, MOFSL - The Ec…

Union Budget 2017: Best budget is if you do not


change anything, do no harm, implement well:
Raamdeo Agrawal, MOFSL
ET Now | Updated: Feb 01, 2017, 12.38 PM IST
0
In a Comments

chat
with ET Now, Raamdeo Agrawal, Joint MD, MOFSL, says right
now the world is being run by the bottom of the pyramid. It is a new
trend, a new political compulsion that is ruling. All this will reflect in
the budget making right now.

Edited excerpts:
As far as the stocks are concerned,
this long-term capital gains tax is not
going to impact at all but IRR or return
What is your sense – will you whistle in the dark or shoot in
of the investor will definitely change.
the dark?

Company Summary NSE BSE


I do not know. This year’s budget is very unique in a
ICICI Bank -2.75 (-0.97%) sense of the backdrop which has been created. The
Brexit happened four-five months back, Trump
HDFC Bank -20.15 (-1.03%)
presidency has happened. These are things which
Axis Bank 0.50 (0.10%) are going to redefine for sure and then the
EXPAND TO VIEW ALL immediate elections which are there. So all of these
things and the big demonetisation which is what we
are still recovering from. I would definitely like to see how exactly this finance minister straddles
through. The aspirations of the people at the upper end from the business and corporate side and
on the other side how do you balance the needs and pulls of one of the pyramid because right now
the world has been run by bottom of the pyramid. It is a new trend, new political compulsion or
whatever you can say that is ruling. All this will reflect in the budget making right now.

What could markets happy? Three things that the markets will focus on which will please
the market or derail this amazing pre-budget rally that we have seen?

Two-three things. On expected lines, what is the timetable for corporate tax cut?

https://economictimes.indiatimes.com/markets/expert-view/union-budget-2017-best-budget-is-do-not-change-anything-do-no-harm-implement-well-raamdeo-agra
4/23/2018 Union Budget 2017: Best budget is if you do not change anything, do no harm, implement well: Raamdeo Agrawal, MOFSL - The Ec…

Do you think markets would be happy if get a sense that from FY18, the tax rate could be
cut by at least 2%? Is that 2% important?

The market is a wonderful machine which can discount the entire future, forget two-three years.
Two-three years is nothing. So, in my spreadsheet, next year’s profit of all the companies will
change the moment you say that this time 30% is 27.5% and year after that it will be 25%. That
can make a huge difference.

Second is dividend distribution, we have talked about it so many time. It is triple taxation. I have no
suggestions for them to do what they want to do because it is a very sensitive subject and it is
believed that the rich must pay more. I respect that people must pay more taxes but it distorts the
capital allocation in the corporate world. So are they going to look at it if at all? I do not expect
anything. What will really excite the market is dividend distribution which is going to be very long-
term impact. I mean not only the corporates but actually the shareholders will be very excited as
well. In any case, they are very excited to invest in the market but this can actually give a booster.
Second is corporate tax and then third and there is so much discussion about long-term capital
gains tax. If they do not do anything that will be the best because there are so many changes. The
best budget is where there is no provisions at all.

Best budget is that do not change anything, do no harm, just remain status quo.

And implement well.

All of us are working with the assumption that the corporate recovery will happen. The
corporate recovery is getting delayed and now it appears that on the investment side it
could get delayed by another two-three quarters. What can this budget do to ensure that
external pressures are minimised because IT and pharma will not be firing full cylinders.
Demonetisation will have impact on consumption. The only thing you can control is now
government expenditure and the revival of investment cycle or earnings which has not be
taken off.

But the government has limited role to play on that count in the sense that for doing anything in
economy, you need two things: one is the money, that comes from the taxes. Tax to GDP is very
stuck.

The economy itself is slowing down or it is at 6.5-7%. So the amount of money in the hand of the
government is very limited. Now the best thing government can do is the power of the sovereign,
making the business life easier, the ease of doing business which has been extremely well, this
government has taken right from beginning to ease the business doing environment and the
entrepreneurs are wonderful community, they will create the jobs, they will create the economic

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miracle.

No country is built with a complete strife between business and the government so you have to
bring somehow the trust between the business and the government and work together.

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What can the FM do for various sectors? There is talk that there is going to be introduction
of a scrappage policy for vehicles over ten years old. That could be a big boost for the likes
of a Bosch or for that matter Ashok Leyland as well. Are these themes that investors should
look at right now?

Obviously.What are the specific, industry specific provisions they come out with which has been
represented by the respective associations that of course will come in bits and pieces but the big
thing is strategically how do you… see the real smartness of a finance minister or government is to
straddle the deficiency of the resources and go for the big one. Take for example, PSU banks, How
will he solve it?

So how do you think he would?

I do not know. We are here. In next one hour you will come to know. So that is a big subject
because your banking system has to be healthy, at least 70% of the bank system…

Do you think there is tailwind for HFCs?

Yes, see like IT has headwind. They had 20 years tailwind. Now it is headwinded and regulatory
headwind, now I am not saying anything but HFCs have the regulatory wise and the demand wise
from every aspect of it rate cost is lower, your demand is very, very long-term demand. There is a
very healthy competition, very healthy regulator so I think it is a very unique opportunity.

The banking numbers do not inspire too much confidence. Private corporate banks are
suffering like Axis Bank, ICICI Bank. What is going on with some of these so called A grade
private banks?

Any bank which had very large corporate exposure, particularly large corporate exposures across
the industries are suffering. The phenomena with which PSU banks were suffering very clearly,
They are not only exposed to that particular segment, they got exposed very badly to that segment.

Even if you are very judicious and you work with a lot of caution because of the exposure to that
particular segment, you are suffering from that particular phenomenon. One of the biggest reforms
you should be looking at is what the FM does for the entire banking system, more particularly for
recapitalisation or revival of PSU banks because that is backbone of the economy. We definitely
need this.

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I want to mark IndiGo as a stock and when we say IndiGo the man to look to is always
Raamdeo Agrawal. I am not going to get into stock specific comment but what amazes me
about the Indian airline sector is the sector is growing, the sector is growing at 20% which
means rule of 72, it doubles in about 2.5 years. Everything is going in favour of airline
sector but where are the numbers?

Stunning. I mean 42% of volume growth, 15% yield decline…

Is there something which we do not understand about the way Indian aviation is working?

I think that the first year profits with 15% net margins is the culprit. The industry is trying to set it
much lower to may be single digit 8-9% because 15% is not sustainable because the whole lot of
competition will come in, unhealthy competition will come in. There is a very deliberate attempt by
the management to execute it flawlessly but bring down the net margin to more like 8-9%.

If long-term definition is changed from one year to two years, it will be applicable to PMS
schemes and mutual funds as well. Is that a deterrent for someone who is here for a year,
maybe for one-and-a-half year and could that change the cost of transaction, cost of capital
for mutual funds?

Mutual fund does not get impacted because mutual fund is protected from all sorts of taxation. If
you are holding mutual fund for than a year, in that case you are protected from the capital gains
on mutual fund units also.

Will that become true?

I do not… see one of the things is that stocks do not know who owns it and what is the tax
structure. So if stock price is determined irrespective of what are the capital gains norms….

Trust me we at ET Now know that who are the good investors and what stocks they own so
at least I can assure you on that at least.

Yes so clearly if you are looking at say price of Reliance or HDFC or HDFC Bank, you are not
going to ask what is the long-term capital gains tax. It has nothing to do with that. What is
earnings? What is earnings growth, what are the discounting, how long this earnings are going to
continue, those are the factors which are important. So, of course, there can be knee-jerk reaction
because are they going to allow it for everybody who bought it earlier so called grandfather, for the

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4/23/2018 Union Budget 2017: Best budget is if you do not change anything, do no harm, implement well: Raamdeo Agrawal, MOFSL - The Ec…

people who bought it till date will it be one year long-term capital gains tax and the retrospective or
forward so those are the issues which might determine some amount of selling but the guys who
are buying or selling they will again come back to buy. Net-net, on a month basis it does not really
matter.

As far as the stocks are concerned, this long-term capital gains tax is not going to impact at all but
IRR or return of the investor will definitely change.

Is it too early for you as an investor to buy telecom stocks even though consolidation is
about happen?

Too early.

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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

Raamdeo Agrawal's market mantra: Buy a good


company & hold it for a long time
ET Now | Updated: Jun 18, 2017, 01.10 PM IST
2 In an
Comments

interview with ETNOW, Raamdeo Agrawal, MD &


Co-Founder, MOFSL, talks about Warren Buffett, PE explosion and
his top market mantras. Excerpts:

What is your biggest takeaway from Warren Buffett meet?

Raamdeo Agrawal: This time what he said about the internet


I am sure at some point India will companies that top five companies in the world probably — they
produce its own set of internet
are together almost $2.5 trillion or 10 per cent of the American
companies and ecommerce
market — do not use any capital. Times have changed. So, the
companies.
whole concept of capitalism where you worship capital and focus
on productivity of capital is gone since you do not need any capital.
This is a different world and India has not landed there. I think we are headed towards that, and I
am sure at some point India will produce its own set of internet companies and ecommerce
companies.

NSE BSE
Speaking of India, I was going through some of
Company Summary
the articles and you have described Narendra
Infosys 9.25 (0.78%) Modi as headmaster for India. But he is taking us
places really. So from a macroeconomic
Wipro -0.70 (-0.23%)
standpoint, how are you looking at the kind of
HDFC Bank -20.15 (-1.03%) progress that we have made, the kind of reforms
EXPAND TO VIEW ALL seen in various sectors such as infrastructure
and banking, which have seen quite a bit of a
thrust?

Raamdeo Agrawal: It is like a school where you do not have a headmaster or principal and then
the whole classroom goes into chaos. I think it is a very chaotic country even now, and all sorts of
problems are there, such as NPA. When the boss is not there, everything goes haywire. I think in
various aspects of it, whether political, social or economic, there is so much of work in progress. So
I am quite sure at some point of time things will start suddenly happening. We are waiting for that
day when India takes off.

I mean of course we are very stable growing at about 7%-7.5% but when will that great moment
come that we get into leapfrog into 9%, 10% and for a decade or so we grow at double digit or
something like that. So there is all kinds of preparation is on and I am not an economist to figure
out so I think still things are slow and earnings, I see stock markets guys so I look at from a stock

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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

market point of view right now we still see earnings stuck four years back at Rs 400 for Nifty still
around 400 only plus minus 10-15 bucks. So I think that moment is about to come everybody is
hopeful and that is why what is happening is before the earnings explode everybody wants
earnings to explode but I think what is going to happen is first PE will explode and then earnings
will follow.

So when that PE explosion happens you think we will go well past 10000, are we preparing
the base?

Raamdeo Agrawal: Yes, of course I mean we are very close to that it is not very far so…

Well past something 10000 almost becomes a base for us then.

Raamdeo Agrawal: Everything will become base I mean I have seen this market going 300 times
from 100 Sensex to 31000 in my lifetime so we are going to go 10000 Nifty in very shortly and
even 100000 Nifty also do not ask me timeframe so these are all going to happen just if you took
15% compounding you do your numbers I think it will come through.

Share some of your pulse of wisdom to help us become like that I mean because you have
also said that market is a friend of good stocks and enemy of bad ones so which are the
good stocks that you like?

Raamdeo Agrawal: Now it is a difficult question in the sense that see what happens it that you
end up buying lot of junk when I started my career in 1987, 1987 we started Motilal Oswal. I started
buying stocks in 1980 so till about 1994 I used to think I am very smart guy and in my 10 crore
portfolio I had 200 stocks more than 200 stocks all sorts of junk were there, some good stocks
were also there. Then I took one after I read Buffett first time I cleaned up the portfolio and I had
only 15 stocks that very year my portfolio doubled. So what happens is another thing is a power of
compounding, power of compounding works over a period of time I mean one-year 25%, second
year 56%, third year double, 10 years 10 times, 20 years 100 times, 30 years 1000 times and it just
happens.

So you have to allow that lever of time and rate of growth but we are so impatient with the market
that we just pluck the whatever fruits come very quickly in one year, two years or just whenever it
doubles people just take the profit and they go out and that is why you see all the rich people in the
world top 100-1000 guys they all made up of one single stock what they have built say like so
today I mean in 30 years, 35 years we have made about what personally between me and my
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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

partner I would have made about 1200-1300 crore from our personal savings but actually this
17000-18000 crore we have built in Motilal Oswal so that is one single stock because we had no
option to sell and that is how you and we had also bad time.

In 2003 we incurred loss for a year or two typically if I had a public market portfolio I would have
sold it but today what is the value of the same thing so holding on for long period of time a good
company is most important to have. Buying good company is very important and holding it for long
time both are important.

So first how does it feel to be a billionaire in this market?

Raamdeo Agrawal: As I said this is a coming for as a billionaire.

But a more sustainable one?

Raamdeo Agrawal: Looks like it all depends on what you guys do.

And how can investors who are watching you right now especially given the fact that the
domestic investors profile and strength in dominance in the market has gone up like a
multi-fold over the course of the last two years how can they aspire and make their dreams
come true to become billionaires, if not billionaires, millionaires in the market?

Raamdeo Agrawal: Actually this market really allows you to be a billionaire I mean you have to
put your head down do not allow the billion to get into your head, look at your net worth this is
about market cap not your net worth so do not mix these two things. My net worth is only may be
1000-1200 crore and not even that much I think just about that much so it is not billionaire or it is
like that so because I cannot touch my billion.

It is paper money.

Raamdeo Agrawal: Yes, so to make real millions in the market, first come to the market. I mean
most of the guys I meet, yesterday also I met so many of them in Bangalore and all, people are
scared of stock markets. There are lot of savings. One guy I met, he just buys fixed deposits. He is
scared of that income tax officer will trouble him for assessment of something like that. I said no
you buy mutual funds, you buy stuff.

But, people are changing.

Raamdeo Agrawal: Yes it has changed completely but he is in old shape. He is 73-74. So one has
to go out and figure out and you have to take… I mean you cannot learn swimming unless you get
into the water. You can keep watching YouTube and whatever tube you keep watching, you cannot
learn swimming. So you have to get into the water and there will be somebody to help you out and
there are so many of them right now and…

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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

Are HFCs the area where people can really make the big bucks because we have seen how
the housing finance companies and it is like just the entire gamut across the board?

Raamdeo Agrawal: So investing and investment management these are two different things. So
when you start asking about sector and companies and all, then you are getting into the field of
investment management and there as I say stock picking is only one of the traits. The stock picking
is not the end of investing. You need to select the stock and allocate well. If I give you a good idea
and you buy one percent of your portfolio and I buy 20% of my portfolio, the impact of it two years
when stock goes three or four times, why Motilal Oswal is actually enriching me so much because
my 100% of my net worth is into Motilal Oswal. Outsiders like you or somebody else in your
channel who have some few shares, they are hardly half per cent or one per cent of their net worth
would be Motilal Oswal. So stock has gone up equally for him as well as for me but my 100% is
growing at that pace and his only one per cent. So what is important is not only buying the stock
but how well you allocate.

Large part of the allocation strategy is mutual funds that is where people can through SIPs
systematically invest and get that diversification to play in for returns over a long period of
time.

Raamdeo Agrawal: So one is asset allocation within your total net worth, so you want to invest
say Rs 100 of that, how much of that is in equity and how much is that in debt that is the first
fundamental question.

How much should be?

Raamdeo Agrawal: So I have 100% in equities so that is not the right profile for everybody. But let
them see their own… the younger people like you and all you must have 110% in equities. So I
mean like everything should be in equity to start with because you have so much of time, even if
you lose out, after five years or seven years you can again, I mean it does not set you back so
much. But if you are right in equities, it can take you very far that really sets the, lays the
foundation for making big money. You will start with few lakhs at the age of 25-27 and in 10 years
you are 20-30 lakhs because you can make lot of money in stocks only if you have some amount
of capital to start with it. Zero multiplied by anything is zero so you got to have some capital to start
with and it takes lot of time to build the capital like I started in 87 with zero capital so the first
struggle was how do you build few crores on which you can apply your ideas.

You began in 1987 and look where you are today. You had also identified a stock
like Infosys NSE 0.78 % as the Y2K boom in 1998. What is the tech story looking like right now
in India?

Raamdeo Agrawal: I do not know. I think we had wonderful time. Infosys is one of the
largest wealth creator and fastest wealth creator. The stock is up from 93 June I think if I am not

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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

wrong, it got (15:11) about 50 crores and today it is upwards of two lakh crores. So it is up some
six-seven thousand times without including dividend and they are many thousands of crores to yet
to be distributed and annual profits is running into 12 to 15 thousand crores, still growing. So I think
it has been amazing story but that the hyper growth story of last 20 years, every company goes
through that tailwind environment and that environment, that phase of rapid growth of Indian tech
particularly for the large companies I think is…

That is a mature sector…

Raamdeo Agrawal: No sector is not that matured as much as the individual companies. So
Infosys, Wipro NSE -0.23 % , TCS NSE 0.18 % , all these companies they have become very large so on
that base to fly at the rate of 50-100% is tough but I am quite sure lot of e-commerce companies or
technology companies or some, I mean little bit digital technology, lot of new data analytics
companies, artificial intelligence companies those companies are yet to show up in the public
market. They are there in the private space so they can grow from say 100 million dollars to 10-15
billion dollars in next 10 years. So we have to watch out that space. Do not write off that sector but
if you are steady dividend earner or not looking for very rapid, I mean we are looking for 25% kind
of return from the portfolio. But if you are looking for 12-15%, I think these stocks are very good.

We just had a deputy governor of RBI say look we are going to be going ahead with these
mergers, we are going to try and go ahead with NPA resolution, is there an opportunity
there because the private banks have done well, HFCs have done well, PSU banks are
underperforming, you know it is a very differentiated trade?

Raamdeo Agrawal: So any problem or disruption has a huge opportunity. The company or the
business which is disrupted they go down the tube, the value migrates from those businesses to
some other set of companies. So like a services company in US from Boston to Bangalore, so
when all these Infosys and all they grew all the companies in US services companies they went
down. So in banking till about 1995 or till as late as say 2004-05, it was dominated by public sector
banks, state owned banks. Now a lot of value has migrated from state owned banks to private
sector banks so the disruption in the banking system, technological or the ownership or
entrepreneurship that has moved to-- you know a lot of value is being created right now because
economy is growing, it is one of the fastest growing economy, typically the financial sector grows at
2x or 2.5x to the GDP of the economy. So if Indian economy grows nominally at about 11-12% the
banking system per se will grow at about upwards of 20%. So that is a huge opportunity and in that
the largest market share guy gives into smallest market share guy. So you can see the opportunity
and it is a decadal opportunity, it is not a one or two years opportunity. And also that opportunity is
not for everybody, you need to execute very well just because you have a licence or you are
private sector that does not guarantee you that you will go to the heaven, you have to execute well
but it is tailwind environment for them. So a lot of very large companies like HDFC Bank NSE -1.03 %

which got born in front of me in 1995-96.

That is your top holding as well.

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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

Raamdeo Agrawal: Yes. So it is a 4.5 lakh crore bank, it is literally threatening TCS to become
number one and in fact TCS is growing at just about 8-10-12% whereas HDFC Bank is growing at
closer to 20%. So I would not be surprised in the next two, three years HDFC Bank emerges by far
the largest company of India, it is second largest right now but in market cap sense it could be a 10
lakh crore company by 2020 or 2022.

What is the outlook of the consumption sector according to you?

Raamdeo Agrawal: I think consumption is going to explode, you know, I mean it depends how
discretionary is the item.

What do you think about the growth momentum versus the valuation story because that is
the tricky part?

Raamdeo Agrawal: So one of the things which we are seeing is that this GST is a very disruptive
thing for unorganised. I do not exactly how much it will disrupt and how much a lot of spurious and
other stuff which were happening will move to-- you know a lot of things will get taxed so will there
be a clear preference for the organised guys. In any case they sell very good stuff, hygiene and
everything so could there be a one or two years of a good bump in the growth. If they keep doing
8-9-10% can it go to 14-15% suddenly because of the shift in the market share.

You know Warren Buffett was not so gung-ho about mutual funds and index funds in India,
he was of course an advocate that if you want to invest for a salaried professional go for
index funds that is what he has been saying in the United States, that is what he advocated
for India as well. But he is not gung-ho on the entire mutual fund and active fund
management story, you are growing your business there because there is ample
opportunity that we see taking advantage of the inefficiencies that there are in the market to
outperform. What is your own advice to viewers tuning in, your big fan following out there,
what would you advise them to make the most of the market’s up run?

Raamdeo Agrawal: So do not do investing yourself if you really do not know it. It is very
complicated. Now the competition is increasingly with the global peers, local professionals so
earlier the competition was retail to retail so you could make it very easily and earlier there was lot
of information arbitrage. If you know a few company guys you could get some inside info and make
some money, now it is no more so in the sense that, in fact the insiders they themselves are
scared, there is no insider, quarterly results are there, everyday anybody they are meeting they
have to upload in the system so there is hardly anything left for the insiders to really encash on. So
I think investing has become very competitive and if you are good yes, you must to do it but if you
are not, if you do not have time, you have a lot of money but you do not have that much time and
real organisation to do it, please take professional help and buy into PMS or mutual funds from well
managed companies. And that is the way to go about it.

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4/23/2018 Raamdeo Agrawal's market mantra: Buy a good company & hold it for a long time

Your asset management company has done very well. You are very bullish on the mutual
fund business?

Raamdeo Agrawal: Yes. This is just our start. I mean for a country with a 150 lakh crores GDP, 50
lakh crores of annual savings, you total equity AUM is 5.5 lakh crores, that should be the annual
flow into the equities. So we are going to see and that is happening now thankfully your real
estate is somewhat flat or down, fixed deposits are 5-6%, gold has gone nowhere, all the ladies
there also looking at now buying into mutual funds or something else. So I think the entire
attraction for the equity is pretty high right now and we are seeing the robust inflow.

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4/23/2018 It’s time to accumulate stocks for the long term: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

It’s time to accumulate stocks for the long term:


Raamdeo Agrawal, Motilal Oswal Financial
Services
By Narendra Nathan, ET Bureau | Updated: Jan 09, 2017, 05.43 PM IST
2
Comments

Though currently corporate earnings


are stagnant, they are likely to pick up
because of the India growth story and increased
consumption, among other things, Raamdeo Agrawal
tells ET.

At the broader index level, the Indian equity


market has not generated any returns in the last
few years. What should equity investors do now?
The market usually goes with jo dikhta hai, wo bikta
“GST will improve tax collection and improve the ease of
hai (what is visible is what sells). Since the current
doing business by bringing in clarity on taxes,”
Raamdeo Agrawal Co-founder, Motilal Oswal Financial
earnings growth is depressed, the market is lacklustre.
Services Because corporate profits are stagnant, it is difficult to
say when the next upward movement will happen.

However, investors should use the current depressed market conditions to accumulate stocks for
the long term. This is because corporate earnings will pick up once again on the back of the India
growth story and increased consumption by the burgeoning middle class. Recent measures such
as demonetisation, GST (goods and services tax),etc., may also speed up earnings growth.

When the entire world is buying Indian equities, there is no need for Indians to buy gold or invest in
land. The recent fall in interest rates (after-tax debt yield will be very low) is another reason why
you need more equity allocation.

How do you see the recent disturbances caused by demonetisation?


We started the December quarter in a big way, but the second part of it was affected by
demonetisation. It’s impact may last a few more weeks, but will be over by the middle of the March
quarter. Despite the short-term pain, demonetisation offers several longterm gains. Some people
had kept large quantities of idle money at home and all of it has now gone back to the banks. Since
they are not going to take out everything, at least some of it (between Rs 1-2 lakh crore) will
remain with the banks. This will be one of the biggest gains from this entire exercise. Since all the
money came into the mainstream, tax collection will also increase in the coming years. The
development of an individual, family, company or country cannot be made possible without
significant increase in revenues. We want world class infrastructure, but the same won’t happen at
these low tax-to-GDP ratio levels.

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To mitigate the short-term impact of demonetisation, are you expecting any measures in the
upcoming Budget?
Some taxation relief is expected because Finance Minister Arun Jaitley is a big proponent of lower
taxes. We have seen time and again that lower taxes brings in a lot of compliance. However, the
government should use the carrot-and-stick approach, because there are some people who may
evade tax even at 20%. So, for better tax collection, the government should use the stick too
(punish tax evaders). If Indians in America are tax compliant, even more than the locals there, why
can’t they be so here?

Are you worried about a possible increase in taxes on capital market players?
The market doesn’t want any tax freebies, but you have to see the whole picture. The government
brought in the Securities Transaction Tax (STT) as an alternative to long-term capital gains tax and
it also reduced the shortterm capital gains tax. If the government wants to reintroduce tax on long-
term capital gains, it has to go back to the original rationale and withdraw the STT.

The fear in the market now is that government may retain STT and also try to increase tax—either
by reintroducing tax on long-term capital gains or by increasing the cut off limit from one to three
years. As just a few investors remain invested in a stock for more than three years, most of the
long-term capital gains now will become short-term capital gains (effectively, the tax will go up from
nil to 15%).

Dividends are already taxed thrice (companies pay tax on profit and dividend distribution tax, and
high dividend earners pay tax on their dividend income), so I hope the government won’t tinker with
that. If it increases the dividend tax burden further, the companies won’t declare dividends and the
market will suffer. Promoters will have access to the entire money (not just their part of the
dividend, but that of the public shareholders too), so public shareholders will lose out. Non
declaration of dividends may also encourage misallocation of capital at the corporate level.

What about the delay in the implementation of GST?


The existing structure (VAT plus excise) is working fine now, so a small delay won’t make a big
difference. We are certain that GST is on its way, the only question is whether it be implemented
from 1 April or at a later date. As a nation, we have the habit of waiting till the end, so I won’t be
surprised if it starts from 1 September. Whenever it is implemented, GST will improve tax collection
and also improve the ease of doing business because by bringing in clarity on taxes.

Global issues are at the forefront once again, your views?


We are getting into a challenging period because globally interest rates are rising. Though volatility

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4/23/2018 It’s time to accumulate stocks for the long term: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

in global markets will continue, I am not much concerned about it. Rising global rates may also
signal a probable recovery in the global economy. The recent rise in commodity prices is another
indication of global recovery. Global recovery is a much bigger positive for the Indian economy
than the small capital flow issues it may trigger in the short term. The money flow into India will
continue if we manage our affairs well. Though there may be some shortterm hiccups, India has
every right to get the money in the long-term because we are the fastest growing major economy in
the world.

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4/23/2018 In quality stocks, ups are permanent, downs are temporary: Raamdeo Agrawal, Motilal Oswal AMC - The Economic Times

In quality stocks, ups are permanent, downs are


temporary: Raamdeo Agrawal, Motilal Oswal
AMC
ET Now | Updated: Dec 27, 2016, 10.20 AM IST
In a 1
Comments
chat
with ET Now's Nikunj Dalmia, Raamdeo Agrawal, MD & Co-
Founder, Motilal Oswal NSE -0.08 % AMC, says buy growth at
reasonable price and you will do well in India.

Edited excerpts:

The mega bull run which we all were waiting for since Modi
'In quality stocks, ups are permanent,
downs are temporary' got elected has not started, I am not feeling it. Index returns
from last two years have been flat. How far are we away from
that kind of an sizable bull run.

The beauty of those bull runs are that nobody knows


NSE BSE
Company Summary
because I remember in 1992 it was not about the
Motilal O… -0.75 (-0.08%) earnings we might say that let the earnings come
and bull run will happen, no. It could be just the influx
of a lot of money. Everybody wants to buy equities. In 2000, the Y2K bull run, it was all pageviews
and all views actually the earnings companies Berkshire Hathaway itself came down from 74000 to
38000. So market can be very irrational in these kind of bull run.

But you have sold your Berkshire Hathaway shares?

Yes, I sold out. I realise that is not going to give me more than 8%, 10%, 12% kind of return.

That is great for even in America because interest rates are 2% but that is not good for
India.

But we look for 20-25% kind of return. So the moment I realised that in no case it is going to make
more than 8%-10%, I said let me not stay there.

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4/23/2018 In quality stocks, ups are permanent, downs are temporary: Raamdeo Agrawal, Motilal Oswal AMC - The Economic Times

So irrespective of whether it is demonetisation effect or what is going on in the world in


terms of the economic policy, interest rates, the portfolio which you currently have what
happens to price is a function of sentiment but earnings is what you can indicate and you
can predict. Do you think a 20 to 25% earnings growth for your existing portfolio is entirely
possible for next three years?

That is how we have designed but one or two quarters will remain challenging.

So one or two quarters could be bad for Indian markets.

Yes, but I hope it delivers that.

So the returns in next year could be back ended, they may not be front ended.

It will definitely be back ended and it can accelerate to everybody’s surprise.

So another 15-20% kind of an index return back ended for next year cannot be ruled out?

Definitely cannot be ruled out because you are starting from a low base. For two years, it is staying
here. So you have a 80-90% probability that we get damn good returns in next 12 months but it will
be as things look it will look to me much more back ended than front loaded.

In life I have read enough about Buffet we called Buffettology, we read about Munger we
called it Mungerisms. Let me get an original quote from you today and we will call it
Raamology?

For us it is Q and G, buy quality do not negotiate on the quality and buy growth at reasonable price
you will do very well in India.

That is the way how you made money and that is the way how you think you will be able to
make money for your…

That is how we have been making money but we have coded it now into Q, G, L, P but the way to
go is buy quality. Do not buy low quality that is the way I mean right now I am absolutely peaceful
the stocks are falling even my stocks are falling but I know they are all temporary, they will all come
back.

So let me use this Hindi line before we wrap the show once to me quality ek baar girti hai,
downside is temporary and for kachra the upside is temporary but the downside is
permanent.

Yes, downside is permanent so in quality ups are permanent downs are temporary in kachra just
the reverse.

https://economictimes.indiatimes.com/markets/expert-view/in-quality-stocks-ups-are-permanent-downs-are-temporary-raamdeo-agrawal-motilal-oswal-amc/article
4/23/2018 In banking and HFC stocks, the opportunity is perpetual: Raamdeo Agrawal, MOFSL - The Economic Times

In banking and HFC stocks, the opportunity is


perpetual: Raamdeo Agrawal, MOFSL
ET Now | Updated: Dec 26, 2016, 11.31 AM IST
2 In a
Comments
chat
with ET Now, Raamdeo Agrawal, MD & Co-
Founder, MOFSL, says India is not fully banked, it needs a lot of
credit to be lent, a lot of mortgages to be underwritten. The
opportunity is huge.

Edited excerpts:
Raamdeo Agarwal on stocks to bet on
in 2017

I am going to first focus on two-wheelers. You track two-


wheelers, you have owned two-wheeler stocks in the past. Two-wheelers earlier were
classified as one category. Now within two-wheelers, there is a divergence, Eicher has got a
waiting and Hero MotoCop has an inventory of six lakhs. What are the dynamics in the two-
wheeler sector looking like? Will aspiration work or will mass transport work?

Company Summary NSE BSE


This is a complex positioning. Eicher is very uniquely
HDFC Bank -20.15 (-1.03%) positioning among the two-wheeler companies
because they have a segment in a cruiser bike,
Motilal O… -0.75 (-0.08%)
powerful cruise bikes, it is a category in itself. So
PNB 0.50 (0.53%) they are 100% out there, they have five, six months
EXPAND TO VIEW ALL waiting list so I think they should emerge stronger
because whenever the slump in demand happens,
for them there is cushion that their demand will not slump.

But as far as other categories are concerned, in the rest of the categories also there are two
segments; one is the motorcycle, traditional and second is the scooters. Scooters are coming back
because the installed base is very small and urbanisation is taking place. So scooters are
becoming very large and in the last six, seven years led by HMSI, Honda, original Honda, almost
30-35% of the market has shifted towards that.

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4/23/2018 In banking and HFC stocks, the opportunity is perpetual: Raamdeo Agrawal, MOFSL - The Economic Times

Real volume shift is not so much to the cruiser bikes, that is about 6-7 lakhs only but here it is the
scooters which have become almost 30%. I think the largest selling two-wheelers is Activa scooter
or maybe number two or something like that. That is the kind of resurgence you are seeing in the
two-wheeler market. I wish HMSI was listed. It is not listed, so you have to play some proxy here
and there.

One opportunity was clearly in Eicher and second opportunity could have been HMSI but it is not
there. But Bajaj is there in between. TVS is there and Hero is there, traditionally these three
players so depending on whose export strategy or scooter strategy or motorcycle strategy-- see it
is about one or two products, who gets that winner product which very rapidly -- I mean Bajaj is
made up of their export strategy and Pulsar. Pulsar really gave them the new life so Pulsar and the
export strategy.

TVS is all sorts of thing but one or two winner products from say R&D of Hero where they are
spending Rs 500-600 crore per year. They can hit upon one or two new products because they
have fantastic marketing and distribution and people love their brand and customer service. You
are just watching what can happen in 2017. You have to keep your eyes open.

We were discussing that – a) there are businesses or companies that are destined to go
higher and the promoters are determined to take them higher. What falls in that kind of
category? If I look at your business, it is yours and Motilalji’s hard work that has
taken Motilal Oswal NSE -0.08 % as a firm to great heights. As an investor, I am sure apart from
analysing your own firm, you are also analysing other companies. What falls this category?

Some managements are destined to be rich, they are second generation, third generation, father
or running businesses, given you running bank, running factory, running brand…

Second generation, third generation…

So you are born a billionaire, you are destined to be rich. But people like us who are just starting
off in the market place, it is important whether the management is determined to become rich.
There are two ways to become rich. You are born rich or you are determined to become rich and
the system, the market economy allows you to become rich. The same is with the businesses. I
would like to invest in business which are destined to become or destined to remain rich. Say like
banking. I mean world over banking makes money. You borrow at 5%, lend at 8%, 10% and you
make lot of money. Now who is the determinant management to make… Say HDFC Bank
NSE -1.03 % , in 1996 they got the license. They were determined. They have created a bank in 20-22

years…

Rs 4 lakh-crore balance sheet...

They have become the second most precious company in the country. That is the kind of

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4/23/2018 In banking and HFC stocks, the opportunity is perpetual: Raamdeo Agrawal, MOFSL - The Economic Times

determination. So what is important is to find where is the opportunity and where is the determined
management? You may not have bought HDFC Bank in ‘96 or ‘97 or ’98. You could buy it at point
of time. So we have to find and India is an emerging economy. You will find a lot of emerging
companies.

The challenge with buying HDFC Bank or Asian Paints NSE 1.67 % could be everything is
great which is Q, G, L but for P (price). Ultimately, your entry price will have effect on your
exit price. Pricing is not on your side, I mean HDFC Bank is trading at 3.5 to 4 times book.
You got similar number for Asian Paints 30-35 times; Nestle NSE -2.80 % company you owned
in the past has crazy PE multiple. So as an investor, here is a great business in front of you.
Yyou know that if you buy it you will make money but as a fund manager you also have to
care for the returns. How do you manage this dichotomy?

That is the biggest art form to understand. Once you know that it is a good business and good
management, then the real thing is how is the price, is it fully priced? You are not looking at the
value today, you are looking at value five years or ten years out. So if you think in 10 years this
company which is say about Rs 20,000 crore today, can it be a Rs 200,000-crore worth company
in ten years?

Sometimes you get this insight that yes it can be or if it is Rs 1000-crore company, can it be a Rs
10,000-crore company? Once you get this kind of thought, then you only have to look at the price
whether the price is somewhat higher or is it even if the business goes 10 times, the stock price is
already taking care of that. Like it is 100 PE or 80 PE and your return is going to be very mediocre.
So you have to be very careful about understanding the price that what expectations are build into
the price. If all the stories which you are talking about is already discounted by the market, there is
no fun. You have to be ahead of the crowd. You have to know what the market does not know
because the moment market knows about it, market will build into the price.

In one of your wealth creation studies you mentioned that the art of buying stock is not
identify something from the Nifty 50, it is to identify which 100 companies or which 200
companies can become the next 50 great companies. That is the pond where you like to
fish. So how are you fishing in that pond? You have bought RBL, you bought PNB NSE 0.53 %
Housing Finance. I am looking at last disclosure data. So are you getting a sense that HFC
and some of these so called new-age banks can scale up?

That is one area where we have somewhat better understanding and it looks that there the
opportunity is perpetual. India is still not fully banked, maybe 40%, 50% is the under formal
banking coverage. My village still does not have bank. So I think it is a long way that the whole
country will be covered by banks and the opportunity on the banking side is very large. It is a
growing economy. It needs a lot of credit to be lent, a lot of mortgages to be underwritten. So the
opportunity size is very large. But where is the bank which has shown that they can earn money?
There is a huge runway ahead which can be the next HDFC Bank, which can be next very large
opportunity. That is where the management will differentiate, opportunity remains there.

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4/23/2018 In banking and HFC stocks, the opportunity is perpetual: Raamdeo Agrawal, MOFSL - The Economic Times

Is RBL a call only on valuations because…

No, it is not…

It is not call on valuations.

It is just as general as I said it is good business, run by a determined management.

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4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

For a long-term investor, this uncertainty is the


biggest boom one can ever have: Raamdeo
Agrawal
ET Now | Updated: Dec 27, 2016, 04.15 PM IST
6
Comments In an
interview with Nikunj Dalmia of ET Now, Raamdeo
Agrawal, MD & Co-Founder, Motilal Oswal AMC, says the
economy will find its own momentum going forward and these
uncertain times are the best time to build portfolios.

Edited excerpts:

"Good news and good price never You have always said that there is no point in analysing the
come together. So news is bad and
past. It is always time to move on and understand where we
price is good."
are headed. Sso where are we headed from here because now
political changes are happening in the world and political
Related
changes will always lead to economic changes?
In quality stocks, ups are
permanent, downs are temporary

I am closer home and here in India also we are


Company Summary NSE BSE going through gigantic changes and the economy is
most likely to move from a complete cash-based
Motilal O… -0.75 (-0.08%) economy to much more formal digital economy. It is
an opportunity and of course there will be pain on
the way and the times are uncertain right now and that is reflecting on the market to start with.

We will definitely start 2017 with a lot of these uncertainties and as we move to quarter one,
quarter two, the pent up demand and rigorous economy will come back. It will find its own
momentum as we go into the future because this economy always I mean it is---economy is always
a complex adoptive system, it will adopt itself whatever new rules of the game is there I mean for
the payment, for the deliveries or for whatever. It will re-adopt with vigour and it will comeback.
When it comes back we should be prepared for that and this is the time we should be building our
portfolios.

Historically, we have seen that markets and economy may not follow a different path, there
are periods when the economy is bad and markets have gone down and vice-versa. Going
forward, do you see the situation where the economy may not do anything great but
markets may actually move up?

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4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

It is not so much to do with the economy, It is about the productivity of the companies because
even in a very stagnant economy, you can have a few wonderful companies. The issue right now is
that it is a kind of a standstill for lot of good companies and that is creating uncertainty. Otherwise,
we are pretty happy whatever happens with Trump, oil, with drought and famine and interest rate
going up, inflation coming down etc. You can negotiate all this but at this point of time there are
certain things which you do not know.

Demonetisation has happened for the first time. in at least my career and we do not know how to
think about it and that is the source of uncertainty. Otherwise, we are pretty happy with the bad
things also. Second, is the price. You have to figure that out in a stock market. It is very difficult to
figure out how much is built into the price. Everybody wants to buy a fantastic business run by
fantastic management but these companies are available at full price. So if by chance it is over
discounted, despite the goodness of the company, you cannot make money. At this point in time it
is becoming difficult to figure out how much correction will happen because of current slowdown
and uncertainty and tofigure out what is the right price to buy but generally we have seen that in
uncertain times if you buy something you hit a good bargain. So probably for a long term investor,
this uncertainty or a little weaker market is the biggest boom one can ever have.

Good news and good prices they rarely come together. Right now, news is bad and prices
are getting better.

You said it. Good news and good price never come together. So news is bad and price is good.

But are prices really good? The stocks which you have owned, have they not fallen more
than 5-10%?

Yes, so still it is falling and time is passing. In a growth company, every quarter is very powerful.
You are supposed to be growing 6-7% and one is the earnings have grown 7% and the stock has
fallen 7%. Fundamentally it has become cheaper by 15% in just three months. So another 5-7%
and you might be in a huge margin of safety.

So in terms of the portfolio and the companies you track are you getting a sense that the
margin of safety is on your side or you are waiting for better entry points?

In a stock market, you have to be a very clear thinker. Sources of value are two -- franchise and
growth. So franchise of all the companies are intact. What is hurt is the immediate growth, not the
long term growth. So how much of the immediate growth is hurt in next three months, in next six
months or next one year, I do not know. We do not know even how much growth has been
impacted for the month of November and December. That we will come to know when the first

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4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

quarter result comes and that is why first quarter result probably will set the tone for rest of the
year.

Whereas long term markets they always map earnings and they are slave to earnings you
have to deal with short term, short term is sentiment, medium terms is liquidity, where
sentiment is not supportive and liquidity at a global level is turning against us. The zero
interest rate regime is over. I worry about the fact that interest rates globally may move up.
Buffett said that markets can handle everything but interest rate rise because that acts as a
gravity and that gravity factor is now there?

What is happening you can see but that is something which we can handle and even the earnings
which we talk about long term earnings are set and all but long term is made up of small-small
short terms. So we are negotiating right now the next three months and next six months that
seems to be little uncertain but most of the companies are destined to be what they want to be in 5,
7, 10 years nothing is going to happen to whatever where to happen to those companies but just
that there is a kind of a break right now but after that and that is why I am saying this is the time
you can get some very interesting valuations and I mean you must not miss this opportunity.

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4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

Has your portfolio strategy changed because of what is happening in the world and what is
happening here?

No, no, if fact portfolio strategies were decided a few years back to take care of this kind of times.
A good portfolio strategy is one which can take care of bad time, good time everything will do well,
good strategy as well as bad strategy will do well. Your strategy should be so good that even bad
times is not that painful. So we are testing now what we did was right or not and it is all very clear, I
mean, we will get to see in the next six months that how well our strategy has performed.

So the whole concept of buying quality is now helping you because it may not be the first
one to rise but it will be the last one to fall in this kind a market. So buying quality stocks is
rewarding because in this market, an HDFC Bank, a Sun Pharma or Asian Paints these are
the names which have fallen less?

Yes. Quality is always the biggest protection in bad times. The peoples’ confidence in the future of
good companies will always remain very high and in bad times not such a high quality companies
they will go under. And I think I am very clear that post demonetisation when remonetisation
happens, full remonetisation happens in the next three, four months, the stronger companies those
which are more ethical, better organised, better systems, much more digital in payments, I mean,
those companies will they will gain share in the businesses and they will come back much-much
stronger.

So I will talk about the areas which you track and which you understand, you understand
consumer business, you understand autos, you understand financials, and all these sector
will now see a reboot, not because of demonetisation but the way processes and things
would change now. So let us start with autos, what do you think will change for autos now?

Autos, nothing will change. See in autos, see if we talk about personal transportation, car and
motorcycles, I mean, people here are still buying first time so you cannot defer that much, I mean,
the replacement buy you can say okay we will not do in 2016 we will do in 2017 or 2018 or
whatever but most of the people, at least in car segment, they are the first time buyers, bulk of
them are 50-60% people must be buying for the first time a car and they cannot, I mean, they will
defer for one month or two month but they will all come back. So the demand, so India is the last
large market for the cars, I mean, China is doing about 20 million, at some point of time we should

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4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

also be doing 10-15 million. So it is one of the most promising segment and very interesting
competitive structure is there where 505 is with one company and the rest of 50% is with 25-27
companies. So it is an very interesting opportunity in automotive.

I am going to first focus on two-wheelers. You track two-wheelers, you have owned two-
wheeler stocks in the past. Two-wheelers earlier were classified as one category. Now
within two-wheelers, there is a divergence, Eicher has got a waiting and Hero MotoCop has
an inventory of six lakhs. What are the dynamics in the two-wheeler sector looking like?
Will aspiration work or will mass transport work?

This is a complex positioning. Eicher is very uniquely positioning among the two-wheeler
companies because they have a segment in a cruiser bike, powerful cruise bikes, it is a category in
itself. So they are 100% out there, they have five, six months waiting list so I think they should
emerge stronger because whenever the slump in demand happens, for them there is cushion that
their demand will not slump.

But as far as other categories are concerned, in the rest of the categories also there are two
segments; one is the motorcycle, traditional and second is the scooters. Scooters are coming back
because the installed base is very small and urbanisation is taking place. So scooters are
becoming very large and in the last six, seven years led by HMSI, Honda, original Honda, almost
30-35% of the market has shifted towards that.

Real volume shift is not so much to the cruiser bikes, that is about 6-7 lakhs only but here it is the
scooters which have become almost 30%. I think the largest selling two-wheelers is Activa scooter
or maybe number two or something like that. That is the kind of resurgence you are seeing in the
two-wheeler market. I wish HMSI was listed. It is not listed, so you have to play some proxy here
and there.

One opportunity was clearly in Eicher and second opportunity could have been HMSI but it is not
there. But Bajaj is there in between. TVS is there and Hero is there, traditionally these three
players so depending on whose export strategy or scooter strategy or motorcycle strategy-- see it
is about one or two products, who gets that winner product which very rapidly -- I mean Bajaj is
made up of their export strategy and Pulsar. Pulsar really gave them the new life so Pulsar and the
export strategy.

TVS is all sorts of thing but one or two winner products from say R&D of Hero where they are
spending Rs 500-600 crore per year. They can hit upon one or two new products because they

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4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

have fantastic marketing and distribution and people love their brand and customer service. You
are just watching what can happen in 2017. You have to keep your eyes open.

We were discussing that – a) there are businesses or companies that are destined to go
higher and the promoters are determined to take them higher. What falls in that kind of
category? If I look at your business, it is yours and Motilalji’s hard work that has taken
Motilal Oswal as a firm to great heights. As an investor, I am sure apart from analysing your
own firm, you are also analysing other companies. What falls this category?

Some managements are destined to be rich, they are second generation, third generation, father
or running businesses, given you running bank, running factory, running brand…

https://economictimes.indiatimes.com/markets/expert-view/for-a-long-term-investor-this-uncertainty-is-the-biggest-boom-one-can-ever-have-raamdeo-agrawal/art
4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

Second generation, third generation…

So you are born a billionaire, you are destined to be rich. But people like us who are just starting
off in the market place, it is important whether the management is determined to become rich.
There are two ways to become rich. You are born rich or you are determined to become rich and
the system, the market economy allows you to become rich. The same is with the businesses. I
would like to invest in business which are destined to become or destined to remain rich. Say like
banking. I mean world over banking makes money. You borrow at 5%, lend at 8%, 10% and you
make lot of money. Now who is the determinant management to make… Say HDFC Bank, in 1996
they got the license. They were determined. They have created a bank in 20-22 years…

Rs 4 lakh-crore balance sheet...

They have become the second most precious company in the country. That is the kind of
determination. So what is important is to find where is the opportunity and where is the determined
management? You may not have bought HDFC Bank in ‘96 or ‘97 or ’98. You could buy it at point
of time. So we have to find and India is an emerging economy. You will find a lot of emerging
companies.

The challenge with buying HDFC Bank or Asian Paints could be everything is great which is
Q, G, L but for P (price). Ultimately, your entry price will have effect on your exit price.
Pricing is not on your side, I mean HDFC Bank is trading at 3.5 to 4 times book. You got
similar number for Asian Paints 30-35 times; Nestle company you owned in the past has
crazy PE multiple. So as an investor, here is a great business in front of you. You know that
if you buy it you will make money but as a fund manager you also have to care for the
returns. How do you manage this dichotomy?

That is the biggest art form to understand. Once you know that it is a good business and good
management, then the real thing is how is the price, is it fully priced? You are not looking at the
value today, you are looking at value five years or ten years out. So if you think in 10 years this
company which is say about Rs 20,000 crore today, can it be a Rs 200,000-crore worth company
in ten years?

Sometimes you get this insight that yes it can be or if it is Rs 1000-crore company, can it be a Rs
10,000-crore company? Once you get this kind of thought, then you only have to look at the price
whether the price is somewhat higher or is it even if the business goes 10 times, the stock price is

https://economictimes.indiatimes.com/markets/expert-view/for-a-long-term-investor-this-uncertainty-is-the-biggest-boom-one-can-ever-have-raamdeo-agrawal/art
4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

already taking care of that. Like it is 100 PE or 80 PE and your return is going to be very mediocre.
So you have to be very careful about understanding the price that what expectations are build into
the price. If all the stories which you are talking about is already discounted by the market, there is
no fun. You have to be ahead of the crowd. You have to know what the market does not know
because the moment market knows about it, market will build into the price.

In one of your wealth creation studies you mentioned that the art of buying stock is not
identify something from the Nifty 50, it is to identify which 100 companies or which 200
companies can become the next 50 great companies. That is the pond where you like to
fish. So how are you fishing in that pond? You have bought RBL, you bought PNB Housing
Finance. I am looking at last disclosure data. So are you getting a sense that HFC and some
of these so called new-age banks can scale up?

That is one area where we have somewhat better understanding and it looks that there the
opportunity is perpetual. India is still not fully banked, maybe 40%, 50% is the under formal
banking coverage. My village still does not have bank. So I think it is a long way that the whole
country will be covered by banks and the opportunity on the banking side is very large. It is a
growing economy. It needs a lot of credit to be lent, a lot of mortgages to be underwritten. So the
opportunity size is very large. But where is the bank which has shown that they can earn money?
There is a huge runway ahead which can be the next HDFC Bank, which can be next very large
opportunity. That is where the management will differentiate, opportunity remains there.

Is RBL a call only on valuations because…

No, it is not…

It is not call on valuations.

It is just as general as I said it is good business, run by a determined management. It is early days
yet. We will see what really happens, how they deliver to the expectations and people will remain
very what you call suspicious whether this new management can deliver but that always happens
when a completely new management, new name of the brand it is there I mean it takes time for
anybody but by the time people get comfortable the price goes up so much, once the cherry
consensus happens then the price is very high. So you have to…when you see the opportunity you
meet the management you feel that there is something happening here which may not be there in
the price.

https://economictimes.indiatimes.com/markets/expert-view/for-a-long-term-investor-this-uncertainty-is-the-biggest-boom-one-can-ever-have-raamdeo-agrawal/art
4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

We are using a lot of Buffet examples because you always have publicly said that he is your
guru, your mentor. Buffet believes that you should always buy when there is fear and sell
when there is greed. You will never get great prices if there is a cheery consensus you
should always buy when there is a lot of despair so where is cheery consensus in this
market and where is despair in this market?

So the market as a whole today is depressing in the sense that there is a lot of apprehension about
what will happen in this quarter because ultimately markets have to pass through the short-term
challenges also. Right now. we are passing through our short term challenge in terms of Q3
earnings and slightly softer beginning for the Q4 earnings. So that apprehension now how to think
about it is you know a kind of challenge but I am quite sure that this challenge is maybe six months
for another one or two quarters, maybe three quarters but the companies, the good companies
they will emerge first.

In fact. they will be able to negotiate the problems, say like a company called say Maruti, Maruti will
be able to negotiate this problem much better than many other companies because I am quite sure
the demand is going to be there, demand is always going to be there but the issue is that how well
you are prepared to maybe give some more discount, maybe change the product mix, maybe if the
south is better prepared for digital economy send more cars out there. I do not what all they will do
but I have generally seen the stronger companies they find ways of negotiating these uncertainty
much better. So we must see in the quarterly results and in our interactions with the companies
where is that strength and who is going to become stronger.

I just want to ask you a question on asset allocation whereas we can talk about for
identifying multi bagger ideas, we can talk about 100 baggers, do you think now it is time to
really seriously check on asset allocation? Gold is not going anywhere, real estate with the
current environment will not go anywhere, FD rates are 5-6% that is nothing post tax so by
default do you think money is going to migrate to equities and one should buy equities?

You are asking the wrong guy. I have been always a 100% equity guy so do not ask me. You have
to ask some wealth manager how they are feeling about it. With 15% index return, compounded
post tax and the long term is zero tax, in no country you get this kind of opportunity where if you
hold for more than a year you get your long term taxation free, you get your dividend tax free, it is
crazy. So coming into equities in India is a blessing but you have that volatility, I mean people have
to be able to bear some downturns.

https://economictimes.indiatimes.com/markets/expert-view/for-a-long-term-investor-this-uncertainty-is-the-biggest-boom-one-can-ever-have-raamdeo-agrawal/art
4/23/2018 For a long-term investor, this uncertainty is the biggest boom one can ever have: Raamdeo Agrawal - The Economic Times

And that is the reason markets pay you premium...

If you are getting about 6-7% in fixed income you will get about 15% in equity and that too in a
passive way, active will be even higher. So I mean, making about 15-20% post tax on a slightly
longer term basis say five-year basis should not be a problem. And there are a lot of managers
who can deliver that kind of returns.
Nikunj Dalmia: Your return has been above 25%, can you repeat that?

I do not think so. It will definitely get moderated over a period of time. Shorter terms you will
have base effect and election hope rallies and all they can enhance but over a period of time
like right now we are seeing as the growth is getting cut, the performances are getting little
bit of challenged.

So longer term the base rate and whatever your process superiority is there that only will show up
so a 15% plus say eight or 10%.

https://economictimes.indiatimes.com/markets/expert-view/for-a-long-term-investor-this-uncertainty-is-the-biggest-boom-one-can-ever-have-raamdeo-agrawal/art
4/23/2018 Probability of market going higher in 2017 is much more: Raamdeo Agrawal - The Economic Times

Probability of market going higher in 2017 is


much more: Raamdeo Agrawal
By Kshitij Anand, ETMarkets.com | Updated: Dec 22, 2016, 04.42 PM IST
3
Comments

NEW DELHI: The domestic stock market is likely to


start Calendar 2017 on a dull note, but will gain
momentum in the second half of the year to close on a more
buoyant note, Raamdeo Agrawal, Co-Founder & Joint Managing
Director, Motilal Oswal Financial Services NSE -0.08 % , told
ETMarkets.com.

Investors should look at equities with a The probability of the market climbing higher is much more in 2017
minimum time horizon of three to five
than its going down, he said. Investors should look at equities with
years while for fixed income assets.
a minimum time horizon of three to five years while for fixed
income assets, one can have a target of one year, he said.

The focus of investors, especially in the New Year, should be on getting the right stocks in the
portfolio in order to reduce or diversify risk and enhance returns. This could be possible with the
help of focused investing, Agrawal said.

In its wealth report for 2016, Motilal Oswalposited


NSE BSE
Company Summary
focused investing as the golden mean compared
Motilal O… -0.75 (-0.08%) with other investment styles such as diversified
investing and concentrated investing. It has chosen
over 50 stocks under diversified investing, and 10 or fewer stocks under concentrated investing.

Referred to the report, Agrawal said: “We recommend a focused portfolio of 15-20 stocks. This
offers the best of both worlds – adequate risk diversification and meaningful return magnification.”

Diversification of equity portfolio is essential, especially at a time when there is so much


uncertainty. Global and domestic headwinds are likely to keep investors on their toes in 2017.

“We have started in a slightly bearish environment and of course demonetisation and its after-
effects are likely to linger on for the next quarter. We are bound to witness a slowdown
in earnings,” said Agrawal.
https://economictimes.indiatimes.com/markets/stocks/news/probability-of-market-going-higher-in-2017-is-much-more-raamdeo-agrawal/articleshow/56115311.cm
4/23/2018 Probability of market going higher in 2017 is much more: Raamdeo Agrawal - The Economic Times

He said this might not be the best time for Indian equities at least for this quarter and the next, but
hopefully, the economy will bounce back stronger in the second half of the year.

One of the reasons Agrawal cited was return of normalcy to domestic consumption. As more and
more people become tax-compliant, it would help good companies, especially those which are
honest with their shareholders.

Agrawal said after the dust settles this quarter, the next quarter should be somewhat better, but still
not good for recovery. The biggest factor which will aid earnings recovery would be
remonetisation.

“A lot of problems have been because of very higher tax rates and the spike in the cost of capital,”
said Agrawal. The government has made sure that the cost of evading tax has gone up, which
should now bring a lot of people into the tax net.

“We do not know what is going to happen. As things open up and the budget comes in, we will
come to know – but I think this is all back-ended,” Agrawal said.

https://economictimes.indiatimes.com/markets/stocks/news/probability-of-market-going-higher-in-2017-is-much-more-raamdeo-agrawal/articleshow/56115311.cm
4/23/2018 Raamdeo Agrawal’s crorepati formula: Invest Rs 10,000 a month for 25 years - The Economic Times

Raamdeo Agrawal’s crorepati formula: Invest Rs


10,000 a month for 25 years
By Kshitij Anand, ETMarkets.com | Oct 27, 2016, 02.40 PM IST
20 Einstein
Comments

said the power of compounding is the eighth wonder


of the world. One who understands it, earns money
and one who does not, pays it, said Raamdeo Agrawal, Co-
Founder & JMD, Motilal Oswal Financial Services NSE -0.08 % . In
an interview with Kshitij Anand of ETMarkets.com, Agarwal said
investing Rs 10,000 a month for 25 years can accumulate between
Rs 3 crore and Rs 25 crore.
God and government have come
together to make you rich. If you invest
ETMarkets.com: From last Diwali, the Sensex has risen nearly
Rs 10,000 a month for 25 years (Rs 30
10 per cent. Do you think the Sensex is on track to hit fresh
lakh) in any equity growth fund, you
can make between Rs 3 crore and Rs highs during Samvat 2073? What is your outlook?
25 crore at the end of 25 years. Raamdeo Agrawal: Yes. I am confident that we will see
meaningful new high in the market next year. The best thing is the
downside is limited

ETMarkets.com: Diwali is the time to make new beginnings. What is the one thing you
would want investors to change in themselves this Diwali?
Raamdeo Agrawal: Invest and don’t speculate if
NSE BSE
you want to create serious wealth from the stock
Company Summary
market. Start investing either through SIP and/or in
Motilal O… -0.75 (-0.08%) lumpsum

ETMarkets.com: Five years back, normal salaried individual could not think of becoming a
crorepati, but with the power of compounding, it is very much possible. Can a person
earning Rs 50,000 a month think of becoming a crorepati if he can set aside Rs 10,000-
15,000 per month for MF or stocks?
Raamdeo Agrawal: Einstein said the power of compounding is the eight wonder of the world. One
who understands this, earns it and one who does not, pays it. Please exploit the power of
compounding for the long term through equity funds.

God and government have come together to make you rich. If you invest Rs 10,000 a month for 25
years (Rs 30 lakh) in any equity growth fund, you can make between Rs 3 crore and Rs 25 crore at
the end of 25 years.

https://economictimes.indiatimes.com/markets/stocks/news/raamdeo-agrawals-crorepati-formula-invest-rs-10000-a-month-for-25-years/articleshow/55089556.cm
4/23/2018 Raamdeo Agrawal’s crorepati formula: Invest Rs 10,000 a month for 25 years - The Economic Times

ETMarkets.com: What is your outlook for gold, equities and bonds in Samvat 2073?
Raamdeo Agrawal: Gold as an investment vehicle is a waste of time. Bonds will see lower yields
but higher prices and equities should prove the best option.

ETMarkets.com: If somebody has a corpus of Rs 2 lakh to invest, how much it should he


allocate to largecaps, midcaps, smallcaps, debt and gold?
Raamdeo Agrawal: He should buy only multi-cap equity funds.

ETMarkets.com: If somebody has a mutual fund portfolio, should he tweak the portfolio to
deal with changes in next one year? If yes, are there any specific themes he should invest
in?
Raamdeo Agrawal: If somebody has a portfolio of more than five mutual fund schemes, he must
trim it to five based on merit.

ETMarkets.com: What are the Samvat stock picks that you would like to share with your
readers?
Raamdeo Agrawal: I will put all my savings in my own equity products.

ETMarkets.com: One guru mantra(s) you would like to share with your readers and how it
helped you take investment decisions?
Raamdeo Agrawal: Investing in Indian equities is not as risky as it is made out to be. Understand
the power of entrepreneurship represented by equities. It’s literally exponential. Combine this with
the power of compounding.

The economics of 15-25 per cent compounded return compared with 6 per cent return from fixed
income over 10-20 years is just too good to believe. Just buy right and sit tight.

ETMarkets.com: Where do you see the rupee vis-à-vis the dollar by next Diwali?
Raamdeo Agrawal: The rupee should remain weak till we have an Indian exports boom.

https://economictimes.indiatimes.com/markets/stocks/news/raamdeo-agrawals-crorepati-formula-invest-rs-10000-a-month-for-25-years/articleshow/55089556.cm
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

The market is just right, go and shop: Raamdeo


Agrawal, MOFSL
ET Now | Updated: Oct 25, 2016, 08.10 AM IST
In a 5
Comments
chat
with ET Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL, says
he remains very bullish on aviation. Edited excerpts

ET Now: You must have been happy as you have been


constantly saying that dips in a high quality market deserve to
be bought in every opportunity and I think we got some
'Investors should track value of
opportunities in the past . Somehow the Brexit vote did not
company, not price' give us an opportunity as such, just a mild downtick on that
day?

Raamdeo Agrawal: Yes, one of the things I remember reading somewhere is that in Indian stock
market particularly the quality stocks, downs are temporary while ups are permanent. So these
things keep happening. Brexit, Rexit and some more will be there,. It is the job of the media to
create one crisis or other.

NSE BSE
ET Now: We report good things also, we
Company Summary
celebrate also…
HDFC Bank -20.15 (-1.03%)
Raamdeo Agrawal: Yes you celebrate also but the
Motilal O… -0.75 (-0.08%)
noise is so much! For an ordinary investor what do
Bajaj 18.95 (1.01%) all these Brexit, Rexit mean? I actually did not know
two-three months back what Brexit means. Suddenly
this this terminology is there in 2016. It was not there in 2015. So much for the terminology itself
and implications are not known.

How to build it in 24 hours? This exhibition itself might take a a decade or may be two –three years
but the market has to price it in tomorrow morning and it had priced in a lot even before the voting.
So obviously it became a kind of buy on rumour, sell on news kind of thing.

ET Now: Even after this run up, we have seen people talking about how we are trading and

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

may be 17, 18, 19 times as the case may be. Does it appear a bit toppish for the near term to
you?

Raamdeo Agrawal: We do not worry about all these things. See, we are at 65-70 per cent of GDP.
We should start worrying when it goes to 125 per cent of GDP. It crosses the parity. So right now,
the market cap is about Rs 104-105 lakh crore. At that level, we are tracking a GDP of about over
Rs 140 lakh crore. So we are still in a 68-70 per cent to GDP ratio and so no issue. I mean like it is
a very nice warm market of 25 degree go and shop.

One of the sad things of investing in equities is that when you invest in bonds, it gives us say 8 per
cent so every day you get 5 paisa and it nicely tracks. So value increase by 5 paisa and price also
increase by 5 paisa. But in stock market, will you keep increasing at 25 per cent but price does not
track that easily. Whenever there is a dip, there is a dip in the price not in the value.

So you have to keep tracking the value and that is why I remain bullish because everyday value is
going up but price gives you an opportunity, price tracks back, it goes five steps forward and three
steps backwards. When it is three steps backward, people are worried and they sell. If value keeps
going down, you have little patience and you cannot time the market always. Who knew about day
before’s 500 points move? Even in the morning when I was talking with my friends we had no clue
that it will move even 50 points and bang! it moved 500 points.

ET Now: That is the beauty of this market. It never fails to surprise you. But the only
peculiar thing post Brexit move is it has not been in India alone. The right is right across the
globe even UK FTSE has surged so much.

Raamdeo Agrawal: We have money only in India so I am worried about India.

ET Now: Absolutely what I am worried about is what happens if you have a sudden down
day or series of down days suddenly globally?

Raamdeo Agrawal: Go for a nice walk.

ET Now: What happens if China worries comeback again does our market rally also get
stalled because this seems like a very coordinated global move right now?

Raamdeo Agrawal: There is no set pattern. You saw the Brexit, we all predicted that if Brexit
happens the whole dooms day happens. Now nothing will happen and there will be dooms days.
So you cannot predict what is going to happen. What you can predict is whether this company
which is earning say Rs 100 crore, will earn Rs 1000 crore in next five-six years, 10 years. Out of
the 10 companies you predict, may be 5, 6, 7 will be right, 2-3 will be wide off the downside and
few of them will be wide on the upside and the combination will give you a good. If you have a right
process then I am quite sure you will make money. If you end up buying a little higher, your rate will
be shorter term, rate of return will be little lower but eventually in five-six years it does not matter.

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

See if the stock has to go from Rs 100 to say Rs 1000, whether you bought it at Rs 103 or Rs 98
does not matter. The issue is whether you bought it or not.

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now:Today’s move by the government leads me to my next question.

Raamdeo Agrawal: What happened?

ET Now: That small uptick in kerosene, as small as it may be, but is a change towards
something that we have not seen so far and I think something that caused a change in the
construction sector, a sector which was disliked by almost everybody and then it is
becoming one of the best performing sectors because there has been a government push
and a change in mindset. Can a change in mindset make a space become very attractive
over a period of five-ten years because that is where we want to tell people to invest into,
not invest for a three month period?

Raamdeo Agrawal: There is a lot of good set of companies even as we go along. You do not have
to wait for a bad company to become good. There is a set of 150-200 companies which are
perennially good and in fact one never prices right the good ones, I can tell you this. America will
always be underpriced because as a country they are so good, you will never enough for it.

ET Now: You are just coming back from Russia, aren’t you?

Raamdeo Agrawal: Yes, yes, but that was a big surprise. What I am saying is that the best thing,
the highest quality thing is always underpriced. You know Amitabh Bachchan will always make
money, you pay him a crore, you pay him two crores, that movie will always be profitable to the
producer.

ET Now: Or a Motilal Oswal Multicap 35 will always make money?

Raamdeo Agrawal: Thanks. But what I am saying is that quality always pays because you can
never pay enough for the quality. You see the trophy assets in the real estate, I mean you pay
crazy price for the prime property and yet that is a property which remains liquid in bad times and
does not go down and it appreciates even in bad times.

ET Now: An HDFC Bank, for example?

Raamdeo Agrawal: Yes.

ET Now: So where do you find the quality names?

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: You can seen that in F35 or whatever products we have, the 50-60
companies are our chosen good companies, at least by our best of judgements. I see a big
opportunity in financial sector because the current situation in say public sector is an opportunity
and even the foreign banks are vacating. So on the high end, foreign banks are vacating or
trimming down for their own global challenges and capital and regulation or whatever and on the
other side PSU banks are shying away from underwriting businesses which they used to do earlier.
So there is a limbo, a vacuum in terms of aggression that they had till about 2008.

Today there is a balance sheet issue, there is a management issue, consolidation issue, a whole
lot of issues. But the economy is surging at 7-8 per cent. So there is a huge opportunity and that is
why NBFCs, private sector banks make good bets. You do not have to find the next new guy, the
existing guys have the infrastructure, the relationships and the muscle power to walk into
anybody’s office and take the mandates. If you want to make 20-25 per cent that is the game. If
you want to make 40-50 per cent, then obviously you have to put in extra effort.

ET Now: So for 40-50 per cent do you choose the PSBs considering they still have a lot of
value erased or do you make 20-25 per cent stick to HDFC Bank, Bajaj Finances of the
world?

Raamdeo Agrawal: I do not get into too much of risk, we work with lot of public money. So we
have to see that their downside is limited.

ET Now: But you have liked PSBs in the past?

Raamdeo Agrawal: Yes, we had. We still own SBI in a limited way but what I am saying is we are
not looking deeply. The biggest challenge for the new governor whenever he comes, is going to be
the repairing of the public sector banks because that is 70 per cent of the system and for any kind
of sustained 8-9 per cent growth for the next 10 years, that is the vehicle.

When Mr Rajan came, at that time our current deficit was very high, oil price was Rs 110, rupee
was under major challenge. Today oil is very subdued at $50, that itself has repaired a lot of
challenge of stabilising the currency. So that remains an opportunity area, a very large opportunity.
So like that ease of doing business is happening, government is opening sector after sector, they
have now opened up aviation and this is the ultimate destination for aviation. This country does not
have proper railways, railway network is there but the speed is not there so...

ET Now: And they are ordering planes by the dozens, Air Asia, everybody?

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4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: Hundreds like, I mean small companies are ordering 70-80 planes.

ET Now: You are bullish on aviation you are saying?

Raamdeo Agrawal: I am very bullish.

ET Now: You are very bullish on aviation?

Raamdeo Agrawal: Yes, very bullish. Let us see-- I mean this is one industry which has
disappointed everybody all over the world so to be very bullish is very tough, I mean there will be
challenges of...

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: So we are on the path you are saying? How do you play that because road
construction company happened?

Raamdeo Agrawal: Let it happen. See all the construction companies will fly. Cement will fly. Steel
companies will do well but then where are the order books. Let it start translating so that the L&T
chairman does not have time to even sign the contracts.

ET Now: But again we have talked about roads, we have talked about aviation, considering
infrastructure is just such a large umbrella. What do you think is going to turnaround the
first, where would orders start kicking in the first?

Raamdeo Agrawal: Road is already happening. We have companies we know it is distinctly out
there. I think defence will be one of the biggest game changer. This government’s one of the
unique contribution is going to be the defence, privatisation of defence and self-met defence.

I would think that if you typically make anything which is made in Europe and made in India, I think
1:3 is the definite thing. For the money at which you can get one gun out of Europe, you will get
three guns out of India.

ET Now: But that goes against your brain, you typically look at companies which have a
great ROC, ROE. I do not think too many defence companies in India as of now have it?

Raamdeo Agrawal: They are not there. Investing is different. So what happens is that when you
build a defence infrastructure, say explosive company, that is not one of the new company, there is
some listed explosive company, they will supply. If you want to have forgings, so Bharat Forge or
somebody will supply, whosoever makes it, even if it is a private company which gets the contract.
So there is going to be that trickledown effect on to the existing companies.

ET Now: But do you think there are existing opportunities? Let us not get into numbers, but
do you think there are existing opportunities?

Raamdeo Agrawal: Existing opportunities may not be direct. If L&T makes it, then obviously it is a
direct opportunity.

ET Now: But it is not such a big needle mover for L&T...

Raamdeo Agrawal: No but eventually it can become. If your entire naval fleet, entire air force,

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

then all the infantry and everything, I mean we are country which invests upwards of more than
lakh crore, two lakh crores and eventually in next 5-10 years if you want to be really super power, if
you want to balance China in this part of the world, obviously you have to have much more
ambitious defence build up in those kind of things.

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: But do you start building your defence portfolio now or do you actually wait for
some more visibility?

Raamdeo Agrawal: That is what I am saying, see investing is different from nice talking about
these things because when you are talking about big themes it does not have any timeline but
when you talk about investing you have to write today...

ET Now: That is why I am asking you is today the time or not?

Raamdeo Agrawal: ...and in three years time and I expect in three years time to double the
money. I want something which is actually happening, not promise of happening. So we are talking
about promises of happening and possibilities but this is not investing. This is just noise for me. As
far as I am concerned these things are nice to read in the paper but there is actionable here...

ET Now: You are not going to put your money there?

Raamdeo Agrawal: Yes. Yes.

ET Now: Anything interesting that you have recently read?

Raamdeo Agrawal: Actually I have started a book today only, I have just read two pages, it looks
to be a very good book Common Stocks Common Sense something like that. So just read three-
four pages but it sounds very good.
ET Now: Common Stocks Common Sense. Common Sense Common Stocks.
Raamdeo Agrawal: It is a 2016 book, looks to be very promising. So next time when we meet we
can probably discuss that book.

ET Now: We will. We will and maybe we should meet soon enough in about a month’s time
to try and discuss the book specifically. The last time we chatted with you while the Brexit
chaos was happening you were in Moscow?

Raamdeo Agrawal: But you can play that. I mean it was wonderful, I had just woken up there and
somebody, I could not recognise the number and I picked up the phone and Nikunj said let us talk
so I said let us do it because 1000 points down, buy the damn thing because the value does not go
down.

See if HDFC Bank is making money I do not think Brexit deters it from making even a Rs 10 lakh

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4/23/2018 The market is just right, go and shop: Raamdeo Agrawal, MOFSL - The Economic Times

lower. If I am getting it 3-4 per cent cheaper I must buy it. Last opportunity-- see whenever any
development which breaks the value, price you leave, price is a different thing, price is a day to day
emotional thing, prices are lot more emotional, value is real. So when value is not broken, the price
will catch up eventually.

ET Now: Revisiting the fundamentals of investing, by the way, it is by Edgar Wachenheim III
if I am not wrong. Common stocks and Common Sense: The Strategies, Analyses,
Decisions of a Particularly Successful Value Investor. We have one, so take that book as
well. When are we going to see a book from you? It is time you write one.

Raamdeo Agrawal: I do not have enough insights to put out there.

ET Now: We get enough insights by your wealth creation studies.

Raamdeo Agrawal: Yes, that is an effort. Whatever wisdoms we get in a year, write it out there.

https://economictimes.indiatimes.com/markets/expert-view/the-market-is-just-right-go-and-shop-raamdeo-agrawal-mofsl/articleshow/53187623.cms
4/23/2018 FII: Markets to see sustained FII buying for next 12 months: Raamdeo Agrawal - The Economic Times

Markets to see sustained FII buying for next 12


months: Raamdeo Agrawal
ET Bureau | Updated: Sep 14, 2016, 04.20 PM IST
The 10
Comments
global
search for yields will lead to sustained buying by FIIs in India even
as the valuations are looking higher, says Raamdeo Agrawal, joint
managing director at Motilal Oswal Financial Services NSE -0.08 % .
In an interview to Nishanth Vasudevan and Sanam Mirchandani,
ahead of the firm's 12th Annual Global Investor Conference,
Agrawal says he remains bullish on NBFCs, liquor and oil
" The market is still calibrating whether
marketing companies. Edited excerpts:
the government will maintain the
current policy structure if oil prices go There is concern about high valuation. What is your view?
to $80-90 (per barrel)."

In 2007, the PE (Price-Earnings) multiple was 27-28 but then there


were high earnings and a high PE multiple. Now, earnings are depressed and PE multiple is a little
higher. One has to be careful while buying expensive stocks, but if it is backed up by sustained
growth in the next 3-5 years, the valuation might turn out to be reasonable. Recent macro
developments like GST (goods and services tax) and good monsoon cannot be priced as they will
not reflect in the earnings immediately but by second half and next year, they will have tremendous
impact on earnings and ease of doing business. Globally, interest rates are very low and FIIs
(foreign institutional investors) are willing to pay higher price for quality equities in India. For the
next 12 months, FII buying will remain sustained since India has higher yield on debt side and even
higher potential for growth on equity side.

Company Summary NSE BSE You said liquidity chasing quality firms have
made them more expensive. How long can it
HDFC Bank -20.15 (-1.03%) continue?

United Sp… 37.20 (1.08%)


Quality is expensive but that's where you have to be
Asian Pai… 19.35 (1.67%) very selective in building your portfolio. We are
EXPAND TO VIEW ALL looking for mispriced quality. There are three
components where mispricing can come in
understanding quality of business, growth and longevity of growth. Like HDFC Bank NSE -1.03 % is
growing for last 21 years at 25% plus rate. In 1995, nobody knew that HDFC Bank will keep
growing like this and hence, they never gave it the valuation.Investors who bought in 2000 and
later have made good money and those who buy now will also make good money as long as the
quality of franchise and growth continues.

What is your view on the local consumption story?

https://economictimes.indiatimes.com/markets/expert-view/markets-to-see-sustained-fii-buying-for-next-12-months-raamdeo-agrawal/articleshow/53904303.cms
4/23/2018 FII: Markets to see sustained FII buying for next 12 months: Raamdeo Agrawal - The Economic Times

We are used to seeing the companies at little lower valuations. For example, Asian Paints
NSE 1.67 % . The market is right in the way they are judging because of the longevity of the

franchise.It has 60% market share and is still gaining market share. Valuation is made up of
franchise value and growth. Companies like Emami have a good franchise. They have space for
growth and it is coming through.If you are buying something at 60 PE, be sure that this franchise
will be there after 10 years and whether it will become 10 times bigger. The success or failure of
investing comes in understanding what is built into the stock price.

What will be the next trigger for oil marketing companies?

Price expansion has happened but valuation hasn't expanded. The market is still calibrating
whether the government will maintain the current policy structure if oil prices go to $80-90 (per
barrel). The policy mess happened when oil went from $25 to $100 and the government came
between the consumer and the crude prices. It will take time for the markets to believe. Quarter
after quarter, as the government doesn't interfere in the working of the companies, PE multiples will
start rising.It will get the blue chip status it had in the 1990s.

Do you remain bullish on aviation space? What is your outlook for InterGlobe Aviation?

It is a very interesting space.InterGlobe has 40% share and is growing rapidly. The industry itself is
growing at 25%. I am also understanding how bad is the aviation business where
as new capacities come, your price keeps going down. It is intensely competitive and we are
watching. As bullish I was a year back I am less bullish now, not on the volume growth but on how
much, in a predictable way, a company can make.

Did your stance change after Q1 numbers?

It was a bit of a disappointment. A `600-crore (InterGlobe's June quarter net profit) number is very
good but it was lower than last year. The company is delivering but we have to figure out how
much money it can make in the next five years. That calculation is not getting set in my mind.

Liquor sector has seen major change in policy. Do you remain positive? You have been
positive on United Spirits NSE 1.08 % .

It is a long-term business and a lot of changes are happening in terms of restructuring of the
business from erstwhile management to the new management. It is a very duopolistic business
and pricing power is massive. There are a lot of regulatory hurdles as the whole country is not free
https://economictimes.indiatimes.com/markets/expert-view/markets-to-see-sustained-fii-buying-for-next-12-months-raamdeo-agrawal/articleshow/53904303.cms
4/23/2018 FII: Markets to see sustained FII buying for next 12 months: Raamdeo Agrawal - The Economic Times

in pricing. But I remain optimistic on long-term basis. Consumption possibility is high in the next 5-
10 years. This industry is definitely for patient guys. It is better to go with a moderate volume but sit
through.

In terms of valuation and market share, where do you see things going in private and PSU
banks?

The value migration, which is happening from PSU banks to private sector banks, is relentlessly
on. It is now for the government to see if they can stop it. They have the franchise, business and
the customers.You have to gear up public sector banks in such a way that they not only do as good
as the private sector but more as they have the advantage of scale.

https://economictimes.indiatimes.com/markets/expert-view/markets-to-see-sustained-fii-buying-for-next-12-months-raamdeo-agrawal/articleshow/53904303.cms
4/23/2018 GST will be like a credit card of the economy: Raamdeo Agrawal, MOFSL - The Economic Times

GST will be like a credit card of the economy:


Raamdeo Agrawal, MOFSL
ET Bureau | Aug 05, 2016, 10.50 AM IST
In an 6
Comments
exclusive
chat with ET Now, Raamdeo Agrawal, Joint MD, MOFSL, said that
the impact of GST is going to be deep-rooted and consumers will
be the ultimate winner. Edited excerpts...

ET Now: It was Rexit, it was Brexit, now GST done away with.
But you have always been of the belief that when it comes to
Consumer will benefit from GST: India, it is all about earnings. What are you feeling about the
Raamdeo Agrawal market right now?

Raamdeo Agrawal: So we are in earning season which is more important than anything. Of
course, GST is something which is very important. It will have deep impact in companies
performances but I think the real thing is that longer term – two years, three years, ten years, we
will not recognise it is a same country. So the impact is going to be deep rooted and the benefit is
going to be the consumers in the country as a whole. I mean it is not about companies benefit. The
ease of doing business will go down. Whatever is the benefit, except for few companies which can
hold it, everything will be passed on. Nobody’s EBITDA margin is going to go up unless you are
somebody who do not care about what prices were charges with the bag, that kind of guy.

There are very few companies like that. I mean say maybe one Pidilite but their benefit will also be
very little. How many companies are there who can say that say like ITC -- they can say that I will
raise the price irrespective of my cost structure. So there are very few, maybe 10 companies but
that does make the market. Everybody else has to pass on. Like cement guys, steel guys they will
benefit a lot but everybody is in the competition, so everybody will have to pass on. So who is the
beneficiary, people like you and me.

So all the consumers will be beneficiary and that will drive the economy. Things will happen fast.
Trucks will turnover faster. There will be lot of defectiveness. You want to sent something from say
Mumbai to Calcutta, it used to take 10 days and uncertainty. Today, it will reach in seven days and
with certainty that it will reach because there is no obstacle by the authorities. Obstacle will be now
your own vehicle, breakdown or whatever. So those changes will happen. Say like when you use
credit cards, so everything your payment moves smooth but earlier when do you doing cash, I
mean it is lot of hassle, you carry the whole bundle, give it to him, he will give some changes. It is
very slow but the moment this credit card, it moves very fast. So like that GST will be like a credit
card of the economy and very large part of the economy.

ET Now: What does it mean for the markets though because for markets in the near term it
is going to be about earnings, in the longer term it is going to be about earnings?
https://economictimes.indiatimes.com/markets/expert-view/gst-will-be-like-a-credit-card-of-the-economy-raamdeo-agrawal-mofsl/articleshow/53552684.cms
4/23/2018 GST will be like a credit card of the economy: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: So that is what I said, I mean earnings are not going to be impacted for many
companies. Even in the immediate 12 months, 18 months, the few companies where they have
pricing power, they can hold on to gains.

ET Now: So you are saying no excitement for the market?

Raamdeo Agrawal: No, it is very exciting but I would say my PE multiple goes up not the
earnings.

ET Now: But the PE multiple has already gone up to be fair here and PE multiple has gone
up post March 2014. The fact that India is trading at a premium, it means that in general
investors they feel that the reform progress will be strong. So there is nothing new about a
GST Bill in terms of PE pricing?

Raamdeo Agrawal: Yes between yesterday and today, there is nothing. I mean yesterday
probability of GST coming...say day before probability of GST coming the moment Congress said
that we are in, it shot up to may be 99% and that has become 100%, that is why market is not
excited about it. But 15 days back, it was not 100%. In my mind, it was 70-75%. So today it is
100% is done. It is over. That buy on the rumour, sell on the news, so the rumour part was last 15
days, now sell on the news so it is all done.

Now I think BoE cut in the rate is more important than GST immediately because see markets are
not going to wait for one year, one year after that earnings to come in because now this is only a
constitutional amendment. Actual counter of whether it is going to be 18%, 20%, they will have
three slabs or what is in, what is out, I think those details are going to come up some time in, now
they will work it in December so we will do special show the day on which the bill is introduced that
these are the rates, we know sectorally today who are beneficiaries and who are going to be I
mean pay more like...we all be paying...all the service guys will be paying 2%, 3% more so we are
hit at one level.

But say all this logistic intensive companies like steel, cement, they will definitely be beneficiaries
but can they hold on to that gains, I do not think so. So on the whole, earnings calculation at least I
personally do not think it is going to have much impact in the short term but in the long run,
operational flexibility, the convenience, the hassle of not doing any... those things will be there and
that will be anti-inflationary and very efficiency gaining kind of situation.

https://economictimes.indiatimes.com/markets/expert-view/gst-will-be-like-a-credit-card-of-the-economy-raamdeo-agrawal-mofsl/articleshow/53552684.cms
4/23/2018 GST will be like a credit card of the economy: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: Do you think we are in a sweet spot right now. I think the answer is yes but the
reason I am saying this is because we have had one month of some bit of DII selling
unfortunately coming in, maybe people have redeemed. But monsoon is great, earnings
though patchy has been okay and now we have the biggest tax reform.

Raamdeo Agrawal: The biggest thing is globally there is a complete surge of field, I mean the $13
trillion is below, ten-year papers are below and now government bond issuances is at negative
interest rates. I do not know who is going to buy it. I mean you had 2% yield, you buy into it and it
goes into negative that is one thing but actually issuance at negative so you are saying that
fundamentally I am not going to get any money out of it. So I do not think any pension fund and all
they will be buying into them. I do not know who buys that. So there is a massive surge for the
yield so that is why you see all the bond issuances even from say like masala bond, it got
subscribed by four times. You saw yesterday one housing finance company did, there is a mad
rush for the bonds so this is what is happening. Now the overflow of that negative interest rate
money is coming into emerging market and it is going to become, it is going to intensify.

ET Now: Those have been okay. But if I look at the environment, zero interest rate regime
has been there for about 12 to 18 months now. The fact that central banks are printing
money that is happening from half a decade now. But despite such a benign liquidity
environment, emerging markets as an asset class in last five years they have
underperformed. It is not that all the global money has come to India and it has gone to
other emerging markets. So I buy your liquidity argument but for the moment it is not
showing in asset prices.

Raamdeo Agrawal: Yes so now environment is benign that does not mean that money will
automatically flow. Now we have to create a conducive environment for that money to flow into
equities or emerging market equities particularly India. So here what are the factors which can
change the trajectory of earnings. So you have terrific monsoon after three years, it is so intense, it
is really supercharge monsoon; then you have...I hope that will have impact on the inflation with a
gap of two-three months. Then, all the policy paralysis of 10 years have been all cleared up. I think
this is a last piece of legislation.

There is nothing left on the table of Lok Sabha and Rajya Sabha which is a huge achievement. I
mean yesterday finance minister cut cake for, I mean very unusual. It is like a new birthday for him.
So it is such an event so it is not about the act, the issue is now that the whole country has come
up to push the legislation. So my sense is that there are too many good things, so market most
likely is not going to go down much.

Upside I do not know because unless earnings come or something else comes in it is going to be
tough. I mean somebody starts buying madly which is not looking to be like that. But the
companies which are doing well there would not be any dearth, in fact there will be violence to buy
those companies whichever shows earnings growth. You might have seen this, wherever earnings
surprise is there, the buying surprise is 10 times bigger than...so that is what is going to happen

https://economictimes.indiatimes.com/markets/expert-view/gst-will-be-like-a-credit-card-of-the-economy-raamdeo-agrawal-mofsl/articleshow/53552684.cms
4/23/2018 GST will be like a credit card of the economy: Raamdeo Agrawal, MOFSL - The Economic Times

and that is where you have to position your portfolio ahead of time.

ET Now: It is clearly a frenzy out there but let me talk about some of the disappointments as
well and you have extremely gung-ho about aviation and that also is an extension of
consumption but the earnings because of the price war in the sector have disappointed the
street have you changed your thought on aviation because you have been a large
propagator of aviation?

Raamdeo Agrawal: Yes, so I am also learning and I am as much disappointed. In fact I wanted 50
crore more than 640 which was last year’s number it came exactly 50 crore lower. So clearly I
mean we do not have the grip of how the industry works.

ET Now: When that position giving you sleepless nights, are you thinking your investment
thesis is still intact?

Raamdeo Agrawal: See when you run a portfolio of 18 companies one company or two
companies will always disappoint, there will be same day we had Bajaj Finance which went up by
10% and same day we had a 10% in Reliance so it does not matter. So that as far as the
management, this happens, Infosys went down by 10%...

ET Now: No, no I am not talking about the price action I am talking about when you invest
but you have always explain to our viewers is that you have an investment framework which
is in place and once that investment framework is broken, statement is not working what I
am going to understand?

Raamdeo Agrawal: We had expected certain growth QGLP, quality still stays where it is, G is not
turn out to be the way we had thought but it is only quarter okay, numbers are not that bad. The
issue is that when you compare with last year’s Q4 which is 15% net margin this year it is 12% net
margin so 12% net margin is damn good but it is not as good as what we are thinking with 25%
more traffic..

ET Now: But you still have conviction and you are going to wait it out is what you are
saying?

Raamdeo Agrawal: Yes, we are going to wait it out but the super conviction which I had that
definitely has diminished.

ET Now: What about the other one, Bajaj Finance I mean I know you must be extremely
smiling with the stock jumped up 10% but does it seem like this frenzy is not really good or
I mean is it getting toppish anywhere or do you think this is now when the story has just
started?

Raamdeo Agrawal: As I said do not come in front of running truck, this is a huge truck which is

https://economictimes.indiatimes.com/markets/expert-view/gst-will-be-like-a-credit-card-of-the-economy-raamdeo-agrawal-mofsl/articleshow/53552684.cms
4/23/2018 GST will be like a credit card of the economy: Raamdeo Agrawal, MOFSL - The Economic Times

going at a full speed, do not apply this valuation, let the truck slowdown or let it come to stop then
we will think of getting out. Let the growth phase...

ET Now: But has the truck caught speed?

Raamdeo Agrawal: Yes, it is at a speed, it is speeding for last five-six years, three years-four
years so right now the truck is at full speed do not come in front of it let the this corporate is well
managed it has big opportunity and it will slowdown I mean it can go on at this pace. When it will
slows down then that we will take our call.

ET Now: You may avoid talking about your own firm obviously so but the diversified
financial companies which have this broking arm to themselves which was earlier a very
integral part now a small part because a lot of other things have come to the fall the reason
I am asking this to you is because you had a management the other day saying that the
total AUM of the NBFCs is just about scratching the surface of the AUM that banks have
and they have a long way to go do you think this growth rate for the other NBFCs also is
just about starting and people should not worry about the kind of run up that we have seen
there?

Raamdeo Agrawal: See you are saying that some of the NBFCs are growing very rapidly.

ET Now: No, they have run up a lot the valuations that are being assigned to them on a
price to book are sky high right now. Is that a worry or do you think the earnings will catch
up?

Raamdeo Agrawal: See I do not worry about the companies which I do not have in my portfolio
and very clear I mean there are lot of, see every company is not in the same boat. There are some
companies which have manipulated, stock might have been manipulated, the earnings may not
sustain, it might be a low quality and high growth. I do not look at low quality high growth, I look at
high quality high growth so there the multiples can be very high and see like at one point of time
Gruh Finance we have made lot of money in that and the price to book went to 14, I think still it
must be 10 or something like 10-11 okay it must be, lot of companies they struggle to get PE
multiple of 14, this company was trading at 14 price to book I think this one be the most..

ET Now: Because they never diluted.

Raamdeo Agrawal: Yes, no no it is not about that only see look at they earned 30% ROE. They
pay out 30%, they grow at 30 I mean they deserve to get 30, 35, 40 PE but market does over does
in terms of their exuberance and they took it to may be little higher may be 45-50 PE and that give
that 12-14 price to book. So clearly for that they are waiting for that one year cooling off because
earnings are growing so value keeps growing at a pace, price does not have to because for value
to grow earnings have to grow, earnings can grow at a particular some sensible way 25%, 30%,
40% that itself is very tough to sustain but price I mean somebody comes, some mad guy comes

https://economictimes.indiatimes.com/markets/expert-view/gst-will-be-like-a-credit-card-of-the-economy-raamdeo-agrawal-mofsl/articleshow/53552684.cms
4/23/2018 GST will be like a credit card of the economy: Raamdeo Agrawal, MOFSL - The Economic Times

and says that I want a $100 million worth of stuff in one day you shoot up by 20%. So you can what
company takes one year to grow you can grow it in the marketplace in one day.

ET Now: I am just wondering, is there a temporary mismatch for United Spirits as well
because that is again I think a theme that you probably used to like sometime...

Raamdeo Agrawal: But I still like...

ET Now: Yes you know somebody is disliking because it is trading at fresh lows, what has
gone wrong here to you in mind or what is something that the market is...?

Raamdeo Agrawal: See you must always figure out difference between the value growth and
price growth. What is the troublesome is not to your liking is the price is coming down that is but
value is going up, value is going see what the management can do they can take all kinds of right
action and they can whatever premiumisation they are doing, whatever volumes they are pushing,
whatever brand positioning they are doing, innovation the new brands which is happening,
everything is happening but market had in their own wisdom they had taken it to Rs 4000 so that is
coming down to whatever wherever it is the right price at a right value. But on a 10, 15, 20 years
henceforth I see this franchise to be very very strong and very rewarding to the investors.

ET Now: How you position within IT wherein Infy has disappointed on the other hand HCL
Technologies is emerging as the winner when it comes to earnings or do you still find
comfort in the midcaps the Tata Elxsi's of the world which could be a large cap sooner or
later I do not know?

Raamdeo Agrawal: See even large portfolios is what happens is you like something, you dub the
story, you work with the management, work with the spreadsheet and then you take a position. Say
like Indigo we took a position now things then the story starts happening and stories 80% time it
works around the way you thought, 20% time it does not work so then you have to rethink what to
do, then you reposition the portfolio but the broader theme does not change pharma, IT, consumer,
private sector banks, good NBFCs or some specialised monopoly companies that is how the
portfolio looks...

https://economictimes.indiatimes.com/markets/expert-view/gst-will-be-like-a-credit-card-of-the-economy-raamdeo-agrawal-mofsl/articleshow/53552684.cms
4/23/2018 Buying surprise will be 10-times bigger in companies which can deliver earnings: Raamdeo Agrawal - The Economic Times

Buying surprise will be 10-times bigger in


companies which can deliver earnings:
Raamdeo Agrawal
By Kshitij Anand, ET Online | Updated: Aug 05, 2016, 03.27 PM IST
4 NEW
Comments

DELHI: The probability of the market going up is


much higher than going down and the biggest trigger
would come in the form of earnings surprise, Raamdeo Agrawal,
Joint MD, MOFSL, said in an interview with ETNow.

The goods & services tax (GST) ended a 10-year long policy
paralysis in India and now there is nothing left on the table of
"I do not think anything is priced. What the Lok Sabha and the Rajya Sabha, which will be a huge
will matter is how the new government
achievement.
treats the business"

The GST bill will impact earnings but not immediately. A decent
monsoon season so far will lower inflation and boost consumption, which will play a big role in the
next quarter.

"My sense is that there are too many good things happening for the Indian market. So the market
is not going to go down a lot. However, big upside won't be possible unless earnings come through
or there is some other trigger," said Agrawal.

"There is no dearth of companies which are doing well. In fact, there will be to a rush to buy those
companies which show earnings growth. Wherever earnings surprise is there, the buying surprise
is 10 times bigger," he said. He advises investors to position their portfolios ahead of time.

The June quarter results have been not as bad as was expected. Net profits of the Nifty50Index
(25 companies have reported so far) came in at 5.5 per cent, which was ahead of expectations.

Valuation does look expensive across the board, but India is in a sweet spot and the rally might
continue for some more time. Investors should try and align their portfolios towards stocks or
sectors that are likely to gain from the economic recovery as well as GST.

https://economictimes.indiatimes.com/markets/stocks/news/buying-surprise-will-be-10-times-bigger-in-companies-which-can-deliver-earnings-raamdeo-agrawal/a
4/23/2018 Buying surprise will be 10-times bigger in companies which can deliver earnings: Raamdeo Agrawal - The Economic Times

Among sectors, a broader theme which does not change includes sectors like pharma, IT,
consumer, private sector banks, and good NBFCs and that is how your portfolio should looks,
recommends Agrawal.

The June quarter results have shown a decent start to FY2017 earnings but there is no significant
outperformance at the operating level. The top line and the operating profit contracted sequentially.

But analysts have started building in their estimate a double-digit earnings growth in the current
financial year.

Kotak Institutional Securities projects net profits of the Nifty50 Index to grow 14.7 per cent in
FY2017 and 20.6 per cent in FY2018 on the back of domestic economic recovery and higher
profitability in several sectors whose earnings have been beaten down by global factors.

Which sector could deliver earnings surprise?

Investors should look at those sectors which have been beaten down and would directly benefit
from a recovery in the economy as well as policy reforms.

Over the course of the next two to three years, the sectors like banking, telecom, consumption,
should pick, infrastructure should pick up.

"It is the economic cycle which is likely to help the whole earnings environment. You have capacity
utilisations which are low and those capacity utilisations are likely to go up. As the economy
improves capacity utilisation will also go up and that will lead to earnings growth," S Naren, ICICI
Prudential AMC said in an interview with ETNow.

"Banks will do well over next 2-3 years because the NPL cycle has peaked out and it will not
deteriorate for next two years. The power utility is one sector where the PLF will go up and is likely
to do well over the next two years," he added.

"It looks like this year earnings will bottom out for telecom sector considering that there is a
massive increase in capacity this year," added Naren.

https://economictimes.indiatimes.com/markets/stocks/news/buying-surprise-will-be-10-times-bigger-in-companies-which-can-deliver-earnings-raamdeo-agrawal/a
4/23/2018 Today is the day for shopping: Raamdeo Agrawal, MOFSL - The Economic Times

Today is the day for shopping: Raamdeo


Agrawal, MOFSL
ET Now | Updated: Jun 24, 2016, 01.14 PM IST
In a 10
Comments
chat
with ET Now, Raamdeo Agrawal, Joint MD, MOFSL, says
the market meltdown offers opportunity to pick up more of the
stocks on your list at a lesser price. Edited excerpts

ET Now: Can I say good morning or you are already in a state


of disbelief?
Today is the day for shopping:
Raamdeo Agrawal Raamdeo Agrawal: No, no this is a very good morning, very bright
sunshine here. So finally what nobody was expecting has
happened and that is the jolt one is going through. So one of the famous sayings is that whenever
there is a frenzy in the market go for a night walk. So I think that is the kind of suggestion one can
give because we do not have anything. I heard so many guys. Nobody has any clue what is going
to happen. So how do you react in the market at this juncture?

Catch all the views, news and reaction on Britain's EU referendum here

ET Now: Purely from an Indian investor point of view Raamdeo, how do you approach this
market? Do you keep your buying list ready because my sense is that the broader market
collapses have only just started and they are falling more than the front liners and may be it
could aggravated in the next few days. So once the dust settles down, you keep your
buying list ready and start buying more of the stocks which you always wanted to buy but
they were richly valued earlier?

Raamdeo Agrawal: You are already in a panic situation. I do not know what is the numbers right
now may be 800 points, 900 points, 1000 points? The first thing in the morning I called up my
managers and I said how much money do you have? So today is a day for shopping that is what I
told them.

Also read: Get news, views and all the updates about Brexit here

https://economictimes.indiatimes.com/markets/expert-view/today-is-the-day-for-shopping-raamdeo-agrawal-mofsl/articleshow/52896838.cms 1/2
4/23/2018 Today is the day for shopping: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: What is the shopping list looking like?

Raamdeo Agrawal: These are the same stocks which you have. The ones which were doing well
recently. Buy more of the same as people will try to book profits rather than booking losses. So my
sense is, we might among our list of stocks which we are buying or thinking of buying use this
opportunity to spend whatever cash we have to buy into them. That would be our strategy. I think
these are opportunities, I mean yesterday what was available for Rs 100, today it is available for
95. In any case if it had opened at Rs 100 then also we would have bought at Rs 95, my customers
are benefited.

ET Now: On paper we can prove that India is not the first derivative or the second
derivative. In fact, it is a third derivative of a fallout. So I am with you when you say that if
you are getting a good business cheaper because of global problem you should be a buyer.
But my challenge here is that right now globe is hungry for growth and this kind of an event
will only open concerns about where growth is headed and the last thing we want is that
central banks should print more money and they should artificially kick start their
economies. ALso the social implications of such a move that has started in Britain, could
now spill over to Netherlands. You do not know whether Germany wants in, you do not
know what will happen to Italy. So may be the social fabric of the world could change?

Raamdeo Agrawal: This is a huge global event. I am not undermining the importance of it but you
do not undermine entrepreneurs also. The companies will find their ways. Life goes on. I mean
what changes in your life or my life on a day to day basis because the businesses which are
supplying you with things you need for say you are flying, for eating, for drinking, for using banking
services etc. will go on. Businesses are not as unstable as what the markets are making out to be
right now because right now it is an emotional challenge. Markets are emotionally challenged. You
see responses from Delhi, from all over the world as the developments unfold. Everywhere people
will grapple with the situation and the responses will come and but by that time what happens in
stock markets it is a perception issue.

Today’s opening is today’s price, tomorrow’s open is tomorrow price. Today there is a panic so you
will get a panic price. Tomorrow once things calm down, you will get a much better price because
then it will look oh! we panicked a little bit but things are not as bad as what it looks to me. So
things will change.

https://economictimes.indiatimes.com/markets/expert-view/today-is-the-day-for-shopping-raamdeo-agrawal-mofsl/articleshow/52896838.cms 2/2
4/23/2018 Housing finance, private equity and AMC businesses were the three key drivers of growth this quarter: Raamdeo Agrawal - The Eco…

Housing finance, private equity and AMC


businesses were the three key drivers of growth
this quarter: Raamdeo Agrawal
ET Now | Updated: Jul 22, 2016, 04.42 PM IST
The 1
Comments
private
equity business, whose first fund has come to a closure, performed
well and we have been selling stocks from that particular fund,
says Raamdeo Agrawal, Joint MD, Motilal Oswal NSE -0.08 %
Financial Services. Excerpts:

ET Now: Congratulations, what a stupendous performance it


'Private equity business performed well has been. Tell us a little bit more about the group level, which
this quarter' business would you say has contributed most of the growth
this time?

Raamdeo Agrawal: Yes. As far as the contribution in quarterly results is concerned, the private
equity business, whose first fund has come to a closure, performed well and we have been selling
stocks from that particular fund. You might have seen the public issue of Parag Food, which was
basically our stock which went to the market. Then, we were selling Minda Industries NSE -0.31 % .
Then, there were some private exits also. So about Rs 50-55 crore of this quarter came in from the
carry profits the managers get. Apart from that, our housing finance company Aspire has grown 4
times, almost 390 per cent. So that has contributed a good amount of money, which was not there
last year. It was about Rs 14-15 crore in the current quarter. The third growth driver was the AMC.
Last year, the AMC was actually making losses about Rs 3-4 crore. This year the same entity has
given a profit of about Rs 9-10 crore. So that has been the third growth driver. I think the biggest
surprise and pleasant surprise was the established broking business; we have started
gaining market share there. Yield is very stable. It has a lot of expenditure. Immediately after the
installation of the new government, we have recruited a lot of people and we took a lot of cost last
year. Actually the operation suffered last year. But this year, started off well. June was very good
month. Even July is shaping up well. I think that business is showing a lot of stability and a good
trend. So all in all, all the four segments have done very well. We think we are in good times at this
juncture.

NSE BSE
ET Now: I have to note that the stock market is
Company Summary
rewarding your performance as well, with your
Suzuki 39.85 (0.44%) stock at an all-time high right now. Out of the
four segments that you just mentioned, what do
ITC -0.70 (-0.25%)
you think is going to be the biggest contributor
Infosys 9.25 (0.78%) in the year to come?
EXPAND TO VIEW ALL

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4/23/2018 Housing finance, private equity and AMC businesses were the three key drivers of growth this quarter: Raamdeo Agrawal - The Eco…

Raamdeo Agrawal: See, the biggest number of employees and the core of the company is in the
broking business. But it is a highly cyclical and unpredictable business in terms of how big you can
be. In 2003 and 2007, we grew 100 times in that business. We had only one line of business
institutional broking. So right now, we are doing how much we did at the peak of last time. This
quarter is almost close to what we did at the peak of 2007-08. But hopefully this is starting off the
next round of good times for the market. So how big can it become? Can it be five times? Can it be
10 times or can it remain the same in a bull run because if by any chance it becomes a very
different kind of rally, some kind of a sectoral rally or something like that and it bypasses the
market, that could be a very different thing. But going by our experience of 25-30 years, no bull run
bypasses a broker. So, I think this time also, that can be a very large thing. Right now, it is about
one-third of earnings. It used to be about 75 per cent two years back, today it is a 35 per cent. So
that can surprise us positively. Then, you have the housing finance business, which is very
predictable because there you can do as much business as much you put in terms of capital. So
here we are committed to providing all the capital possible, the pace at which we have designed
the business model. Right now the traction is very good. We are in the affordable segment, Rs 10-
11 lakh per house, and so we have done about 25,000-27,000 houses which give us a book of
about Rs 2500-2600 crore, so that looks like a very promising segment of growth. But it is relatively
new, just about two years old and we are still building our base there. The third business is AMC,
where again we have a very focussed strategy. We do not offer debt products. We offer only equity
products. Even in equities, we offer very specific type of equity products and just about two-three
strategies. We have only three schemes. So all of them are doing well and right now all of them are
about 20-25 per cent each business. But in 2020, I wish my broking business turns the biggest,
while others try to catch up.

ET Now: You booked an exceptional income as profit on sale of investments from the PE
business. What is the outlook over here?

Raamdeo Agrawal: Yes. For last seven years, we have been managing the fund. We were getting
only fee income and all the cost was loaded against that fee income. Profits were minimal. In fact,
it might be net-net loss or something like that. Maybe we must have booked some profit in last
seven-eight years. But in the private equity business, the main thing one waits for is carry. So the
carry is coming. It is a perfectly operational income, but it does not come every year. It comes
when you close a fund because you have to first return the capital. You have to return the
promised hurdle rate and then on top of it if something is left, of that 20 per cent is what you get.
So this Rs 53 crore is part of that particular carry. In next two-three quarters, we again expect
some more amount of money depending on at what level we are able to exit. So, it will be there. At
least almost the same amount or maybe a little more would be there in the second half. After that,
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4/23/2018 Housing finance, private equity and AMC businesses were the three key drivers of growth this quarter: Raamdeo Agrawal - The Eco…

this line will dry up.

Kust to complete this discussion, there was also a Rs 20 crore writeoff in this quarter. So against
Rs 53 crore you can say there is a Rs 20 crore writeoff and what happens is that there is a
seasonality, a lot of businesses in Q1 are smaller than what it will be in Q4. So even if the carry
profit comes down in the quarters to follow, which will definitely be not there, other businesses will
scale up, that is what the expectation is.

ET Now: You are the ‘A’ stock picker and your stock itself is making fresh highs right now.
At Rs 501, which is the fresh high for your stock, do you think all the positives are in the
price for Motilal Oswal, the stock, or do you think the story in Motilal Oswal has just begun?

Raamdeo Agrawal: This is one stock which others have to figure out. I just cannot figure out. I
mean it is fun to see from the other side and, in fact, I am learning a lot. In the last three-four
months, I have been knowing these numbers. This is how it is going to shape up. But I was waiting
to see when the market takes the energy of this thing and our finance department has been very
tight-lipped and hat is why till yesterday even when we were sitting on the board, the market had
no clue of the numbers. So what I am learning is that it is a very different thing to be in the
company and seeing it from outside. We keep passing judgements on a lot of companies, large
companies, and I think the real life is very different.

ET Now: But would you say that the best is yet to come for Motilal Oswal and, therefore, the
reflection of the stock price at Rs 501 is just the beginning of the story?

Raamdeo Agrawal: Definitely, not a beginning of the story. I mean there is a lot to come beyond
doubt. All the four businesses have a lot of potential. The oldest business is just 25 years old, that
itself has huge potential. The other three businesses are seeded now. So it is a one of the strategy
shift we did two years back where we said that we would use every penny of the equity for equity
and that is what is bearing it.

Now, HFC is just about 25 months old and it is an ocean of opportunity. Same is the case with the
AMC. We do not want to build businesses which are going to be very small, and which are not
growth oriented and which do not have ROE and cash flow. So QGLP, what we talk about in
investing. We used every single parameter of QGLP to build our company. Now, it is lot of luck, lot
of leadership team. Our leadership must be complemented because I am there only to guide in
board meetings and but it is all done by our staff, our colleagues, senior management, all the
employees put together.

I think a lot of things are dependent on what kind of opportunities you meet up with, what kind of
opportunities break up, what kind of investors get into your company, particularly, on the asset
management side. Now that opportunity is global. What kind of institutional money can flow in
suddenly. So we have to keep waiting. But I think I would definitely say that the best is ahead. Best
is at least in store going forward, if we can actually capture.

https://economictimes.indiatimes.com/markets/expert-view/housing-finance-private-equity-and-amc-businesses-were-the-three-key-drivers-of-growth-this-quarter-
4/23/2018 Housing finance, private equity and AMC businesses were the three key drivers of growth this quarter: Raamdeo Agrawal - The Eco…

ET Now: So multi-bagger in the making?

Raamdeo Agrawal: I mean you can use whatever words you want to use. It is a Rs 6,000-7,000
crore kind of company. It is not that small a company. For serious multibagging, I mean for
something to become 100 times, which I love that the word, you need to start little smaller. I mean
only future will tell what happens. But I mean it all depends on how the event shapes up.

ET Now: Let’s talk a little bit about what the outlook is for the markets. You said best times
ahead for the company. Do you share that view when it comes to the equity market for the
long haul?

Raamdeo Agrawal: Yes. I mean this is what has been the view for last 30 years and, in fact, if you
ask me today, I feel as bullish on the market. I have said that this is a great time to go out. I mean
you remember you interviewed me when I was in Moscow some 15-20 days back and there we
said it is the nice and bright sunshine. Let us go for shopping when the market is 1000 points
down. So the equity view does not change.

Monsoon is perfect now, and that is one big thing which is under way. Except for Gujarat and
Northeast, almost everywhere it is normal or in excess. In next 12 months, things will build up and
consumers will come out, rural consumers will come out and they will buy goodies. On top of it, the
GST is literally knocking on the door. It has not happened, but this was the biggest reform in five
years. What has happened to the telecom now could happen to the indirect taxes because of GST.
It will not only increase the efficiency of tax collection and ease of doing business, but also
increase the tax collection- to-GDP ratio, which has been a crying need for India. At 10-11 per cent
to GDP, taxes are just not enough and without that we cannot do development. Once this GST is in
place over the next two-three years, I am sure the tax-to-GDP ratio will grow and that will give
enough funding for infrastructure spend.

ET Now: You have always been of the belief that whenever it is gloomy, it is time to go out
and buy some of the stocks like a Nestle NSE -2.80 % . For that matter, Pidilite NSE 0.54 % is
already at a lifetime high. Does it worry you that may be these stories are now giving you
signals to book profit? Do you think these are stories where you will continue to be a
believer and you will continue to hold on?

Raamdeo Agrawal: You have to. The new highs or scaling up to the old levels only confirm that
our thought process is right. But if the Indian economy has to go from $2 trillion to $4 trillion over
the next seven years, the amount of discretionary spend that is going to happen is going to be
humongous. It is going to be the same Maruti Suzuki NSE 0.44 % for cars, the same chocolates or
same lot of consumer products and services. I think companies, particularly the ones in dominant
positions in their respective fields which are admired by their underlying consumers will scale up
and make a lot of money. They will be surprised by what could be there in store as the economy
opens up in the years to come.

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4/23/2018 Housing finance, private equity and AMC businesses were the three key drivers of growth this quarter: Raamdeo Agrawal - The Eco…

ET Now: Are you little worried though about the quality of earnings one have seen? IT has
disappointed this quarter, PSU banks or rather private banks have not done anything
impressive and in FMCG ITC NSE -0.25 % as well as Unilever NSE -1.03 % have not had the best
of volumes so to speak. So that earnings surprise is still pretty much lacking. How long is it
before we actually see some earnings growth on the ground?

Raamdeo Agrawal: We are keenly watching this particular quarter. Infosys NSE 0.78 % was kind of
a rude shock somewhat. In fact, the company had tried to guide for this quarter of some kind of
happening in the billing and all. But I do not think the market took it seriously and on the day of the
results there was a kind of shock. Apart from that, most other results were broadly in line, not much
to look at in the sense that there is no major positive surprise out there. Some of the NBFCs, like
we saw the microfinance company yesterday, had fabulous results. Now Motilal Oswal has a great
result. So I think we will start seeing some growth impetus coming out in this quarter. It is too early
but as the time passes, we will have better handle on the total corporate earnings over next two-
three weeks. But my sense is that it should be better than the Q4.

https://economictimes.indiatimes.com/markets/expert-view/housing-finance-private-equity-and-amc-businesses-were-the-three-key-drivers-of-growth-this-quarter-
4/23/2018 Sensex: I am okay with Udta Sensex, 70% chance GST will go through: Raamdeo Agrawal - The Economic Times

I am okay with Udta Sensex, 70% chance GST


will go through: Raamdeo Agrawal
By Kshitij Anand, ET Online | Jul 20, 2016, 02.51 AM IST
18
Comments

The tug-of-war between the BJP and the Congress


over the GST continues, delaying a nod to the much-awaited tax
reforms. If implemented, GST will have a far-reaching effect
on India Inc and the broader economy. But might take at least two
years for it to show the results, says Raamdeo Agrawal, MD & Co-
Founder, Motilal Oswal Financial Services NSE -0.08 % . In an
interview with Kshitij Anand of ETMarkets.com, he said there was a
If implemented, GST will have a far- 65-70 per cent possibility that the legislation will go through in
reaching effect on India Inc and the
monsoon session. Excerpt:
broader economy. But might take at
least 2 years to show the results, says
Agrawal. ETMarkets.com: There is a lot of hope that the GST will
get through in the ongoing monsoon session of Parliament.
However, there is no clear signs that the opposition Congress will support the bill. How
important is the GST for the market as well as FII sentiment? If it does get through, what
kind of impact do you expect on the economy and on specific sectors?

Raamdeo Agrawal: This is a very important issue. The probability may be significantly higher than
the 50 per cent right now. I would say more there is a 65- 70 per cent chance that it (GST) will go
through this session.

NSE BSE
The environment is conducive and that is why the
Company Summary
market has started performing. The market is
Motilal O… -0.75 (-0.08%) thinking that there is a good chance of it going
through. There is no obstruction and the market has
not built up too much in the price yet.

Second, this is a business reform. It could be chaotic to start with, but will yield results in future. All
the big changes will have some pain and we have to figure that out. It will become one freight
across, which means you could produce anywhere, sell anywhere – this is big. You could sell
online, or offline, any state, any Union Territory.

It is a good thing and it will bring a lot of productivity gain. GST is also deflationary to some extent.
It is going to give impetus to the growth. GST is going to give a new design to the logistic sector.
Logistic will be completely revamped. There are far-reaching effects like when mobile came,
nobody knew that it will be used for the smart phone.

https://economictimes.indiatimes.com/markets/stocks/news/i-am-okay-with-udta-sensex-70-chance-gst-will-go-through-raamdeo-agrawal/articleshow/53279094.c
4/23/2018 Sensex: I am okay with Udta Sensex, 70% chance GST will go through: Raamdeo Agrawal - The Economic Times

Remember, when this kind of far-reaching reforms come, nobody knows the end-result. What is in
the right direction will come through and, maybe, after a year or two, one will realise what has been
the impact of it. But is will surely be positive.

ETMarkets.com: Specifically for the economy, some economists are building estimates that
the GST would probably add another 1 per cent or 2 per cent to the GDP? Are you building
in a similar estimate?

Raamdeo Agrawal: Yes, that is one part of it. Second is that the country can move forward. The
whole world (FIIs) thinks this is a country with a paralysis and what is good for the country also
does not happen.

If that kind of thinking is there, then what happens is that the country which is in the process of
development will face the obstructions – some are manmade while some will be legislative or
global in nature.

In the process of development, if GST is an important reform and can lead to positive
development. Once GST is implemented, it will give confidence to outsiders as well as insiders.

ETMarkets.com: There is one clear trend which is visible in the past few weeks is the
continuous selling by DIIs and the inflow from FIIs, although positive, has slowed down. Is
this redemption pressure? Does it signal anything significant about the future trend? What
will be the fund flow situation according to you for the rest of year?

Raamdeo Agrawal: No, no. Investor behaviour is crazy, because these advisers have seen the
market rise to 9,000, and then falling to 7,000 or 8,000 levels on the Nifty50.

A lot of technical guys keep advising investors to sell and there is enough selling and when the
market keeps climbing, there is a lot of worries. That is how it happens.

The guys trying to time the market get hurt. It is very difficult to figure out anything that is
happening in the stock market in the short term. It is completely irrational in the short run.

ETMarkets.com: The S&P SBE Sensex, as well as Nifty50, rose over 20 per cent from their
respective 52-week lows in quick time. How comfortable are you with the
Udta Sensex phenomena, considering the fact that it was powered by sentiments and global
liquidity?

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4/23/2018 Sensex: I am okay with Udta Sensex, 70% chance GST will go through: Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: I am 100 per cent comfortable in doing my shopping at current levels. I am
buying stocks much beyond this short term. I do not have insights that it will go back to 8,000 or
7,500 level and even if it is there, the stock was very different.

In the same period when the market will go down by 10 per cent, there will be stocks that might go
up by 10 per cent because I am not buying the market, I am buying stocks. I am concerned about
the moment— because you cannot manage portfolios selling at 8,000 and buying at 7,500. That is
not investing, it is speculation.

This is not the way investing is done. This is all speculation. What happens is whenever the market
goes down in the short term, and it does because it is the nature of the market, and if it does not go
down then it is a debt, this is not a bond market either.

When the market goes down, It does not go down in terms of value, it goes down in terms of price.
That is the fundamental thing. If value keeps increasing, price will come back and come back to the
last level and then beyond that.

If you are an investor, you are seeing that the value of the company is increasing. When you are
buying, you are getting a margin of safety on your side.

ET Now: Coming to the value part, I think you emphasised a lot on this particular topic of
value investing in your recent interview. I will pick from there. What according to you are the
five things that you evaluate before putting money in a stock?

Raamdeo Agrawal: Our framework is very clear what we see:

A) the first thing to see is whether we understand the business and within that, whether there is a
good long-term potential for a business, how are the long-term economic risks.

B) The other thing to look for is quality management; whether the management has competence,
integrity and passion to run the business. Great businesses are run by great managements, that
itself is 90 per cent.

C) The next thing we look at is growth potential; what and how much is your growth potential?
Apart from the next quarter, we are also looking at the next to next quarter as well as well the
quarter after that and then the next five years, 10 years and 20 years . We look at growth in a very
detailed fashion.

D) Longevity of quality and the goodness of franchise is the next factor we asses. Companies are
built up of franchise value and growth value. You have to look at them, evaluate them in terms of
high quality and high growth and how long can it go up. What is important is to see the longevity of
the franchise and build it today. It is always approximate when you talk about the future. It is going
to be in approximation.

https://economictimes.indiatimes.com/markets/stocks/news/i-am-okay-with-udta-sensex-70-chance-gst-will-go-through-raamdeo-agrawal/articleshow/53279094.c
4/23/2018 Sensex: I am okay with Udta Sensex, 70% chance GST will go through: Raamdeo Agrawal - The Economic Times

E) Undervalued or overvalued? Once we have assessed the longevity, we try to figure out how
much money is this company going to make over the next five to 10 years or 15 years. And then
look at the price.

If I say the company is going to make Rs 10,000 crore and the price and the valuations is Rs 5,000
crore, I must go and buy it. So that is how the process works.

https://economictimes.indiatimes.com/markets/stocks/news/i-am-okay-with-udta-sensex-70-chance-gst-will-go-through-raamdeo-agrawal/articleshow/53279094.c
4/23/2018 Expect a repeat of 2006-07, next 10 years will be bigger than last 10 years: Raamdeo Agrawal, MOFSL - The Economic Times

Expect a repeat of 2006-07, next 10 years will be


bigger than last 10 years: Raamdeo Agrawal,
MOFSL
ET Now | Updated: May 30, 2016, 08.19 AM IST
14 In an
Comments

exclusive interview with Nikunj Dalmia of ET Now,


Raamdeo Agrawal, Joint MD, MOFSL, says that for an average
investor, the advice is complete your portfolioallocation in equity. If
you do not know which stock to buy at least you go and buy
the ETF.

Nikunj Dalmia: You have liked autos in the past and there is
"Every bull run is much bigger than the case to buy autos right now because interest rates are coming
last one. We are in for one good
down, per capita income is going to go up. But are you
bounce in the market in the next 1-3
worried about the competition in the four-wheeler space
years; probability of downside is very
limited." which has intensified of late? Maruti’s dominant market share
in the smaller car market also is getting challenged. So on one
side, the market is expanding but within that, the pie is really getting split?
Raamdeo Agrawal: Yes. One has to analyse every company and every segment. The economy is
turning around after a long time. In four-wheelers, we are 30-40 per cent below the all-time high in
terms of truck sales. So when the economy is on a larger base and when the last high happened, it
was a trillion dollar economy. Today it is a three trillion dollar economy heading towards four trillion
dollar economy. So when the build up stage starts, it will be much bigger. You are at half to one-
fourth of where the peak is going to be. So the opportunities in some of these segments like trucks
etc is very large. But the rules of the game are also changing because Bharat-VI is going to come.
From four, you are straight away going to six, so it is going to be a perfect storm by 2020 or 2021.

A lot of things will change, engines will change, service structure will change, it may even redefine
who is going to be the winner also. Today winners are clearly TELCO, Ashok Leyland NSE 2.51 %
and then there is no third or fourth. So could there be emergence of a Benz or Volvo. These guys
are already on the neck with all their technology and capability and distribution and manufacturing.
So a lot of these things have to be kept in mind and somebody will come from behind and hit you
very hard like Eicher-- but Eicher did not hurt anybody. They prospered themselves and not at the
cost of anybody. They created a niche-- half a million bikes, it does not hurt anybody. So it is not
like Honda which is trying to be number one, from say 10-12 per cent they want to go to 40-50 per
cent. So they are wanting to eat off your plate also, which is not the case with Eicher.

Nikunj Dalmia: So there are three pockets in the auto segment; two wheelers, four wheelers
and commercial vehicles. Structurally where are you bullish and cyclically where are you
bullish?
Raamdeo Agrawal: So far, the economy was a motorcycle economy, now it is a car economy.
https://economictimes.indiatimes.com/markets/expert-view/expect-a-repeat-of-2006-07-next-10-years-will-be-bigger-than-last-10-years-raamdeo-agrawal-mofsl/a
4/23/2018 Expect a repeat of 2006-07, next 10 years will be bigger than last 10 years: Raamdeo Agrawal, MOFSL - The Economic Times

Discretionary spend is heading towards more of a mass car kind of situation. Sometime in the next
three, four, five years, you will see an explosion in the car demand like what happened in
China. China used to do less than a million at turn of the century, today they are doing 20 million,
they are the largest. So we have that opportunity in the next 10-15 years. So when you talk about
playing for the next 10 years, 15 years it is going to be car. And in the car side you have a very
interesting competitive situation. The affordable segment is dominated by Suzuki for whatever
reason and others are trying to kind of nibble in that but still that 40 plus share is Maruti Suzuki's.
So I think in this round they are going to win big. I mean this is the only industry where somebody
is running short of capacity and that is why the investment is happening. So clearly that segment
looks to be very opportunistic and then components below that.

Nikunj Dalmia: The entire supply chain?


Raamdeo Agrawal: The entire supply chain because if your end equipment or car is going to grow
in terms of volume and the components, the good thing is that we have a very good component
structure. Components are manufactured in India and they are listed. So you will find some of the
interesting component companies also. So I think there is full of ideas in auto space and some of
them might be not looking so good right now but could just break out with a new leadership, some
one or two product success.

Nikunj Dalmia: Do you think HFCs have a very long way to go because that is one segment
where the lending has been efficient, the borrowing has been decent and despite the up and
down in the real estate cycle, the NPAs are less than 2 per cent?
Raamdeo Agrawal: Extremely well regulated segment. And that is why we have taken some
interest in that. Housing by 2022, even if it happens by 2032, a huge amount of mortgage
requirement will come up with a slightly lower interest rate and some subvention or something. I
think it has been very well regulated at every level.

Nikunj Dalmia: And every time I think that HDFC cannot grow at 15-18 per cent, they
surprise you with that growth number, whether it is Gruh Finance or RePpro Finance or LIC
Finance with 15-18 per cent growth. So for an investor who is looking for stable returns, can
HFCs be still an easy spot to pick?
Raamdeo Agrawal: Yes, I hope, I wish there were some more players for someone to identify but
yes that is one spot I would definitely look at and have in my portfolio for sure some portion of
allocation on the mortgage side because that looks to be a very well managed, reasonably priced
and good outlook is there, good long term outlook seems to be there.

https://economictimes.indiatimes.com/markets/expert-view/expect-a-repeat-of-2006-07-next-10-years-will-be-bigger-than-last-10-years-raamdeo-agrawal-mofsl/a
4/23/2018 Expect a repeat of 2006-07, next 10 years will be bigger than last 10 years: Raamdeo Agrawal, MOFSL - The Economic Times

Nikunj Dalmia: Are you bit surprised that markets are not rewarding OMC stocks. They are
not getting their due. The dividend yield is strong, the cash flow generation has picked up,
there is a sector which was earlier moving because of whims and fancies of government.
Now it is genuinely deregulated and still are suffering?
Raamdeo Agrawal: Yes, it takes time for the market to believe that government has actually
pulled their hands out of that arena and so the market has its own mind. Maybe it will take one
more year. So every year, the confidence will keep coming but if government does not actually
interfere. If by chance for even two months or three months some election time by chance they
interfere, then again the confidence building measure will require lot of time.

I think the government has behaved very well in terms of this thing but markets have their own
apprehensions and it is a slightly commodity like in character in the sense that GRMs are
fluctuating. It is not in the hands of government or anybody. So half the profit is coming from
marketing side where government has a lot of role to play but other margin is coming from the
GRMs, which is very globally determined and hence there will be some fluctuation and that is what
is reflecting in this thing. But I take your point. At single digit PE multiples, 4-5 per cent yield it is a
very interesting kind of situation.

Nikunj Dalmia: What happens in the short term is noise and technical. The viewers are not
looking for tips from you, they are actually looking at mega ideas from you. You said that
the art of making big money does not lie in identifying the Nifty 50 companies, the art of
making big money lies in identifying next 100 companies and from that pool which
companies can be part of Nifty 50, so what is the hunting ground where you are trying to
hunt for opportunities, which are some of the good businesses or decent businesses which
can become great businesses?
Raamdeo Agrawal: So it is very bottoms up. So I read all the four newspapers every day morning,
peacefully. This is the earning season so you have to be very careful in seeing where...

Nikunj Dalmia: Where there is a hit and where there is a miss?


Raamdeo Agrawal: Suddenly if you expect a company to make say Rs 50 crore and suddenly it
makes Rs 70 crore, Rs 80 crore or even Rs 100 crore -- there is a massive beat. What has
happened yesterday in US, 15 per cent sales growth in housing and the whole market went
berserk. So you have to look for positive surprises and then go after that story what really is
happening there because you would not know everything what is happening.

Nikunj Dalmia: So what is positively surprised, what is on your radar?


Raamdeo Agrawal: Like today I was talking to my brother about air conditioners. He said last
month anything on the inventory got sold, there is nothing left. There is literally boom about air
conditioner demand in the marketplace. So then you have to figure out whether there is any story
which you like in that and then go after that and whether you think it is secular, how big is the
opportunity and all. So you have to build a story bottoms up, one by one, one by one. Say like
collapse of oil, discovery of shale gas and shale oil and collapse of oil, I think still it is yet to play

https://economictimes.indiatimes.com/markets/expert-view/expect-a-repeat-of-2006-07-next-10-years-will-be-bigger-than-last-10-years-raamdeo-agrawal-mofsl/a
4/23/2018 Expect a repeat of 2006-07, next 10 years will be bigger than last 10 years: Raamdeo Agrawal, MOFSL - The Economic Times

out, it is just only 12-15 months. If oil actually remains at $60-70, $70, forget about $50, the amount
of change in the derivatives, whether it is a film, whether it is a pipe, whether it is tubes, whether it
so many because oil is not going only in the tanks, it is also going as derivatives. And if oil is down
and Tesla and all are making petrol, diesel cheaper, there is battery for flying, so what happens to
aviation globally? Does it change the economics of aviation significantly at this juncture. So those
are the things that you have to really figure out. If the change in the basics of some cost structure
permanent in that case there will be derived change somewhere else.

Nikunj Dalmia: So you are looking at the first order derivatives or the second order
derivatives?
Raamdeo Agrawal: Once you have invested at one level, you realise, there may be an even
bigger opportunity which is not visible to the people like that. So migration keeps happening.

Nikunj Dalmia: So are we in for a period or patch of big return, big earning surprise and
bumper growth?
Raamdeo Agrawal: I know one thing that the next 10 years will be extremely exciting for investing
compared to the last 10 years. Are we going to see repeat of 2006-2007. I do not know but every
bull run is much bigger than the last one and story and the connotation and from where it comes,
what kind of companies will, nobody has any clue till it starts. Many times you come to know only
after it has ended. There will be some irrationality but my sense is that we are in for one good
bounce in the market in the next maybe 1-3 years. The probability of downside is very limited and a
possibility of a good bump up 30-40 per cent in the next one and a half years, between 2017 and
2018. By 2018 we should have a very good year.

Nikunj Dalmia: I hope so too because if there is so much liquidity which will not go back
into commodity or real estate...
Raamdeo Agrawal: This is the bottom. On the low earnings you have low PE multiple, how long
can you push it?

Nikunj Dalmia: The margin of safety is on your side?


Raamdeo Agrawal: Yes. Now the market cap to GDP is 60 per cent. The downside is limited for
sure and it will be temporary, it may go down by 10-15 per cent. It will be definitely limited.

Nikunj Dalmia: And the pitch for an average investor would be right now that increase your
allocation to equities, do not cancel your SIPs and if you are invested in equities, the risk
reward ratio is favourable, a very simple asset allocation.
Raamdeo Agrawal: People must understand their own risk appetite but if you have decided that I
want to be 25 per cent or 50 per cent equity, please complete the allocation because it is not about
which stock, please complete the allocation first. If nothing else you go and buy ETF, if you do not
want any manager risk. If you do not know which stock to buy at least you go and buy the ETF, and
then whenever you find an idea or a manager or whatever you can change over to that from
passive to active but this is the time to get allocated.

https://economictimes.indiatimes.com/markets/expert-view/expect-a-repeat-of-2006-07-next-10-years-will-be-bigger-than-last-10-years-raamdeo-agrawal-mofsl/a
4/23/2018 Smart money moves ahead of earnings growth and dump money follows it: Raamdeo Agrawal, MOFSL - The Economic Times

Smart money moves ahead of earnings growth


and dump money follows it: Raamdeo Agrawal,
MOFSL
ET Now | Updated: May 28, 2016, 02.10 PM IST
0 In an
Comments

exclusive interview with Nikunja Dalmia of ET Now,


Raamdeo Agrawal, Joint MD, MOFSL, says there are pockets of
earnings growth but broadbased recovery is yet to be seen.

Nikunj Dalmia: Earning season is about to end and this time


around, there is a mild surprise. Is the economy healing in the
right direction and do you think worst of the earnings
"There are pockets of earnings growth moment, earnings print is that behind us?
but broadbased recovery is yet to be
Raamdeo Agrawal: Looks like. Of course, this is the worst for
seen."
public sector banks but if you leave aside the public sector banks,
then we are looking about 100-150 companies which are under
coverage. So there we were expecting about 4-5 per cent kind of aggregate growth in profits that is
turning out to be more like 7-8 per cent. So clearly, just before the earnings season started, we do
the estimates. But even by that, it has beaten the estimates. It means that things are turning out to
be slightly better than what was expected. So clearly, things are stabilising for sure.

Nikunj Dalmia: Which are the data points which are convincing you or which are making
you feel happy about the economic progress?
NSE BSE
Raamdeo Agrawal: Right now, of course, the
Company Summary
automotive demand, particularly the trucks and all
Infosys 9.25 (0.78%) that. Nobody buys trucks for entertainment. This is
not a discretionary consumption. When there is
HDFC Bank -20.15 (-1.03%)
actual demand, then only you put up new capacities.
Axis Bank 0.50 (0.10%) There is 20-40 per cent growth in truck demand.
EXPAND TO VIEW ALL New trucks are being sold, that too of the larger
sizes, and that clearly tells me that something is
happening in some part of the economy if not all over. At least say road building is on, some more
constructions, maybe in housing things are pretty good like mortgage demands are quite robust.
So there are pockets of clearly positive. Cement demand is good. So these things are visible. But
is it widespread? That is not still happening.

Nikunj Dalmia: Old timers on the Street would say that in May 2014 if you bought the index,
it has not been a very rewarding experience. Even though government has unleashed a
slew of reforms starting from DTB to tackling corruption, what is happening on the road
sector? What is happening in the financial sector? Lot of big reforms have kicked in, yet the
index is not obliged.
https://economictimes.indiatimes.com/markets/expert-view/smart-money-moves-ahead-of-earnings-growth-and-dumpmoney-follows-it-raamdeo-agrawal-mofsl/ar
4/23/2018 Smart money moves ahead of earnings growth and dump money follows it: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: So markets are not in a linear one to one correlation with government, that
Delhi does one thing and the market will respond and hence if Delhi has done 50 things, markets
should be up 50 per cent. It does not work like that. See I run a company which is listed, so I know
the behaviour of the market. Market has its own logic. When nothing has happened, market will
triple and when lots of things have happened, and the market will go half. So market has its own
mind. It is like today’s opinion, today’s price; tomorrow’s opinion, tomorrow’s price.

People have that lethargic opinion that this government is doing good but it has probably not
achieved enough for me to significantly rerate prospect in the immediate future. Last month, I went
to US as well as the UK and did road shows. I must have met 25, 30, 40 big clients. So everybody
is in the same mood that India is the toast of the year at this point of time in emerging markets but
should we go whole hog into India, because currency has been very weak in the last four-five
years? That is one thing which is hurting them big time.

Second, that broad-based earnings growth should be visible. But there is a complete difference
between last year and this year. Last year, at the same point of time, everybody was saying that
what Mr Modi said it has not happened. This year, I have not heard one guy asking what the
government is doing or how is Mr Modi, nobody asked that. So there is a change. Clearly there is a
change on ground and people are happy about whatever is happening. They are just waiting,
maybe for monsoon, maybe some fresh move, but everybody is watching that.

Nikunj Dalmia: Ultimately, markets only follow one simple fact which is earnings and where
earnings are headed. So where do you think earnings are headed because without getting
into the technical aspect or the macro aspect, it is important for investors to understand the
earnings landscape?
Raamdeo Agrawal: Now it is talked about too much. Nobody can forecast earnings that precisely -
- when will it turnaround, at what pace will it turn around, nobody can say. But markets will be very
smart counter-wise. See if something is happening in my company or something is happening in
some other company, the owners will know ahead of time that things are turning around and more
importantly the investors who are following those companies will have inkling of whether order
book is building up or margins are expanding and hence next few quarters are going to be very
good and hence stock will start moving before the earnings come. So accumulation of similar 30,
40, 50 stocks will start pushing the market at some point of time. So smart money will move ahead
of the earnings growth and when earnings growth come, then dump money will come in. All dump
institutional money will come much later.

https://economictimes.indiatimes.com/markets/expert-view/smart-money-moves-ahead-of-earnings-growth-and-dumpmoney-follows-it-raamdeo-agrawal-mofsl/ar
4/23/2018 Smart money moves ahead of earnings growth and dump money follows it: Raamdeo Agrawal, MOFSL - The Economic Times

Nikunj Dalmia: So this is the right time to buy because right now if you are buying, you are
actually buying the earnings recovery, you are not trying to buy stocks post the recovery?
Raamdeo Agrawal: Yes see I am not a market timer. So leave me aside. For me, if I get a
company which is very good -- see every company is not timed to top down that when the
economy does very well, then only the companies do well. Infosys NSE 0.78 % may be up 8000
times in 20 years, but economy has not moved by 8000 times. You need a vision, courage and
passion to buy that stock. So investing is very different from timing the market. In fact, you do not
have to time the market. You have to time the stock. You have find the stock and buy it at a point of
time when it is leaving margin of safety in purchase price.

Nikunj Dalmia: But you do need tailwinds, you need headwinds. You need tailwinds for a
sector to do well. So how are you judging the tailwinds?
Raamdeo Agrawal: It is very company specific issue. Say like two wheelers, for five years, the
industry's been flat. Industry has not grown or may may have grown at 1-2 per cent but look at
Eicher. From nowhere it has gone to 10x, 20x ...It was right in front of us and yet out of sight.

Nikunj Dalmia: You do not think REs are fad?


Raamdeo Agrawal: See I made lot of money out of that so I would not say that but it is a
consumer. I mean Kinetic Honda launched their scooter and there was a huge queue. 20 years
booking was there. But ultimately that product did not do well.

Nikunj Dalmia: But the fact is that promoters of Eicher Motors NSE -0.27 % are selling down
now. They have reduced their stake.
Raamdeo Agrawal: They also have right to sell.

Nikunj Dalmia: So it is not an indication that their deepest insight?


Raamdeo Agrawal: No, I would not read anything malicious in it but if somebody is to buy a big
house or somebody wants to diversify or something, I do not think there is any harm. I mean Bill
Gates and all have been selling Microsoft for so many years and the best of Microsoft may still
lying ahead. As a market, we have to mature and you have to allow entrepreneurs to encash in on
what they have created.

Nikunj Dalmia: So token sale by the promoter is not something which would seriously
bother you?
Raamdeo Agrawal: No. It is a thing to notice that somebody sold the stake, it is an important
development but I would not read too much into it.

Nikunj Dalmia: It will not influence your investment decision?


Raamdeo Agrawal: Definitely not.

https://economictimes.indiatimes.com/markets/expert-view/smart-money-moves-ahead-of-earnings-growth-and-dumpmoney-follows-it-raamdeo-agrawal-mofsl/ar
4/23/2018 Smart money moves ahead of earnings growth and dump money follows it: Raamdeo Agrawal, MOFSL - The Economic Times

Nikunj Dalmia: The value migration within the two-wheeler space clearly is happening in the
entire niche two-wheeler pocket. What are the other pockets of value migration which you
can spot for us?
Raamdeo Agrawal: There is a huge revolution in banking under Governor Rajan. They have given
distribution licence to microfinance companies. They have given licence for those small regional
banks also as well as licence on tap. Our name is also there as a potential possibility. But the issue
is that if you can get it on tap, this is one country where still 50 per cent of the country is not
covered by banks. My village does not have a bank. There is a population of 2000, Rs 1 crore plus
definitive GDP and yet there is no bank. People do not know what is banking in my village. So
unless you open it up, unless you create healthy competition, the banks will not go there. My
village has two telecom towers but not a bank. So clearly, it is required that this thing is opened up.

So long, in the name of conservatism or rather to protect the public sector banking system, look at
where it is. So it is better that we have competitive banking and without competitive and
widespread banking, we can never be a strong economy and a very powerful country.

Nikunj Dalmia: But if I look at the current Indian financial sector. You put HDFC Bank’s
market cap on one side. I can put all the other PSU banks on the other side. So are markets
right in differentiating between private banks and PSU banks?
Raamdeo Agrawal: Clearly, if anything is run very well. HDFC Bank NSE -1.03 % is not owned by
somebody. It is a professionally managed bank and a public sector bank can also be very
professionally managed. It is just that it was politically managed. I mean there were lots of
interference in appointment, HR and all that. The best bank and globally acclaimed bank is not
owned by anybody. So why cannot we find some kind of model for even PSU banks. So I think
there are lot of opportunities which are going to come up out of this. You have more money than
bankers. We need good bankers to be encouraged to do good banking. Look at Kotak Bank
NSE 1.40 % , in 15 years what they have created.

Nikunj Dalmia: NBFC now is a full bank and it is part of the Nifty-50.
Raamdeo Agrawal: And everybody is not going to be successful and everybody is not a maverick,
everybody is not a terrific banker. Out of 10 or 12 licence, only two or three have done very well
and that ratio is not going to change. If you want 10 good banks, you have to probably give licence
to 80-100 guys. The ratio might be 2 out of 10. I would be very surprised if it is more than 1 out of
four. So if you want 10 good banks, you have to give licence to 40-50 guys minimum.

Nikunj Dalmia: So what about the margin of safety for an investor in the private bank? You
rarely get good prices when there is a consensus and there is a consensus with private
banks. HDFC Bank or Axis Bank NSE 0.10 % , for that matter IndusInd Bank NSE 3.40 % , Yes
Bank NSE 1.46 % also now, these stocks are at a life-time high. So for an investor, do you

https://economictimes.indiatimes.com/markets/expert-view/smart-money-moves-ahead-of-earnings-growth-and-dumpmoney-follows-it-raamdeo-agrawal-mofsl/ar
4/23/2018 Smart money moves ahead of earnings growth and dump money follows it: Raamdeo Agrawal, MOFSL - The Economic Times

think the margin of safety to buy into private banks is missing?


Raamdeo Agrawal: No why? All-time high does not mean forever. If you want to go 5000 times
from here, every week there will be a new high. It does not mean that you will never buy. See the
new high just shows that the bank is progressing every week, every month. You invest in potential
of any enterprise is not it. Performance is only a guide to the potential. So we give PE multiples to
the current performance but basically multiple is a function of how do you value the potential of the
enterprise whether it is a bank, an auto company or whether it is any other enterprise. So
understanding the potential of a business is the function of what is the potential and how good is
the jockey. They both are important.

Nikunj Dalmia: The management who is running it.


Raamdeo Agrawal: Yes management who is running it. How passionate, how visionary, how
much energy is there and what is the value system at the end of it.

Nikunj Dalmia: So if I look at the current landscape for the Indian banking sector, 70 per
cent of the current book is still with PSU banks and 30 per cent of the market cap is with
PSU banks…
Raamdeo Agrawal: Is it 30 per cent?

Nikunj Dalmia: I mean not less than 30 per cent actually. I can add back SBI there which will
make the entire sector looks slightly outlier. What could be the picture like in 2025? Who
will be the eventual winner in the banking space because in next three years you will get
universal banks, new bank licences would be issued, more banks would be given licence on
the tap. So how will the picture be like for the Indian banking sector by 2025?

Raamdeo Agrawal: Going by the pace of reform right now, see in India what happens is you start
something very well and then something happens and you stop it. So right now say banking on tap.
I mean they should actually go all the way and give licence to anybody who has courage, vision
and the integrity. See integrity is very important in this thing and RBI does a good job of finding on
who are the guys broadly. So they must give it to everybody who has aspiration to set up a bank.

https://economictimes.indiatimes.com/markets/expert-view/smart-money-moves-ahead-of-earnings-growth-and-dumpmoney-follows-it-raamdeo-agrawal-mofsl/ar
4/23/2018 Give licence to anybody who has aspiration to set up a bank: Raamdeo Agrawal, MOFSL - The Economic Times

Give licence to anybody who has aspiration to


set up a bank: Raamdeo Agrawal, MOFSL
ET Now | Updated: May 26, 2016, 04.31 PM IST
In a 5
Comments
chat
with ET Now, Raamdeo Agrawal, MOFSL, says understanding the
potential of a business is the function of what is the potential and
how good is the jockey. The management is equally important.
Edited excerpts

ET Now: What are the other pockets of value migration which


Give licence to all bank aspirants:
you can spot for us?
Raamdeo Agrawal
Raamdeo Agrawal: There is a huge revolution in banking under
Governor Rajan. They have given distribution licence to microfinance companies. They have given
licence for those small regional banks also as well as licence on tap. Our name is also there as a
potential possibility. But the issue is that if you can get it on tap, this is one country where still 50
per cent of the country is not covered by banks. My village does not have a bank. There is a
population of 2000, Rs 1 crore plus definitive GDP and yet there is no bank. People do not know
what is banking in my village. So unless you open it up, unless you create healthy competition, the
banks will not go there. My village has two telecom towers but not a bank. So clearly, it is required
that this thing is opened up.

NSE BSE
So long, in the name of conservatism or rather to
Company Summary
protect the public sector banking system, look at
HDFC Bank -20.15 (-1.03%) where it is. So it is better that we have competitive
banking and without competitive and widespread
Axis Bank 0.50 (0.10%)
banking, we can never be a strong economy and a
Yes Bank 4.50 (1.46%) very powerful country.
EXPAND TO VIEW ALL

ET Now: But if I look at the current Indian


financial sector. You put HDFC Bank’s market cap on one side. I can put all the other PSU
banks on the other side. So are markets right in differentiating between private banks and
PSU banks?

Raamdeo Agrawal: Clearly, if anything is run very well. HDFC Bank is not owned by somebody. It
is a professionally managed bank and a public sector bank can also be very professionally
managed. It is just that it was politically managed. I mean there were lots of interference in
appointment, HR and all that. The best bank and globally acclaimed bank is not owned by
anybody. So why cannot we find some kind of model for even PSU banks. So I think there are lot
of opportunities which are going to come up out of this. You have more money than bankers. We

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4/23/2018 Give licence to anybody who has aspiration to set up a bank: Raamdeo Agrawal, MOFSL - The Economic Times

need good bankers to be encouraged to do good banking. Look at Kotak Bank, in 15 years what
they have created.

ET Now: NBFC now is a full bank and it is part of the Nifty-50.

Raamdeo Agrawal: And everybody is not going to be successful and everybody is not a maverick,
everybody is not a terrific banker. Out of 10 or 12 licence, only two or three have done very well
and that ratio is not going to change. If you want 10 good banks, you have to probably give licence
to 80-100 guys. The ratio might be 2 out of 10. I would be very surprised if it is more than 1 out of
four. So if you want 10 good banks, you have to give licence to 40-50 guys minimum.

ET Now: So what about the margin of safety for an investor in the private bank? You rarely
get good prices when there is a consensus and there is a consensus with private banks.
HDFC Bank or Axis Bank, for that matter IndusInd Bank, Yes Bankalso now, these stocks
are at a life-time high. So for an investor, do you think the margin of safety to buy into
private banks is missing?

Raamdeo Agrawal: No. All-time high does not mean forever. If you want to go 5000 times from
here, every week there will be a new high. It does not mean that you will never buy. See the new
high just shows that the bank is progressing every week, every month. You invest in potential of
any enterprise is not it. Performance is only a guide to the potential. So we give PE multiples to the
current performance but basically multiple is a function of how do you value the potential of the
enterprise whether it is a bank, an auto company or whether it is any other enterprise. So
understanding the potential of a business is the function of what is the potential and how good is
the jockey. They both are important.

ET Now: The management who is running it.

Raamdeo Agrawal: Yes management who is running it. How passionate, how visionary, how much
energy is there and what is the value system at the end of it.

ET Now: So if I look at the current landscape for the Indian banking sector, 70 per cent of
the current book is still with PSU banks and 30 per cent of the market cap is with PSU
banks…

Raamdeo Agrawal: Is it 30 per cent?

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4/23/2018 Give licence to anybody who has aspiration to set up a bank: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: I mean not less than 30 per cent actually. I can add back SBI there which will make
the entire sector looks slightly outlier. What could be the picture like in 2025? Who will be
the eventual winner in the banking space because in next three years you will get universal
banks, new bank licences would be issued, more banks would be given licence on the tap.
So how will the picture be like for the Indian banking sector by 2025?

Raamdeo Agrawal: Going by the pace of reform right now, see in India what happens is you start
something very well and then something happens and you stop it. So right now say banking on tap.
I mean they should actually go all the way and give licence to anybody who has courage, vision
and the integrity. See integrity is very important in this thing and RBI does a good job of finding on
who are the guys broadly. So they must give it to everybody who has aspiration to set up a bank.

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4/23/2018 Next 10 years are going to be most exciting in Indian equities: Raamdeo Agrawal, MOFSL - The Economic Times

Next 10 years are going to be most exciting in


Indian equities: Raamdeo Agrawal, MOFSL
ET Now | Updated: May 11, 2016, 12.30 PM IST
In a 3
Comments
chat
with ET Now, Raamdeo Agrawal, MD & Co-Founder, MOFSL, says
Mauritius treaty will have no impact on the market and post 2007-
2008 peak, this is going to be the best opportunity for next 10
years. Edited excerpts

No need for FIIs to put out of markets:


Motilal Oswal ET Now: I know when I ask you about the impact of the
Mauritius treaty, you will tell me that sooner or later
the markets have to return to fundamentals and they remain strong but there are also
tactical things to look at and my question to you is simply that tactically does this give
reason for the markets to correct in a very short term or do you think even that would not
happen?

Raamdeo Agrawal: Today’s knee jerk reaction is


NSE BSE
Company Summary
very logical because yesterday nobody had any clue.
Ashok Le… 3.90 (2.51%) So suddenly like a bombshell, the judgement comes
and treaty is being signed and it is flashed all over.
So obviously, it is somewhat negative in reaction but per se, there is no suspense. It is very clear,
well articulated action because in Indiadividend and long-term capital gains in any case are tax-
free. You are talking about only short-term capital gains tax and security. The investing class is not
that big, so I do not think it is that big an issue and paying 7.5 per cent till 2019 and after that
regular 15 per cent on only short-term capital gains and speculation, I do not think it moves the
needle here or there. But, of course, for the day, it is a big event and hence there will be kind of
sympathetic move, but otherwise, I do not see there should be any reason for even a knee-jerk
reaction at the end of the day.

ET Now: Yes even that knee-jerk gap down start is slowly getting rebounded. In the near-
term basis, do you not worry that this will actually flush out the hot money out of the
system and cause a little bit of volatility in the markets or do you think that is part of the
game?

Raamdeo Agrawal: We still have it till April 2017. I mean till April, it is absolutely status quo.
Whatever they want to do, they can do. So why today or tomorrow? See if somebody can sell at
say 200 points higher or 500 points higher in next three months, six months after the monsoon or
whatever pluses have to happen in India, why should they sell it today and how much time does it
take to sell few hundred million dollars, even a billion dollars in India? So I do not think there is any
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4/23/2018 Next 10 years are going to be most exciting in Indian equities: Raamdeo Agrawal, MOFSL - The Economic Times

reason to go short or anything like somebody has to wake up in Boston or somewhere and trigger
the trade. I do not think there is going to be anything like that. That is my view but I do not know
what all the short-term traders will do today. But I do not think because of this there should be any
upheaval.

ET Now: Actually just a fillip side question. Somebody said that there are going to be
benefits for even foreign investors to invest up to March 31st, 2017, because till then there
is no tax impact coming in, genuine long-term money might actually find one more reason
to come into the markets before then. Would investing happen that way or do you not think
even that will happen?

Raamdeo Agrawal: We are in touch with almost everybody, all the big ones here who matter in
the market, I do not think their consideration is the short-term capital gains are 5-7 per cent. They
never came up for discussion. It is not a material issue at all in deciding whether to put half a billion
dollar in India or not. Currency is a big issue, I understand, but not this one.

ET Now: So are you almost dismissing this as a non-issue day?

Raamdeo Agrawal: Yes I do not have any doubts in my mind. I mean I would think that it is a
waste of time. Let us try to figure out how much market can recover, what happens within US
markets and… In fact, this is an opportunity to buy for next half an hour or so because this means
opportunity in a depressed market, otherwise market would have been higher. Isn't it so? If this
was not there, typically market would have been higher. So there is a gap of a percentage,
percentage and a half depending on the stock. In any case, if you are buying today, buy at 10
o’clock today rather than at 3.

ET Now: First time I am hearing Raamdeo Agrawal say why not look at, buy it for the short
term as well. He never says this.

Raamdeo Agrawal: No, no, no. I am saying that today if I have to buy, I buy at 10 o’clock rather
than 3 o’clock. That's it. But actually, I am not doing any trade.

ET Now: So let us talk about the good news. It has been heartening to see that
the earnings season so far -- there are still a whole lot left -- has actually been better than
what the market was anticipating. What to your mind has stood out out of the earnings so
far?

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4/23/2018 Next 10 years are going to be most exciting in Indian equities: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: Yes. In our portfolio, there are companies which we look at very closely. There
are no huge negative surprises or anything like that and that is a big news that there is no
downside surprises. There are not many, even big upsides surprises also in a sense that on the
expected lines it has happened and to some extent I would say that tone is little more positive than
what was expected before the earning season started.

ET Now: I do not know if you can extend it to the markets by and large, but it is happening
in financial. For sure, the ones which are promoting or giving out stable quarters, though
they might be expensive, are still finding favour. If the externals are alright, do you think
over the course of the next six months, we might well see more gravity towards quality or
do you think at some point of time, the ones which have been damaged in the last three or
four months in the correction before February could make a bit of a comeback too?

Raamdeo Agrawal: This six month to one year is very tough. But I know one thing, if the
companies do better, even if they are bad companies, they are in bad shape today, they will be
reappraised. Whenever the economy in broad based, when it comes back, there is always an
opportunity to buy in large and popular companies say like when the commercial vehicle trend
reversed a year back, Ashok Leyland NSE 2.51 % was available or Rs 20-25 and today it is close to
Rs 100 or 100 plus. So this kind of opportunity will come in almost all the sectors linked to the
economy as it turns around.

ET Now: Let me rephrase my question, may be I did not put it correctly. For years that I have
tracked Raamdeo Agrwal, he has always been a proponent of buying quality. My question
right now is that just looking at the nature of the market wherein there is a lot more
happening besides the quality space as well, is Raamdeo Agrawal widening his horizons
and trying to look for companies which may have patchy quality right now but are on the
mend? Are you doing that at all?

Raamdeo Agrawal: No. In my scheme of things, quality is non-negotiable. I will not drift towards
non-quality.

ET Now: Would that non-quality also extend beyond metals to even names from the PSU
banking space because up until now it seems like the NPA mess is out of the way. Would
you say stay away from PSBs too right now?

Raamdeo Agrawal: I would not make comment on any because we have stocks in SBI and
broadly out of 3000 companies, listed 2500 companies do not have quality. So for me, the search
encompasses actually is less than 500 companies, may be just 200 companies.

ET Now: One of the trends is this whole thought about good monsoons, one rank
one pension, seventh pay commission and how consumption has to come back in a big
way. Now we are already seeing that trend happening in financiers of consumer companies
which are already trading at multi-year highs. But do you think that the expensive space

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4/23/2018 Next 10 years are going to be most exciting in Indian equities: Raamdeo Agrawal, MOFSL - The Economic Times

which is consumption, could well continue to get more money from investors by and large
because of these factors and may be there are more that are in the markets currently?

Raamdeo Agrawal: The building up of discretionary consumption in next 5-10 years is a long term
trend. We have seen no trens in discretionary consumables. We have seen just nothing. This
economy is moving from motorcycle economy to entry level car economy. So the base of discretion
is going to be much bigger. Trillions of dollars are going to be spent on discretionary category. The
issue is that in that category who is the winner? What kind of complex situation you have, we have
monopolistic situation, we have duopoly, we have tripoly etc. How many guys are going to share
that particular benefit is the only issue. We are not short term or one year-six month kind of trend, it
is a very long term trend and that is the biggest opportunity in India. That discretionary spend is
what we call it India the next opportunity. So I think, the next 10 years are going to be what has
happened in India in last 10 years even more magnified. Here the company structure in most of the
companies are very consolidated like number one companies will be 40-50 per cent. In aviation,
we have not even scratched the surface. They are just about a percentage of the people they fly
and 40 per cent share belongs to one company. So the kind of company structure there, the fly
opportunities are very high now. You have to decide what discretionary consumption company you
want to buy at what price.

ET Now: Would you change your view on aviation stocks though if crude prices were to
turn around or does it continue to be a resounding bullish call on aviation per se?

Raamdeo Agrawal: As we stand I still remain pretty optimistic on them.

ET Now: The other part of the story which you track very very carefully has been autos and
now with the revival in the economic cyclical recovery, a lot of people are betting on the CV
cycle as well. With the good onset of monsoon it is the two-wheeler sales which we have
seen in the month gone by have been very-very impressive what is the call on autos and if
one has to look at fresh entry point would it be CVs, would it be two wheelers, would it
be passenger cars or is it going to be a blanket bullish call on autos per se?

Raamdeo Agrawal: Broadly it is quite bullish. Today morning I was working with somebody who is
a dealer in commercial vehicles. He is saying that vehicles are not available in a sense that 'they
have been completely sold out. So I think the pickup in the economy is very strong. When you
speak to the dealers then only you realise the ground reality. So yes, I knew that there is a good
number but the intensity is making it very clear that the economy is picking up surely and it is
becoming widespread. Now manufacturers are finding it difficult to even supply fully. So clearly,
large capex-oriented commercial vehicles are good. You have seen the guidance by Maruti
yesterday or day before and we have seen that in two wheeler sales also. So the
entire auto basket is doing gppd. In every segment, the number one companies have anywhere
between 40 and 50 per cent of the share if not more. So you have wonderful opportunity to make
money here and all the entrepreneur companies are also very good. So it is a very good segment
to put your money in.

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4/23/2018 Next 10 years are going to be most exciting in Indian equities: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: One thing that we have been trying to promote at ET Now for the last six months is
to get our fellow colleagues as well as people outside to start investing regularly in the
markets via the mutual fund route as well. Now my question to you is a lot of people would
have burnt a little bit of money looking at their NAV for the last couple of years and saying
that hey! we have invested regularly and it has not quite gone anywhere. Do you still believe
that this is a great time for starting a fresh SIP, by and large irrespective of which fund they
choose?

Raamdeo Agrawal: Yes, beyond doubt absolutely unqualified yes. When you are doing SIP, it
means you are just taking away the short term market risk and you are investing into the market
whenever your cash flow is coming through say monthly, quarterly or yearly.So over a period of
time, there are only two risks in the market one is the risk of equity per se and risk of timing the
market. So if you have removed the timing the market clause, then whatever is the risk of equity in
the long run equities have made as a category fantastic amount of money and if it is actually
managed by then, the amount of money which has been made by some of those 20 years, 50
years old schemes will be a staggering 20-22 per cent compounded and that is what you are going
to make. My sense is that the next 10 years are going to be more exciting in Indian equities. Post
2007-2008 peak, I think this is going to be the opportunity for next 10 years. So I would
recommend a very strong allocation to equities whether SIP or front loaded allocation right now.
One of the thing is do not time the market as you can never get it right. If you are able to get this
thing out of your way, I think you will make lot of money in the markets.

ET Now: From here on because of all that is happening in the market there is lot of talk
about may be Brexit, may be a commodity company here or there going buzz because the
commodity cycle which has gone up a bit might cool off again. Crude being a
imponderable, do you think that there is a chance because of global factors if the markets
come down one and if that happens that is an even better time to invest in the Indian
markets?

Raamdeo Agrawal: Again you are getting into timing…

ET Now: Yes I am because…

Raamdeo Agrawal: I am telling you guys have spoiled the investor sentiment because you take so
much of attention to timing the market, you can never get it right, I am telling you. You try me, you
try anybody nobody, the guys who had timed the market they are gone. Please do not hold the
guys. First thing is you yourself cannot time and you are trying to do something which you cannot
do to your investors. I think this is the biggest disservice to the investors in trying to help them
where you cannot help.

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4/23/2018 Wealth is the driving factor but values can't be compromised: Raamdeo Agrawal, MOFSL - The Economic Times

Wealth is the driving factor but values can't be


compromised: Raamdeo Agrawal, MOFSL
ET Now | Updated: Apr 30, 2016, 04.58 PM IST
In a 8
Comments
chat
with Nikunj Dalmia of ET Now, Raamdeo Agrawal, Co-Founder &
Joint MD, MOFSL and Motilal Oswal, Chairman & MD, MOFSL,
say even as the age of robo advisory dawns, HNIs will always look
for quality advice. Excerpts:

Nikunj Dalmia: It is a fascinating story. We have always talked


Motilal Oswal, Chairman & MD,
to you about markets and about investing. Today it is all about
MOFSL, believes even as the age of how and what you have achieved in a span of less than 35
robo advisory dawns, HNIs will always years.
look for quality advice. Raamdeo Agrawal: 28 years.

Nikunj Dalmia: 28 years now, that is a precise number. As the legend says, you actually met
in hostel as students and that is how the journey began.
Motilal Oswal: Yes. Raamdeo was much senior than me, maybe about three-and-a-half, four
years but he exited from the hostel and I entered. So that connect still remains and that is where
we started from.

Nikunj Dalmia: So you actually met before and then you met your respective life partners
after that.
Raamdeo Agrawal: Actually we did not stay in hostel at the same time. He was junior but I have
seen him. So when I was saying in Lokhandwala and I was coming to Andheri Station, I had a
motorcycle. A brand new Hero Honda and he was always looking for a ride because the transport
system was in mess.

Motilal Oswal: A free ride.

Raamdeo Agrawal: Free ride and that is how we started meeting and he was looking for a broker.
I was looking for somebody to go along to get into the market. I was doing research. So I knew
everything about the stock market but I did not have money and wherewithal to start and his

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4/23/2018 Wealth is the driving factor but values can't be compromised: Raamdeo Agrawal, MOFSL - The Economic Times

brothers were there in Ahmedabad and Chennai. So they were a wonderful help and became the
two best clients to start with. That's how we came together and then slowly we started. When you
look back, nothing was planned, nothing was designed. It was just a scarcity, broking services
were scare. I mean it was very manual and capacity was limited. One person can do only 150
transactions in a day. So one broker can do only 700-800 transactions and the whole country was
just rising. So it was a seller’s market and when we got in with just about two people, one
telephone line and one peon, the venture was successful.

Motilal Oswal: Sometimes, I even used to do zero trade but trades were scarce and only 10 to 20
trades at that point when we began.

Nikunj Dalmia: So what really clicked? You meet several people but you just clicked with
one or two people in life and especially at a partnership level. So what really clicked?
Raamdeo Agrawal: I think because we were travelling together and for at least six -eight months,
we were exchanging notes and found he was also interested in markets. Fundamentally, we both
were interested in making money in the stock market and making career in stock market but we did
not know how to do it. So when I proposed this that let us come together, you have the clients and I
have the capability to find somebody who will sponsor us as a sub-broker and that is how it started.
If by chance there was a little difference of opinion or if there was a small setback at the early
stage itself, the whole thing would have broken off and nobody would have even remembered the
whole story. Today it has worked out, but for the first five years, it did not have the critical mass to
say that we are successful. Till about 1990, I remember we earned about Rs 10-12 lakh.

Nikunj Dalmia: But that was a lot of money in those times.


Raamdeo Agrawal: No it was not a lot of money. Between the two of us, we could have earned
that money otherwise also. So it is not that we did a great job. But in 1990, we took a big plunge.
We borrowed Rs 10-12 lakh and bought membership in BSE and what happened was that was the
start of the Harshad Mehta bull run. So for every business to take off, you need one tailwind, one
bull run and that is what we got and we got mother of all the bull runs, the Harshad Mehta bull run.
I will tell you, we had about 10-15 lakh in 1990 and by 1992 or 1993, when the Harshad Mehta
storm passed, we had Rs 30 crore in our pocket and only out of broking and investing and returns.
So we had Rs 30 crore portfolio out of absolutely nowhere and we had a thriving broking business
which was making about Rs 2-3 crore on its own. Once the Rs 30 crore came, nobody could throw
us out.

Nikunj Dalmia: So which is the first stock you remember buying in your firm? You always
remember your first stock.
Raamdeo Agrawal: So I will tell you…

Motilal Oswal: I never used to bother about what stocks and what prices.

Nikunj Dalmia: You always looked at profits and not what buying or selling is…

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4/23/2018 Wealth is the driving factor but values can't be compromised: Raamdeo Agrawal, MOFSL - The Economic Times

Motilal Oswal: I look at profits. I look at business. He looks at the portfolio.

Nikunj Dalmia: So the dividing line was very clear from the beginning, that Raamdeo will
look at the investment aspect, you would look at the business?
Motilal Oswal: All other aspects of the business.

Raamdeo Agrawal: But it was not like you sit at the table and decide okay you do this, I do this. It
was taking up what came naturally in the sense that I have never bought or sold 100 shares of
companies. All the shares trading or buying-selling for the client and for the portfolio is done by
Motilal only. So even today, if I get an idea, I tell him boss do something about this because I am
not comfortable transacting. So while the transaction part came to him, obviously the order taking
and researching and advising was on my domain. So the operations and running the company
went to him and all the research and talking to the people came to me. As volumes increased, the
verticals started becoming much more clearer.

Nikunj Dalmia: Do you think it is a challenge to convince Raamdeo to sell something


because he is good at buying but he is very bad at selling?
Motilal Oswal: I used to think so. Even today in the morning, I said Raamdeo we have this ETF in
our portfolio, why don't we sell it? He said no, no. No sell. We should hold it but I said it is only 1.5
per cent. Why do not we sell it and then we decided to execute it. So I give him some idea but after
that he takes a decision.

Nikunj Dalmia: You never interfere in the way he invests.


Motilal Oswal: Never. On investing side, never.

Nikunj Dalmia: And you never interfere in the way he is running operations.
Motilal Oswal: See we keep on advising each other. That is absolutely not an issue but I think we
always build on complimentary skills. He would have very strong skills on market, investments, on
PR, brand. I take care of technology and marketing and of clients. That is the way I think we are
divided. So based on…

Raamdeo Agrawal: There is enough on the table. There is many issues on which we agree and
disagree. But then finally somebody has to take the lead. I mean if he says that this is only 1.5 per
cent of the portfolio why should we bother about it even if it is good. So let us sack it. So he is also
prevailed, I have also prevailed on issues. That is how it goes on.

Nikunj Dalmia: So is wealth the ultimate driving factor or values the motivator?

Motilal Oswal: I think wealth. I would look at it and think how really exciting the future is going to
be and how we are becoming much better on the ground level. Raamdeo always looks at it that
this is the net worth, this the thing. I said that this is part of the journey but certainly I think it comes
out of doing something which is exciting.

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4/23/2018 Wealth is the driving factor but values can't be compromised: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: So values are never compromisable. Value comes first before wealth. Even in
1987 when we did not have a lakh rupee in our pocket, then also values were absolutely supreme.
So we paid full taxes in 87 and in 90s, when things were not so good. In fact, at that time we were
individuals also we are not corporates. So we were given Samman Patra for being the highest tax
payer in 93-98. That time it used to be fun to meet all these heros and heroines in those
ceremonies.

Nikunj Dalmia: But the only difference between that time and now is that you may be paying
more tax than all the hero and heroines.
Motilal Oswal: Of course, but it is a corporate structure.

Raamdeo Agrawal: But now the corporate structure does not get attributed to us. We are much
bigger tax payers, multiple times bigger than that time but we do not get those certificates. In fact,
those certificates will be given to the people. The government should create a lot of categories and
give certificates because then I get clappings for being highest tax payer at some point of time
because that shows the character. It is not about the amount. It is about the character which is not
found so often in India. So I feel always be proud that we got accreditation from the government.

Nikunj Dalmia: The firm started as a brokerage, then you moved into wealth management.
Now you got other areas as well. You are planning to go global. You have got investments in
the real estate sector. You are also spreading your wings and you are moving into the HFC
space. So what is next for the firm now. Let us talk about vision 2020 for MOFSL.
Raamdeo Agrawal: One of the very important decisions we took just two years back is that now
we will confine to whatever the portfolio is. So current portfolio of businesses include broking,
investing and HFC. Broking and investing generates a lot of cash, Rs 200 crore, Rs 300 crore, Rs
400 crore. Either we give it by way of dividend which will again come back in investing., or we said
let us find an investment wagon where we can put it. So we found HFC to be a good way to do that
and hence we are building up one of the high quality housing finance companies with MOFSL. All
the money which we earned from broking and investing will hopefully go to capitalise that particular
company. We have already given Rs 300 crore anc committed another Rs 200 crore. So in the
next six months, Rs 500 crores will be committed to HFC only. So that is how we will build and
balance. After some time, even HFC will start giving returns. So we will have an even bigger pool
of cash coming in which we will put into our funds. So it is a complete loop, equity for equity, debt
for debt.

Nikunj Dalmia: It is often said on Wall Street that to be a successful businessman you have
to be a successful investor and to be a successful investor you have to be a successful
businessman.
Raamdeo Agrawal: This is what Buffett said. He is a successful investor because he is a
successful entrepreneur because he can see the difficulties and opportunities of businesses.
Businesses do not happen in a straight line. There are good times. There are bad times. Of course,
markets do not appreciate that. In good times, markets will be very frolicky and in bad times market
will be quite depressed. So that helps us in understanding that a good company also faces tough

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times. So, it definitely helps me to pick a stock and appreciate the managements.

Nikunj Dalmia: Broking as a business has stagnated, yields are coming down, automation,
algorithm, ETF which means the human intervention the advice or the value of advice is
also coming down. So is that the biggest challenge for you that the yields are contracting
for your big business, your bread and butter business?
Motilal Oswal: If you look at the way we used to do broking versus what we have done today, the
character has absolutely changed. I think the brokerage yields may have fallen but overall volumes
have exploded and there are huge numbers of new products that have come in, like options or
futures or even on commodity and currencies. So yes it is a very competitive business, the
technology is absolutely the business driver for broking business but I think that broking is going to
be very exciting and if you look in the last 27, 20 years, we have lost money only in two years. So
yes, it is very competitive but I would be quite optimistic about the broking business. Still today also
really I think it is giving us substantial amount of revenue and profits.

Nikunj Dalmia: But at a time when everything is now going online, there is talk of robo
advisory where human intervention and advice is not there...
Raamdeo Agrawal: Zero brokerage.

Nikunj Dalmia: Zero brokerage and advice is free, everybody wants free advice.
Motilal Oswal: Yes but see these developments are happening because the size is exploding and
it has become a very globally competitive market. We should take it as an opportunity that
technology is exploding. But remember, clients want quality advice and with so much information
being provided by the TV channels like you or media, there is often an explosion of information. In
fact, when we started, there was no information. Now it is excessive information. So I think advice
is becoming more important for high networth individuals (HNIs) as segments. There are a few
clients who are self-directed clients who do not want advice but for them we have provided the best
technology platforms.

Nikunj Dalmia: Before I ask my next question to Raamdeo, I actually know the answer. If I
will ask him for a market view, he will say do not look at markets, look at individual
companies and they will always do well irrespective of the environment. But today I want to
start with your market view, what is your assessment of the economy, markets, in general
where we stand?
Motilal Oswal: Economy and markets are very difficult to predict. What is actually in our control is
really the stock selection. We have seen bad markets give us huge amount of opportunities for
future appreciation. The thing which is in our control is very difficult to predict although you guys all
ask the same questions what is the next level of the target and what is Sensex level or Nifty level
but it is difficult.

Nikunj Dalmia: Quality has worked, quality will work and your experience clearly seems to
be indicating that quality businesses will always do well but pricing is also very important.
Quality at any price may not work and that has been the mantra over last couple of years

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and that is where I would argue that some would differ with you. You like quality stocks but
what about the margin of safety in some of the stocks?
Raamdeo Agrawal: But I never said quality at any price, you are only saying that. You can buy
quality and make money at any price. It is never like QGLP -- quality, growth, longevity at
reasonable price. It has to be reasonable, you do not have to buy very cheap. When there is a
quality and growth, quality will make sure even if you are to borrow, a little expensive quality will
make sure you will not sink. But we are not in the market not to sink. We are in the market to make
good amount of money.

We are all greedy guys who want to make lots of money very quickly. So for that, you require
growth and a reasonable price. Now the reasonable price is a function of how much growth
happens. The question is how do you balance this growth and the price? Quality is non-negotiable.
I will never buy a junk and we do not need many stocks. We need only 15-20 stocks. We launched
F35, multicaps 35 two years back. That is a perfect practice of QGLP in every minute nook and
corner of the fund which has grown. Thankfully market has recognised the merits of the fund and it
has grown. It is amongst the fastest growing fund.

It has now come in top 25 funds, it is almost Rs 3400 crore strategy now from zero. So of course
lot of money is our own but the issue is that we practice QGLP and in last two years the market
has gone up by 20 per cent. It is up 75 per cent and 100 per cent invested no cash call, no timing
call. If you give me money today, I will put it today so it works but you got to buy. I agree fully with
you that you have to buy growth at reasonable price but out of 18-20 companies, if you actually
end up buying two-three companies a little expensive, the rest of the pack will support it.

Nikunj Dalmia: I always enjoy reading your wealth creation study and in one of the wealth
creation study you had mentioned the importance of recognising value migration. The value
migration which we saw from PSU banks to private banks, what we are seeing in pharma
industry right now, what we saw in the telecom industry so where is the next wave of value
migration according to you?
Raamdeo Agrawal: Say like world’s biggest value migration is IT okay, it is a trillion dollar value
migration from Boston to Bangalore and quite a bit of journey is done. We did about $108 billion for
2015-2016, and next year we will do more like $115-117 billion. So nobody makes a headline that
Indian IT industry on 1st April did another $9 billion of growth. And within that there could be a
company which can start from $10 million and become a billion dollar very quickly. So that is the
biggest one. Second is pharma, of course, from a global generics to Indian generics I would say…

Nikunj Dalmia: But that is getting challenged. USFDA is a real problem?


Raamdeo Agrawal: It is a temporary problem. You must not read into anything in the sense that if
the importance of size and importance of Indian pharma is growing, they also need to gear up to
the required standards of US. So I would think that this will only mature like we have started
broking and we were retail brokers but in 1992-1993 when Morgan Stanley and all the global firms
came, at that point of time the rules tightened and that made Motilal Oswal much stronger. So all
this USFDA rules and all over a period of time it will only make those companies better.

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Nikunj Dalmia: But stick to the large guys, I mean stick to the guys who got size, who got
reach, who got understanding?
Raamdeo Agrawal: I think in pharma you had to stick to the size and growth whatever but still
small ambitious companies are coming up who might be $100 million-$200 million and they have
ambition to start one USFDA plan, one injectable plan and make lot of money and from there... say
companies like Ajanta Pharma. So we are still seeing lot of small companies emerging who will
become big that is your call.

Nikunj Dalmia: I want to talk to you about the HFC (housing finance) space. You are a late
entrant and you are a small entrant right now. You know you have got big sharks there, you
have got banks there. So I want to understand what is it like to be a late entrant in the HFC
space and are the dynamics of the HFC space changing now?
Motilal Oswal: There are a very few housing companies which have created size and when you
look at the opportunities you see the mortgage ratio of the total Indian markets is very small and
the business itself is growing at about 22-23 per cent in a bad kind of economic cycle. So yes, we
are late but that does not mean we still not have started. There are hardly four or five big players
there and the segment which we have selected is affordable segment. We see that there is a huge
kind of opportunity in that segment particularly when the Government of India is pushing the
housing for all or every kind of affordable cost housing. So in this business in last two years, we
have done very well. Now the book size will be about Rs 2000 crore.

Raamdeo Agrawal: See when we talk about housing for all, we are talking about 225-230 million
households and now what is happening is people are living in small places. Kids are getting
educated and they are living in their own homes and they are building another home in some other
city. So there is a requirement for multiplicity of homes in the same family. So housing needs are
literally insatiable.

Even in US, housing starts are one of the lead indicators of health of the economy. In India for the
next 100 years you can keep on building houses. So there will be requirement of houses and
financing of that because now nobody can afford to build the entire house on their own. 99 per cent
of the houses have to be mortgaged and some support has to be there. So the opportunity size is
staggering and that is why even at this point of time the industry is growing at about 18-20 per
cent.

Now the issue is how do we win the game? Do we have the right to win? We have good
understanding of what it takes to win. Can the management team which we have put up deliver?
So far, they have wonderfully delivered but delivering on Rs 1000-2000 crore is one thing and
delivering on Rs 20,000-30,000 crore is yet another. So only time will tell whether we can scale up
and we will do everything to guide the management team to deliver. Every business has a 90 per
cent. The 90 per cent rule of mortgage is the quality of underwriting. If you underwrite well, nobody
can touch you because there is a house as a strong collateral, of which prices are going up every
day. So if you are underwriting well, your spread will definitely come to you. Now what is your

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intimidation cost, what is your operating expenses that is all within you so fundamentally there is no
problem in the business. I am not saying that I am not undermining sales marketing or customer
service but rest all will come.

Nikunj Dalmia: Even the AMC business ...


Raamdeo Agrawal: Yes, there are 44 AMCs and…

Nikunj Dalmia: And you have become a billion dollar already.


Raamdeo Agrawal: We are one and a half billion…

Nikunj Dalmia: One and a half billion dollars…


Raamdeo, over the years you have invested in brands, you have understood that the
importance of good brands is because they cannot be challenged. But now there is a firm
called Patanjali which is rewriting the story. We may call it disruptive but you know there is
a small player who started late, pretty much like MOSL, and now is a Rs 10,000-crore
company. So is it time to relook the expensive PE multiples which we have always ascribed
to FMCG companies, especially great companies which have good brands?

Raamdeo Agrawal: See it will definitely take away some segment.They have a segment where
they will thrive. So it is a marketing challenge for the rest of the pack whether it is Hindustan Lever
or Colgate or Emami or whosoever is hurt most by the product. In that product, they have a new
entrant so they have to find their way and for good entrepreneurs, good companies, initially it will
be unsettling for a year or two, when they are growing up from Re 0 to Rs 10000 crore. They will
have some challenge coming in later on product superiority because right now is it a product
superiority or is it just blind faith in Baba Ramdev’s brand equity?

Nikunj Dalmia: So you will not be in a hurry to say that HUL and the Nestle’s and Dabur’s of
the world will underperform. You still think that these are great companies?
Raamdeo Agrawal: Yes, they will underperform because sales might have grown, profit might
have slowed down. So obviously in one or two years, there will be a challenge. But I do not think it
is something which will just change or rewrite the rules of successful FMCGs in India.

Nikunj Dalmia: One thing you can be reasonably sure of is you know Patanjali will never
enter the liquor market. So does that explain why you have invested in USL?
Raamdeo Agrawal: No, no they have. I have seen they are being noticed everywhere. They have
to find a strategy to counter that. May be if they cannot fight, then they will join. Whether it is the
Atta market, whether it is some hair oil, they are there. I have seen very serious fallout of that as
far as the companies are concerned. They need to find some effective strategy to counter that
challenge.

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4/23/2018 IT, pharma and OMCs make right bets: Raamdeo Agrawal, MOFSL - The Economic Times

IT, pharma and OMCs make right bets: Raamdeo


Agrawal, MOFSL
ET Now | Updated: Apr 21, 2016, 03.45 PM IST
In a 0
Comments
chat
with ET Now, Raamdeo Agrawal, Joint MD, MOFSL, says IT and
pharma make up about 30 per cent of the portfolio

ET Now: What is the right time to enter or exit a market?

Raamdeo Agrawal: It is very difficult to time the market. Remain


IT, pharma and OMCs make right bets:
invested but you take the pain. See when it goes down, I also do
MOFSL not like it. But there is no alternative to making money. So when
market came back by 10-12 per cent in March, I never had any job
to do because my chips were already put on a table and right now as we are talking, market is
going up or down, So you cannot time the market. I mean it looks like we can time the market, but
when the levels broke 7000, I know my biggest of the clients believed the market is headed for
6000 and took the money away.

NSE BSE
ET Now: They actually sold when they should be
Company Summary
buying.
Infosys 9.25 (0.78%)
Raamdeo Agrawal: They sold. I mean the big guys
TCS 6.20 (0.18%)
they sold actually. You can say that it has come back
Ranbaxy 45.80 (5.63%) but by chance it also would not have come back. So
EXPAND TO VIEW ALL timing the market, saying when it will reach the top
or the bottom, is for fools and liars.

ET Now: I am completely with you when you say that it is impossible to decide the market
and really catch the absolute top and the bottom. What we can perhaps analyse
are earnings and the economy. Now the economy or the Indian economy is in a bull run. We
are the fastest growing economy in the world but when it comes to earnings, I still feel that
we are in recession.

Raamdeo Agrawal: Why?

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4/23/2018 IT, pharma and OMCs make right bets: Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: There is just no recovery. The recovery is not coming.

Raamdeo Agrawal: But why you have to be bothered about all 3000 companies earnings. You
should be bothered about what is happening in your 20 companies. See if I have my company, I
have sympathy for all the companies which are not making money. But if I am making money,
actually I am pretty happy. 'Managing portfolio is the active manager’s job. We are not passive
managers. We are active managers. So we need to find out all those 3000 companies. Where are
those 20, 25, 30 companies which are going to do well and I am quite sure there are at least 200-
300 companies which are doing very well. Their bull run means super bull run. So you have to be
very lucky and very precise in collection of stocks. Because of portfolio approach, even out of say
three stocks, one stock is wrong and two stocks are right. You still do well.

ET Now: You have always like dcompanies which have no debt, which have great return
ratios and which have a good franchise but are these companies priced to perfection? By
and large, with the exception of one or two, you can talk about an Eicher or an Indigo, aren't
quality stocks expensive?

Raamdeo Agrawal: Yes. Some stocks you see the first thing is whether you understand
the business and the company. If you do not understand something which might look to be
expensive to you, might look cheap to me. In case of Indigo, at Rs 700 also, I get so many scathing
remarks but I sincerely believe at that Rs 700-800 it was a terrific value and that is how we are
holding. So it is very difficult to reconcile the understanding of value about a company because it is
all about the future. So the difference lies in how do you think about the future of a company and
how somebody else thinks about future of the company.

ET Now: What is your understanding of the future of the pharma sector?

Raamdeo Agrawal: Indian pharma is a divided house. Still there are two segments -- one is what
is catering to the domestic branded generic and second is exporting. The bigger story is what you
are exporting. In domestic segment, because of price control, companies are not able to make a lot
of money. Authorities are coming and cutting the prices of popular drugs. So that is cutting the
profitability of the domestic side. But on the global side, it is a value migration story and it is
something which will happen. Every single generic drugs will come from India and generics are in
too much of demand whether it is Japan, in America, Europe... all these countries need very small
quantities of high quality drugs and that can be produced at a very economical price in India. I
know there are companies which are branding, making a drug in the name of a $500, $1000 and
exporting that and getting prescribed and selling it at profit. So this kind of capability of customising
at a very small lot size is only possible in India.

ET Now: But the peak return ratios? For example there was a period of peak growth in IT. IT
companies were growing at even 100 per cent rate. That has come down to late single
digits. Now early teens are considered good companies. Sun Pharma NSE 1.77 % or for that

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4/23/2018 IT, pharma and OMCs make right bets: Raamdeo Agrawal, MOFSL - The Economic Times

matter a Cipla NSE 1.88 % , have got return ratios which are north of 30 even 40 per cent. Wll
that peak come down now?

Raamdeo Agrawal: It depends on how competent is the company, what are its strategies and how
lucky it is. At times, when you acquire a company and it suddenly turns into a gold mine. So all
those things matter. Since Sun has taken over Ranbaxy NSE 5.63 % , how big is the turnaround going
to be? If it is a full blast turnaround and two plus two is like 20 then it can be a very big story. So it
has to be very company specific comment. What I am saying is that the underlying tailwind is
massive. Domestic generic demand is very good, global demand is very good, you have the cost
advantage and you have very deep research kind of culture. So today you are not doing any new
discovery. At least they have not demonstrated in a meaningful way as the balance sheet size
becomes bigger and risk bearing capacity increases. I am quite sure a few of the Indian companies
will make foray into new chemical entity discovery because they will have dollars to spend.

ET Now: The IT sector is growing. I met Chandra two days ago and Chandra is of the view
that everything will become digital. Digital is a $2.5 billion business for him and he still feels
that it will grow at 50 per cent. A $2.5 billion business can grow at 50 per cent for a couple
of years according to him. So how are you laying your bets in the IT space because the
aggregate growth is down, digital is growing, it is very difficult to differentiate but I am sure
you are an alpha seeker, you have something special which tells you that how to approach
this SMAC space?

Raamdeo Agrawal: I think between IT and pharma we are about 30 per cent, almost one-third of
our portfolio. These sectors have little to do with the domestic economy, are much more external
looking, currency benefits them so and these are the best two stories from India on the export side.
So we will always have good chunk. But it all depends on the companies we bet. Initially I used to
have 10 per cent in Infosys NSE 0.78 % . Initially it worked very well but last three-four years before
Sikka came it was a big pain...

ET Now: So in your declared portfolio which is the IT stock you own?

Raamdeo Agrawal: We have Infosys and TCS NSE 0.18 % .

ET Now: Okay, the large ones?

Raamdeo Agrawal: Large ones, these two.

ET Now: You are not ready to come down the ladder right now?

Raamdeo Agrawal: At least I am not comfortable. This opportunity is extremely large but only for
very few because the larger companies, larger global corporations they want multi location
execution and they want safety, variety and quick response and deep response, back up etc. I
think at least the big companies are showing reasonable work. The Infosys has set target of $20

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4/23/2018 IT, pharma and OMCs make right bets: Raamdeo Agrawal, MOFSL - The Economic Times

billion by 2020, market does not believe that...

ET Now: 30 per cent margins, $20 billion turnover?

Raamdeo Agrawal: So nobody believes. I think they have very small respect for that particular
target but I have a great respect for that target. So because of that, its almost my number one
position, 99%...

ET Now: At least the management has the vision to see which is what I like about Infosys
and the capability to deliver?

Raamdeo Agrawal: And they are reiterating every quarter that we want to achieve. So the
message is going down very strong and I am quite sure in their corporate planning they must have
planned $20 billion.

ET Now: Can I safely say that for oil marketing stocks the genuine acche din phrase can be
used because now they are expanding capacity, GRMs have stabilised, stocks have
corrected, the size of opportunity is great and there is no competition, typically the kind of
businesses you like?

Raamdeo Agrawal: As you said you know this QGLP, they have quality of business, monopolistic
business, huge business, this is the largest business of India, worth Rs 10-12 lakh crore, growing
at 10-12 per cent in volumes, price is on top of it. If oil goes to $60, then it will further grow. So they
have the quality, reasonably good management, online cannot disrupt it, you cannot fill petrol
online and even the Chinese cannot do anything about it. So there is a longevity in the story and it
is available at 7-8 PE multiple.

ET Now: So stick to that QGLP, Q stands for quality...

Raamdeo Agrawal: Yes, that is how I am telling you it is a perfect QGLP stock. Right now, at mid
single digit PE multiple this seems to be a perfect bet.

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4/23/2018 Budget 2016: Budget is irrelevant when it comes to investing, says Raamdeo Agrawal, MOFSL - The Economic Times

Budget 2016: Budget is irrelevant when it comes


to investing, says Raamdeo Agrawal, MOFSL
ET Now | Updated: Feb 24, 2016, 05.50 PM IST
The 2
Comments
Budget
needs to be well imagined and can work in several
ways, says Raamdeo Agrawal, Joint MD, MOFSL. In
an interview with ET Now, the expert says that there
has to be a push in terms of investment. Edited
excerpts:

ET Now: Does the Budget have the bandwidth, the


elbow room to revive consumption in a big way?

Raamdeo Agrawal: We need imagination. See


"There is a thing in trillions now. It is a very serious
exercise because this is a game of money." everything is possible. Excite Indian investor, or push
them away from the gold, equities or bonds, or
whatever. There are lots of options, what you want to do, how much you are empowered, how
much you can imagine and how much you will act at a given point of time.

See they are masters of public finances, we are not, we are corporate guys. So we think in terms
of few million dollars, few billion dollars here and there. There is a thing in trillions now. It is a very
serious exercise because this is a game of money. You know this economy is not going to move.
This is a $2 trillion economy. If you want to really make a push in a headwind environment you
need to really give lot of push in terms of investment. That can happen only with the money.

ET Now: We have got the broad painting. Now I am trying to fill up the key dots or the key
pockets from the markets perspective. Let me start with you one key thing, that everybody
in the markets want is some more commentary and colour on capital infusion for public
sector banks a small measly amount was laid out the last time obviously that is not enough
and now the banks are in dire need it will have a multiplier impact as well, do you think
there is scope for that this budget?

Raamdeo Agrawal: It is not only about the capital, see the problem is too deep and too important
a problem, this is not an Akashvani, this is banking system of any country. 70% of banking system,
it is completely today broken down in terms of capital adequacy, and the way it is functioning. We
got to get not only about the capital that is the bare minimum whether they are giving, they are, I
mean what is the game plan for recapping.

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Second is, what is going to be the reforms in the management structure, how do you install a brand
new management out there in all the 26-27 banks it is not one or two or three so those things will
really matter. If you get good manager do you want them to be there for 5-10 years.

ET Now: Taxation and diesel, the government seems to be heavily coming down on that and
there it seems to be this big thrust on renewable clean energy. Do you think something will
actually come about, something decisive will come about and would be beneficiary or non-
beneficiary as it may be the case for diesel car manufacturers or people who are into clean
renewable energy?

Raamdeo Agrawal: I think the bigger issue is that what is the assumption on which this budget will
be built, whether the $40 oil, $30 oil or $60 oil because see this year’s budget is saved, or 2015-
2016 is saved because of bountiful tax collection on oil. Now if oil reverses will he give it back,
what is the assumption because this is very temporary?

I am quite sure that this is done by so they are there, he will take away, you know in 15 months
they have given it, 15 months they will take it away the demand comes back. So clearly you are in
a very--if the growth does not come actually they have given-- Saudi Arabia has given us time, kick
up your growth quickly.

So you start earning. By chance reverses $60 and if the budget is built on $30- $35 assumption
that money will keep coming, you can imagine what kind of disaster we will have, at the middle of
the year we will find that we are not getting those dollar.

ET Now: Almost everybody says that it should have been passed on to the consumer to
people like you and me. I am saying it is okay it has gone to people who actually needed a
slightly more than what-- is the way of way of approaching investing in this market, is the
purview outside the budget, do not look at the budget just look at the budget as a statement
of accounts, I mean this will not do anything but for a day’s move, a lot will happen beyond
it?

Raamdeo Agrawal: Yes, this is not even a 0.001% of the entire investing process. Budget is just
another event. You do not invest because there is going to be a budget. There is going to be 10
budgets in 10 years for sure so you cannot be changing and there will be 10 new finance
NSE -0.18 % ministers and prime ministers and all kinds of world will come, so clearly investing is well

beyond that. I mean it is not even in the...

ET Now: I mean, investing at the current times right now?

Raamdeo Agrawal: I am telling you because of budget nothing changes, if I want to buy today I
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4/23/2018 Budget 2016: Budget is irrelevant when it comes to investing, says Raamdeo Agrawal, MOFSL - The Economic Times

will buy, if I want to sell something I will sell. That is what I am saying.

ET Now: To be fair, they did try to this, the disinvestment target was fairly high that they did
not go ahead and manage it, I mean compared to what has happened.

Raamdeo Agrawal: See the global economy is $75-$77 trillion, upwards of 20% is annual savings,
those jokers they do not know where to put the money. It is going below base rate. And now the
discussion, if you read FT what they are saying is that this 0.1, 0.2 negative is not good enough we
must go deeper negative. Now can you imagine, here at 12% we do not get money.

So I think there has to be a lot more thinking I am not good at global macro and local macro, public
finances, they are very different, very sophisticated subjects, but then the guys who are good they
should have that imagination.

I mean this is very clear that there is a huge amount of money lying there, they want to come here
also, we need to prepare a situation which Mr. Modi is trying very hard right from day one to create
a very conducive environment whereby billions and hundreds of billions flow into India.

ET Now: The reason why I bring this question back again, you are investors who will
probably invest right now if the markets were to correct 10% they will probably go out and
buy more, they would not get ruffled and they will hold the story for next five, ten years but
there is a set of viewers who probably cannot do that or do not do that, they might be
slightly shorter term investors than you are, they might be more tactical than what you are
right now, by virtue or whatever it is.

Raamdeo Agrawal: I hope you are not referring to the speculators?

ET Now: No, I am not referring to the speculators at all. The question is, if indeed there are
some measures taken which could lead to a correction in the market and therefore it gives a
better tactical opportunity and which is why my question that do you foresee that if indeed
there are these decisions taken with regards to capital gains tax or service tax being up 2%
so and so forth, it results in a fall in the markets and therefore probably gives better entry
points to people, do you think that will happen, if indeed the measure is taken?

Raamdeo Agrawal: I told you in the beginning, if I want to buy today-- yesterday I got my dividend
I have bought it yesterday only, you know 100%. I bought it till four o’clock. There is nothing left. So
this is an honest statement I am telling you.

ET Now: You would not disclose what you bought?

Raamdeo Agrawal: No, I bought my own part, but what I am saying is that I am not timing the
market at this level.

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4/23/2018 Budget 2016: Budget is irrelevant when it comes to investing, says Raamdeo Agrawal, MOFSL - The Economic Times

ET Now: So the budget is irrelevant when it comes to the investing process right now?

Raamdeo Agrawal: As far as I am concerned, yes.

https://economictimes.indiatimes.com/opinion/interviews/budget-2016-budget-is-irrelevant-when-it-comes-to-investing-says-raamdeo-agrawal-mofsl/articleshow/5
4/23/2018 Patience, time needed to make money in stock market: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

Patience, time needed to make money in stock


market: Raamdeo Agrawal, Motilal Oswal
Financial Services
ET Online | Updated: Feb 17, 2016, 02.05 PM IST
0 By
Comments

Dhritiman Chakraborty

Emphasising the need for patience, time and


emotional construct for making money in the stock
market, Raamdeo Agrawal, joint MD, Motilal Oswal )
Financial Services, said that one doesn't make money
from the noise that exists in the market but by
investing in the right company and staying invested for
a long time. So when the company makes money, an
Agrawal emphasised the importance of building a
investor makes money in the process. He was giving
portfolio as it reduces the downside risk to a significant
tips on how an investor can swim in a volatile stock
extent.
market, at CIFA 2016 in Mumbailast week. The
Cafemutual Independent Financial Advisor (CIFA) is
an annual gathering of financial advisors organised by Cafemutual.

He said that an investor needs to focus on 'important and knowable' information only. Currently,
people are focusing on 'important but not knowable' information which forms the main source of
noise in the market.

Agrawal is of the opinion that markets are irrational in the short run. Reacting to the noise in the
market he said, 'We are trying to rationalise what is irrational in the short term.' The rationality
index moves upward as the length of time period increases. Short term gyrations tend to smoothen
out over a long time.

There is a strong possibility of finding hidden gems if we cut the clutter, he said. He added that
even within the same sector there are some stocks which outstrip and others which lag behind the
broader market returns.

Agrawal emphasised the importance of building a portfolio as it reduces the downside risk to a
significant extent. Even if the value of a single stock in the portfolio goes to zero, the overall
portfolio value won't reduce to zero as that stock constitutes a small portion of the portfolio. He said
that there is a possibility that within a portfolio loss from a depreciating stock is offset by an
appreciating stock and the investor realises a gain in the end.

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4/23/2018 Patience, time needed to make money in stock market: Raamdeo Agrawal, Motilal Oswal Financial Services - The Economic Times

Agrawal believes in a strong investment philosophy which will help investors swim through market
volatility. He emphasised QGLP meaning Quality-Growth-Longevity-Price as the four pillars of his
investment philosophy. On the Quality front, he believes that there are 3 types of companies viz
Great, Good and Gruesome. One should diligently avoid the gruesome ones which according to
him constitute 95% of the stock market. He said that both Quality, as measured in terms of quality
of management and business and Growth measured in terms of growth in earnings and Return on
Equity (ROE) are important. One shouldn't be given preference over another. Considering the
trade-off between Growth and Value, Agrawal feels that it is as an art to discover growth stocks at
reasonable prices.

He added that an investor should follow a pyramid approach where majority of the investment is
made when the markets are low. Investors on the contrary tend to follow an inverted pyramid
approach by putting bulk of the investments when markets are high. He opined that an investor can
resort to systematic investment plan (SIP) where market levels hold no significance.

Speaking about the economy, Agrawal said that global headwinds will emanate from global
deflation and negative interest rates. While the benchmark rate in Japan was set at minus 0.1
percent, the European Central Bank has reduced its deposit rates to minus 0.3 percent. Agrawal is
of the view that in India, headwinds will come from the reform of the Public Sector Banks (PSBs).
This process entails the recognition of the gargantuan amount of bad debt, recapitalisation of the
banks and reforming the management. Agrawal termed this as 'biting the bullet' but he is optimistic
that the reform process will bear fruit in 12-18 months.

He also expressed concern about the stagnancy in corporate profits which, according to him, can
slide after the announcement of the results of Public Sector Banks (PSBs). He said that there
exists a positive correlation between corporate profits and stock market growth. If corporate profits
surge then the valuations of the companies go up multiple times.

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4/23/2018 This is the time to build a top class 3-5 year portfolio: Raamdeo Agrawal - The Economic Times

This is the time to build a top class 3-5 year


portfolio: Raamdeo Agrawal
ET Now | Feb 06, 2016, 12.29 PM IST
In a chat with
2
Comments
ET Now,
Raamdeo Agrawal, Motilal Oswal NSE -0.08 % , says we are going to
see some serious inflow from the DIIs and from domestic HNIs.
FIIs have their own compulsions for selling or not buying in the
market. Edited excerpts

ET Now: You are extremely bullish when it comes to all


Raamdeo Agrawal, Motilal Oswal, says
fractions of business. Quickly highlight where do you see
we are going to see some serious the housing finance NSE -0.18 % as well as the AMC business
inflow from the DIIs and from domestic headed from here?
HNIs. FIIs have their own compulsions
for selling or not buying in the market
Raamdeo Agrawal: Let us look at the breakup of the current
profits of Rs 50 crore. The largest contributor is the broking
business at about Rs 12-13 crore and the second is the housing finance at about Rs 9-10 crore.
Asset management contribution is about Rs 7-8 crore and the rest are the gains on interest and
corporate profits. So what is going to happen here onwards? clearly aspire is on the build up mode
and since it is starting from a very small base we are growing very rapidly and more than the top
line growth or AUM growth is the profit growth because we had taken a upfront hit on the fixed cost
last year and that is being leveraged now so we will see accelerated growth for the next quarter
and at least next five-six quarters there is going to be quite a bit of growth in housing finance.
Asset management is kind of a very interesting business where you have the fixed cost of about
Rs 50-60 crore per annum and once you cross the fixed cost (which we have not crossed last year)
you start making money. This quarter we have made about Rs 7.5 crore. So if we are lucky to get
fresh AUM in the next quarter and the quarter after that, some appreciation on the profitability will
be built up much faster. Broking is clearly very unpredictable in terms of what can happen. There is
lot of fixed cost we have taken ahead of the market expansion after Mr Modi became Prime
Minister. We recruited about 700-800 people in broking so we have gained market share but it has
come at a cost. So the top line grew at 13 per cent in broking but my bottom line is down by 20 per
cent. So there is a massive hit because of fixed costs. These are the three segments which are
going to play out in the future.

NSE BSE
ET Now: Let us pick up each of the segments
Company Summary
one by one and let us talk about broking. Given
Yes Bank 4.50 (1.46%) the kind of turmoil that the market is in, do you
really think broking as a segment is going to
Motilal O… -0.75 (-0.08%)
continue contributing for you? You just talked
Housing … -3.30 (-0.18%) about increasing your headcount. Do you think
EXPAND TO VIEW ALL given the turmoil in the markets, you will
https://economictimes.indiatimes.com/markets/expert-view/this-is-the-time-to-build-a-top-class-3-5-year-portfolio-raamdeo-agrawal/articleshow/50851409.cms
4/23/2018 This is the time to build a top class 3-5 year portfolio: Raamdeo Agrawal - The Economic Times

eventually have to downsize?

Raamdeo Agrawal: That does not seem to be the scenario right now. We have not taken that
pessimistic a view of broking despite the kind of result we have seen. So after 2003, we have
never made a loss in broking. So I do not think we will reach a situation where we will make a loss
but clearly the size of the profit is not getting that much bigger in terms of topline and more
particularly in terms of bottomline. We think in the next 12 months, we will get an opportunity where
our operating leverage will come to play in brokerages also and hopefully we will make money.

ET Now: Given the turmoil which is playing out not just in equities but across asset classes,
do you really think both AMC and housing finance would continue to deliver at the growth
rate that you are expecting these businesses to perform in the next year from now?

Raamdeo Agrawal: Every business has a different kind of visibility. We have seen all kinds of
businesses as an analyst. Of the three businesses, housing finance has much more visibility than
asset management company and third of course is broking. Broking has absolutely no visibility in
the sense that nobody has any control over whether next quarter will be up by 10 per cent in terms
of top line or down by 10 per cent. There is some control in the AMC business. In housing finance,
your investment, your growth plan, your business plan etc is fairly predictable and there is a strong
momentum in the housing finance side. So in at least next four-five quarters, our business plan is
in place and I do not see any reason why it cannot be executed.

ET Now: At what rate did you see your housing book expand?

Raamdeo Agrawal: Right now, we are expanding at some crazy pace. Right now, our AUM is at
Rs 1400 crore. At the end of the year, it will be anywhere between Rs 1800 crore and Rs 2000
crore. Since the run rate is about Rs 200 crore for the month, we should do a gross AUM
expansion of about Rs 2500 crore. So I would think we should end up in the ballpark of about
anywhere between 75 to 100 per cent growth in the AUM.

ET Now: What is happening in market?

Raamdeo Agrawal: I have no clue about global macros. So far as our own corporate earnings or
interest rates are concerned, I think one of the big global events which it almost over is oil coming
down from $110 to say sub $30 level. Saudi Arabia, which was the main architect of this decline, is
also uncomfortable at $30. So, I would think that we are more or less at the bottom. Iit may stay
here for a long time but I would think that particular phenomenon is over. As the global
https://economictimes.indiatimes.com/markets/expert-view/this-is-the-time-to-build-a-top-class-3-5-year-portfolio-raamdeo-agrawal/articleshow/50851409.cms
4/23/2018 This is the time to build a top class 3-5 year portfolio: Raamdeo Agrawal - The Economic Times

economy stabilises, a lot of businesses will stabilise and that will help in seeing the bottom of what
you call lot of businesses profitability and hence the businesses which are doing well, will then start
asserting. So 17-18 earnings growth should be better slightly held by the lower interest rate. If we
get 100 bps lower, it will do wonderful job of enhancing at least the declared profit and cash flow of
the corporates.

ET Now: How long do you think the turmoil will continue before the FIIs return to our
markets?

Raamdeo Agrawal: I think, one should not bother too much about what FIIs do, because even
DIIs can buy big time. Last year, whatever the FIIs sold was picked uo by the DIIs. My clients are
looking for stability of the market and tons of money are waiting to come into the market. A serious
amount of commitment is coming as everybody wants to buy at the bottom, But now nobody knows
what is the bottom. Looking back bottom was 7200 to 7300. Once that confidence comes, I think
we are going to see some serious inflow from the DII side, at least from the domestic HNIs. FIIs
have their own compulsions for selling or not buying in the market.

ET Now: Well our channel check seems to be indicating that there is already some
redemption pressure with some of the domestic mutual funds but anyway. Let us talk about
banks considering you have been an investor in the banking sector. How soon before all the
negatives are already priced in? It looks almost like one HDFC Bank versus the PSU
banking pack and the ICICI Banks of the world. Maybe, you could add a Yes Bank NSE 1.46 %
as well to it. How long before we see this pain actually ease out of the banking sector?

Raamdeo Agrawal: There are two things; one is the pain in the banking sector itself and pain in
the banking stocks. I mean these are two different things. So probably the pain in the
banking stocks might be the worst probably. Most of the banks are not in the equity values now.
These are all option values. Whenever the upturn happens, policy makers -- whether it is the RBI
or the Government of India -- have to respond to the current problem and I think they are clearly
aligned to the situation and solutions will come. We are passing through kind of the worst phase of
PSU banking stock prices.

ET Now: Has Raamdeo Agarwal been a buyer in the banking stocks or have you completely
steered clear?

Raamdeo Agrawal: We have remained very focussed on buying one or two so-called good banks
in the sense that the banks which have not got into this stressed asset game. We have bought
basically into retail banks, mortgages and retail banks. We have very little exposure to public
sector banks. So far we have been lucky not to be there in a meaningful way.

ET Now: What else have you bought? Have you bought anything, added more positions in
this current bout of weakness which has played out all of last month?

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4/23/2018 This is the time to build a top class 3-5 year portfolio: Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: I can tell you we have more ideas than the money. I mean I can take more
money and buy wonderful stocks at this point.

ET Now: What is looking attractive to you right now?

Raamdeo Agrawal: Day after day, there are companies which are declaring very good results and
basically this is a time to buy quality. I mean, quality is actually available now when the times are
bad. In bad times only the quality works and that is what saves your capital because in stock
market what is most important for investing is that how you can preserve your capital. Rule number
one, do not lose money, rule number two, do not forget rule number one. So how do you follow the
rule number one? The only way you can do do is by buying top quality companies. This is time
when foreigners are selling left, right and centre and you can get some of the very good companies
at reasonable prices. Some of the lots I get offered would not have been possible if they were not
selling. So this is the time to build a top class portfolio for three to five-year kind of a holding period.

ET Now: Besides power, what else is looking good?

Raamdeo Agrawal: We can get automotive, we can get into aviation, we can get into oil marketing
companies etc and so we are buying. There is no point in discussing one single company here but
there is enough you are getting. Yesterday Bajaj Finance NSE 1.01 % declared a wonderful result.
You have to examine. I am not saying that you go and buy but I mean there are companies here
which are doing good business, they have tailwinds on the back of they have might created that
tailwind because of their differentiation. Those are the companies to look at.

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

In the short-term, markets are completely


irrational: Raamdeo Agrawal, Motilal Oswal
Financial
ET Now | Updated: Jan 21, 2016, 05.38 PM IST
In a 2
Comments
chat
with ET Now, Raamdeo Agrawal of Motilal Oswal Financial says
now is the time to enter the stock market. Excerpts:-

ET Now: I am sure these are difficult days for your dealers and
is the mood outright bearish?

Raamdeo Agrawal: For dealers, it does not make that much


China is not a big concern: Raamdeo
Agrawal difference but the pain on clients' accounts impacts the mood here.
So, whenever there is a volatility, business is good because there
is a lot of buying and selling but the mood is somewhat depressed ón behalf of clients.

ET Now: Everybody is talking about the three Cs; China, currency and commodity. Of the
three Cs, which is the bigger C according to you? Is it China, commodity or currency?

Raamdeo Agrawal: Big collapses of oil and commodities have taken place earlier also. The
collapse of oil and commodity impacts the corporate side as well. Currency is something which is
very opaque and I do not have any understanding of it but obviously it is happening so it is the
entire global macro which is coming together and nothing seems to be right at this juncture. In such
a scenario, you cannot make head or tail of what is going to happen next. A lot of stuff is moving at
this juncture, not only oil. Oil, the unwinding of the US stimulus, China trying to move from
investment-based economy to consumer-based economy have all lead to this. China is actually
very strong. They had a $600 billion of current account trade surplus last year so I do not think
China is that bigger concern as much as it has made out to be but I mean other issues are
seriously large particularly collapse of oil. It is almost a $4-$5 trillion collapse. So it is not small.

ET Now: Now whatever is creating chaos in this kind of an environment is not only because
China is slowing down. Oil had already fallen in 2015 and again the chaos in currency is
something which had been reported in 2015. Thus for fund managers and investors, what is
new about it? Why is the market in a panic mode?

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

Raamdeo Agrawal: Since markets all over the world are aligned, this may be the best thing for the
Indian economy. Current account deficit is down to almost zero or half per cent. The Government
of India is solvent for the first time and our subsidies are out. Growth is supposed to be one of the
highest in the world at 7-7.5%. Everything is right for India. For the first time India has got its story
right and everybody is saying India is singled out in the whole story. But this is also a time when
FIIs are actually going out, so it is in the linkage with the world economy, specially the world stock
markets, lies our main concern. So when Mr Modi came in two years back, the index was exactly
7200 and that's what we are standing now. Oil was at $110 at that time and it is at $30 today and
we cannot ask for more. So clearly earnings have gone up for some companies at least if not all.
Clearly, this is a market which should have been stronger fundamentally than what it was two years
ago. But there is a lot of fear on the street. So as Buffett says, "when others are fearful you should
be greedy" but now others are fearful and everybody else is also fearful.

ET Now: So are you greedy right now?

Raamdeo Agrawal: Yes, unfortunately I do not have enough money to buy but whatever money is
coming we are just deploying. Like if at 9 o'clock money comes in, at 9:30 I will buy stuff. So this is
a great time to buy but only time will tell how great the buy was. I cannot say if the markets will or
will not fall by another 200-300 points or even 1000 points. I do not understand the market and
have never been right in predicting where the market is headed in the short term because short
term markets are completely irrational.

ET Now: So in 2017, we will figure out where the market bottom is and it is only one year
away?

Raamdeo Agrawal: As you have said, bottoms are made for fools and liars, we are not buying
markets, we are buying stocks and we are getting the stocks cheap.

ET Now: Are you getting stocks cheap?

Raamdeo Agrawal: Yes, whatever we want we are getting at 30, 40, 50% lower than wherever
they were especially after and after announcement of a few quarterly results.

ET Now: Reliance numbers were strong, Asian Paints numbers were strong, Infosys
numbers were strong.

Raamdeo Agrawal: So whatever one likes after seeing everything you can buy 20, 30% cheaper.
Across the market, it is 20% cheaper so what more can you ask for? In India, 99% people have not
come to the market they cannot ask for more this is the best time to start entering the market.

ET Now: So for long-term investors — those who come in for 2-5 years — this is a good
time as any to deploy money into equities, isn't it?

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

Raamdeo Agrawal: Absolutely. Without any doubt. Look, the long-term return rate from this
market is upwards of 16%. Add to that the 1%-1.5% dividend. So, 17%-17.5% has been the
historical rate of return over the last 34 years. I cannot believe that the next 5-20 years will be any
different.

ET Now: India is trading at a premium to other EMs; small caps are trading at a premium to
the large caps. How do you read into these data points? Are valuations really on our side?

Raamdeo Agrawal: That has got a lot to do with the quality of our stocks. What I mean is,
Hindustan Lever will always be 40-50 PE. But the index will be at 18 or 17 PE. So, there will be a
difference.

Look, you can't compare Pakistan, or for that matter Indonesia, with India. There are opportunities
galore here — the quality of our companies, or the kind of governance that we have here.

India is more like a continent than a country. It is only here that you can make 10 million bikes
under one brand, or sell a million tonnes of biscuit under a single brand. Only India offers you that
opportunity.

ET Now: George Soros sees echoes of 2008 reverberating today. Howard Marks sees
investor sentiments turning from extreme optimism to extreme greed now. What does the
great investor standing in front of me say?

Raamdeo Agrawal: Yes, I heard their views. George Soros is a wise man. But their views are
based on global markets. We, thankfully, only look at Indian stocks. That's why such views don't
bother us much.

Look, we are capable of tackling any 10%-15% downside. If you buy a stock today at Rs 100 and if
it then slips to Rs 95, the world won't come to an end. We buy for 2-4 years. If you cannot take
5%-10% volatility on the downside, I do not think you should come to the market at all. You cannot
buy at the lowest price.

ET Now: Let's talk about the businesses you track.


Raamdeo Agrawal: The businesses we track are on sound footing. I buy selectively, and I always
look for quality and growth. I don't compromise on the quality of business. The quality has to be
top-class. Growth has to be 20%-25% at the minimum.

Now you would ask, where do we get 20%-25% growth? Look, I need only 15 companies. And
there are at least 100 large-sized companies that are growing upwards of 25%-30%.

ET Now: Several reboots are happening globally — commodity prices are down, interest
rates will be down, government spending will be likely up. Now, due to oil & commodity

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

crash, autos will benefit and consumer spending will be up. So, should that be the anchor
part of the portfolio?

Raamdeo Agrawal: When you construct a portfolio, you take in 18-20 stocks. What are the good
bets in these times? They would be automotive, consumers, pharma, IT, and some specific
opportunity stocks in, say, aviation. That is how is makes up 18 stocks.

Then every three-four months you get one wonderful, compelling opportunity. It could come via an
IPO, or some change in the scenario. A new story develops, and then you throw out one major
stock and buy a new one. That is the ideal way to manage a portfolio. It is not that one fine day you
suddenly pick up 18 stocks from the market.

Here is my piece of advice for new investors: they should altogether avoid stock picking. First they
should buy high-quality mutual funds run by high-quality managers. It's only after they are
confident that they have learnt enough, should they go and dabble in stock-picking.

ET Now: There is always this need for high-quality money managers, is there not?

Raamdeo Agrawal: Look, my only interest is that people should make money. Very few people
make money in the stock markets. A lot of people lose money.

People who lose money are all traders. The traders subsidise the investors, and the investors
make tonnes of money.
ET Now: The margin of safety is always one of the most important aspects. What is the
margin of safety for a long-term investor in this market after the recent correction?

Raamdeo Agrawal: If an investor had bought at, say, 8000 or 8500, today his margin of safety is
15% more. Everything elase being the same, his purchase price today is lower by 10%-15%. I am
speaking across the board; some specific stocks could even be 30%-40% cheaper.

So, the margin of safety is now bigger compared to two months back. But investors need to always
remember this: the real margin of safety lies in what you buy.

ET Now: You always believe in buying big trends and then you look at stocks within those
big trends. So which are the two or three large big trends you are confident about?

Raamdeo Agrawal: One of the things that we have out of the three Cs (China, currency and
commodity), is the collapse of oil. It took 15 or 12 years for the commodity to go 5X from $25 to
$125 and in less than two years, it has collapsed to $25-$27 and people are talking about even
lower rates. Now there are a whole lot of companies, designed for $110 oil, and there is going to be
a huge benefit for them, what you call 'atrocity of oil.' This will not be over just in six or eight
months, unless the oil you think is going to go back to $100 next quarter. So I do not think that is
going to happen. It is going to be very low for a very long time. So if is four to five years of sub $50,

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

then you have to look at a lot of industries very differently.

ET Now: So aviation is one, paints is one, autos is one?

Raamdeo Agrawal: There will be lots of them. I mean, there are a lot of packaging materials. All
the packaging materials are down by 30 to 40 per cent and hence the businesses which use a lot
of packaging materials, do not have to pass on the gains.

ET Now: So, buy commodity consumers?

Raamdeo Agrawal: No, it is not that simple. You have the level 1 and level 2 companies. You
know the logistic cost can come down.

ET Now: But whatever you are buying is sticking to market leaders whether it is aviation,
whether it is two-wheelers or anything else...

Raamdeo Agrawal: Yes, so you have to buy quality. You have to buy market leaders. You have to
buy companies with huge advantages and so buying quality is like riding a high quality boat which
you know will not sink.

ET Now: Now what has worked in the last three years is quality at any price whether it is a
Nestle or a Page Industries. PE multiples are way higher than what you actually want them.
Can quality work now?

Raamdeo Agrawal: If you buy only quality and sit there, it is not going to make money. You need
quality and growth. The higher the growth rate with quality, the faster you will make money. But a
lot of people get trapped into buying quality franchise without caring for growth. You need to buy
qulaity and growth at a reasonable price.

ET Now: But in this market broadly and since you manage public money, your portfolio is
out in the open. Your positioning has not changed and is it likely to change?

Raamdeo Agrawal: It will not change. That is a promise. Good time, bad time, we will stick to our
investment principle. That is the only thing which will see us through. If you shake from your
determination, market has won.

ET Now: Let us talk about pharmaceuticals. You have some pharma stocks in the portfolio. I
am worried about the disruption happening in that space. When I say disruption, USFDA is
scanning through all pharma companies...

Raamdeo Agrawal: That is a regulatory stuff. It was always there.

ET Now:...global pricing power, global generic prices have also come down, US market is

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

the mainstay for Indian pharma companies, do you think what is happening in the pharma
space is just a business cycle adjustment or a disruption?

Raamdeo Agrawal: No, it is a company specific issue but I think the opportunity size is massive. I
mean the world needs more and more pharmaceuticals, more and more patents are going off and
so the opportunity size, the number of molecules which are available for generic kind of branded
generics or generics production are increasing and more and more. As the world is becoming
prosperous, it will need more and more medicine as the number of the aged are increasing. So
medicine growth is going to be continuous. The issue is whether there is going to be competitive
advantage for India?

ET Now: Do you think it is there?

Raamdeo Agrawal: It is huge. There is no country which can challenge India.

ET Now: So do you think that the top five or six pharma are going to be higher and bigger in
the next five years?

Raamdeo Agrawal: Beyond doubt. Right now, Sun Pharma may be number five or six in the
global ranking or generics, We have a good chance of making into the top three. I mean not Sun
only, but other companies which are coming in from behind which have aspirations to become Sun.
Sun has aspiration to become Teva or whatever. So I think this journey is going to be as exciting as
tech.

ET Now: Tech is one sector where numbers have been strong. TCS is okay, business is
contracting but they are still growing, At Infosys, the business is actually expanding now,
HCL Tech margins at 20 per cent is still a cash generating machine.

Raamdeo Agrawal: Both are massive global opportunities and it is not one quarter or one year
kind of a game. In 2000, we were doing $5 billion business out of $500 billion globally. We were 1
per cent of the global business. Today we are doing $100 billion out of a trillion. In 2025, when it
will be two trillion, we might be doing $300 to $400 billion.

ET Now: So stick to larg cap IT?

Raamdeo Agrawal: Yes, of course. I mean largecap growing IT. I was reading somewhere
Cognizant last year did growth of about $2-$2.14 billion which was equivalent to the Big Three put
together. It is a message to them.

ET Now: What I am trying to understand from you is that the technology world is changing.
There is a change and shift in terms of technology delivery now, everything is going to be
digital.

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

Raamdeo Agrawal: That is an opportunity for us.

ET Now: So then the reboot will happen, who will become the winner?

Raamdeo Agrawal: Who is going to do it? I have a relationship with one IT company so whatever
changes I want in my requirement, it will all be coming from that company mostly. So these guys
only are going to provide all the digitisation.

ET Now: Again just for the benefit of our viewers, when a reboot happens in a technology,
there are gainers and there are losers. Do you think once the reboot happens or the shift
which is taking place right now, will largecap IT companies emerge as winners or will
disruption occur from within the midcap IT companies?

Raamdeo Agrawal: It looks still the large caps have the edge in the race but it does not stop any
maverick midsize company to come from behind and become big, you know say like Tech
Mahindra was very small three years back. They acquired Satyam and they have now become in
the big five or six. Like that, there is still an opportunity for billion dollar IT companies or you can
have a very specialised product. But I think for larger relationships, largecap companies matter.

ET Now: You have seen such market conditions before. What is your insight if you have to
calm your unit holders and our viewers down? How would you like to connect history and
how would you like to connect these panic times for us?

Raamdeo Agrawal: So this is part of the deal. I mean this the risk when we say equity markets are
risky, so now risk is standing right in front of you. You know when markets are rising 9000-9500, at
that time risk is only a caution statement but today risk is facing you. This is what happens. This is
the risky part of it. You have to sit tight. You have to sit tight now. I mean this is the nature of the
market. Markets will fluctuate. Right now, it is fluctuating violently. So you have to show your
determination that nothing happens to the businesses you have bought. Today HDFC Bank is
going to make as much money as they made two years back or probably double of that. So what
we have to see is we focus on the businesses, the companies which we have bought and do not
bother too much about the fluctuating prices and if you have more money and you can buy at 30-
40 per cent cheaper, please buy, add on to your existing stocks.

ET Now: Why are banks getting corrected as if there is no tomorrow? Banks are proxy to
the economy. If your numbers are correct, the general belief is the best of Indian economy
is yet to come. Then banks should be in a sweet spot. But people are throwing away banks
as if there is a systematic failure?

Raamdeo Agrawal: So banks are always punished or they go down for their bad underwriting of
loans. A lot of these are loans by infrastructure and commodity, power and steel companies. All
these loans are riding in the books and they have not been fully taken care of. So a lot of these
banks are suffering because of the fear of how much is there and it needs to be declared and

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4/23/2018 In the short-term, markets are completely irrational: Raamdeo Agrawal, Motilal Oswal Financial - The Economic Times

recognised, I think it will be very nice to explicitly declare and do whatever.

ET Now: So you are not a buyer in PSU banks?

Raamdeo Agrawal: I have one.

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4/23/2018 Wait for three quarters for earnings growth: Raamdeo Agrawal, MD & Cofounder, Motilal Oswal Financial Services - The Economic T…

Wait for three quarters for earnings growth:


Raamdeo Agrawal, MD & Cofounder, Motilal
Oswal Financial Services
By Biswajit Baruah, ET Bureau | Updated: Dec 14, 2015, 09.56 AM IST
4
Comments

Investors shouldn’t be nervous about


an interest rate increase in the US
because the markets are expected to rally after the
US Federal Reserve move, said Raamdeo Agrawal,
managing director & cofounder of Motilal Oswal
Financial Services NSE -0.08 % , while releasing its 20th
Annual Wealth Creation Study. In an interview to ET’s
Biswajit Baruah, he said shares of oil marketing
companies, automobiles, airlines, FMCG companies
and private banks are the top bets in this
In this challenging environment, one can find 9-12
challenging environment. Edited excerpts:
companies every year that can turn from mid-cap to
mega companies in a realistic time frame of five years.
Do you think the markets will bottom out post the
US Federal Reserve meeting next week?

I expect the markets to rally after the US Federal Reserve meeting because the markets are
unduly fearful about the impact of a 25 basis point interest rate hike. The US Fed event has been
overhyped across the world and people are just going berserk, but one should understand that it’s
not at all that fearful an event. I don’t think the US Fed rate hike will impact corporate profitability of
any Indian company.

Do you expect a sell-off if the Goods & Services Tax bill fails to pass in the Winter Session
of Parliament?

The GST bill has become a big political event now and everybody is looking at their political
scores. However, I don’t think businesses are stopping right now — they are doing well. While we
have a very wellfunctioning VAT system. I don’t think the world is coming to an end because there
is no GST bill, though the long-term impact of the legislation is going to be massive. I think there is
no reason for a sell-off because the markets have not actually built-in the passage of the GST bill.

What is the extent of the downside left for the markets?

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4/23/2018 Wait for three quarters for earnings growth: Raamdeo Agrawal, MD & Cofounder, Motilal Oswal Financial Services - The Economic T…

People on D-Street are saying that the Nifty can drop to 7,200 and things like that. I would say
things have been quite depressing for some time. The most important concern right now is when
corporate profits are going to grow.

So when do you expect corporate earnings to recover?

I don’t expect sustainability of corporate earnings growth till the second half of FY17. I would say
for some meaningful recovery in earnings, one has to wait for another three quarters. The
commodity carnage has impacted the index earnings growth and it’s important that some stability
comes in this space.

Which are the indicators you are looking at for assured recovery?

If you look at the four segments of the economy, the consumer segment is looking very robust but
the capital investments by the government and private sector are weak because there is excess
capacity. Moreover, government does not have money. The import-export numbers are also
disappointing. We don’t expect aggregate demand to grow very rapidly in the near future. So
unless these four segments show visible signs of recovery, we cannot be very assured.

Which are the bright spots you are looking at in the economy?

In this challenging environment, one can find 9-12 companies every year that can turn from mid-
cap to mega companies in a realistic time frame of five years. There are some bright spots like oil
refining and marketing companies who are benefiting from lower crude after deregulation of fuel
prices. Aviation companies are also benefiting from declining crude prices as their margins are
expected to see a boost. The automobile companies who are using steel, plastics, etc, are also
witnessing margin expansion. FMCG companies are also seeing growth as consumer demand
remains healthy. Private sector banks are growing at the cost of public sector banks.
Niche housing finance NSE -0.18 % companies are also doing well. So investors have to look for
leaders from these spaces.

When do you expect the current FII outflows to halt and is there hope for large flows in
2016?

I expect FII outflows to remain for some time, but the concern is if they continue for larger period
then the markets cannot make a higher move.

https://economictimes.indiatimes.com/opinion/interviews/wait-for-three-quarters-for-earnings-growth-raamdeo-agrawal-md-cofounder-motilal-oswal-financial-servi
4/24/2018 Lower expectations from reforms, earnings right setting for likely big move: Raamdeo Agrawal - The Economic Times

Lower expectations from reforms, earnings right


setting for likely big move: Raamdeo Agrawal
ET Now | Updated: Nov 12, 2015, 04.45 PM IST
There 0
Comments
is no
dearth of new ideas in this market, says Raamdeo
Agrawal, Managing Director & co-founder, Motilal
Oswal Financial Services. In an interview with ET
Now, he says even though there are pockets of high
valuation, the broader market is very reasonably
priced. Excerpts :
ET Now: The Samvat year that has gone by, which
is 2071, was a disappointing one. It was a year of
hope and hype. Markets had run up ahead of
We have seen in 2002-2003, even after the bull run had expectations and then the huge reality check sunk
started, I thought it was not going to extend much, says in. Do you think we are starting the new Samvat
Agrawal.
year with low expectations and with the promise
that it could be a better year?

Raamdeo Agrawal: That is a best way to start a year. When expectations are low and there is a
little bit of disappointment on the political front, from corporate earnings, all that actually create the
right setting for a big move in the market. We have seen in 2002-2003, even after the bull run had
started, I thought it was not going to extend much. But finally we saw the biggest bull market in
history. So this kind of a little subdued environment and a bit of disappointment at the start is a very
good beginning I would say.

ET Now: Good news and good prices do not go together. Right now news is bad, be it Bihar
outcome or earnings or what is happening to China, but our price is good. Is the price
attractive enough?

Raamdeo Agrawal: It depends. There are pockets of higher prices and extended gains in some of
the stocks, which had happened last year. But there is enough to build a nice portfolio and enjoy
the upside, whenever it happens in the market. The broader market is very reasonably priced. If
you use only PE multiples as a measure, then you will obviously find a lot of stocks expensive. But
if you look at the broader market, the market cap-to-GDP ratio or corporate profits-to-GDP, they are
very low right now. Broadly if you have a portfolio of 15-20 stocks, I do not think you are going to
do badly if the market does well.

ET Now: What do you buy, do you stick with the leaders like Maruti , IndusInd Bank or the
cream midcap names or is there time to now go out there and bargain-hunt?

Raamdeo Agrawal: It depends on your style. For me, I am fully invested at every point of time and
https://economictimes.indiatimes.com/opinion/interviews/lower-expectations-from-reforms-earnings-right-setting-for-likely-big-move-raamdeo-agrawal/articleshow
4/24/2018 Lower expectations from reforms, earnings right setting for likely big move: Raamdeo Agrawal - The Economic Times

whenever a great idea comes, we create space or create funds and get into them with a lot of
conviction. And opportunities do come. I am hesitating to talk about specific stocks. But there is no
dearth of new ideas for a very focused portfolio of 15-20 stocks. We have seen very promising
pubic issues recently. IndiGo is a world bidding airline, with the lowest cost kind of a mileage and
one of the most profitable enterprises India has ever seen in a growing sector, in a consumer
facing sector. So you get opportunities if you know what you want to buy. Opportunities just roll into
your hands and you get opportunity to buy. It may be 2 per cent lower or 2 per cent higher, but that
does not matter. You have to keep throwing one bad stock and keep a better stock in, but if you
want to buy 15-20 stocks today, then it might be a little bit of an effort but there are enough to build
a portfolio.

ET Now: Since you are talking about the aviation sector, there has been a lot of hype and
hoopla around Interglobe Aviation. The listing has been a fantabulous one. Most people fear
and retail participants are sort of worried out there on whether or not there is long-term
money to be made in Interglobe Aviation. They worry that this is perhaps a trading move
and before they can even catch the flight, it would have already taken off?

Raamdeo Agrawal: At least we do not think so. Clearly it is a some kind of a consumer cyclical,
and oil prices and competition will matter. But they have a distinct advantage out there, because
the very design of the company is in LCC in a country like India. When you do an LCC in
developed world like America or Europe, it is one thing, but when you do LCC in India, it is like an
absolute cut rate kind of a airline at least on the cost structure side. So they have really gone to
bear the cost structure. What is likely to happen is that profitability, profit margins can move from
say 10 per cent to 20 per cent or something like that. There could be a fluctuation in profit, but I do
not see this particular company going into a loss, any kind of a serious loss in four-five years. If it
can happen, of course, it can surprise us. Everybody is so scared.

Warren Buffett has made aviation look so bad all over the world, but if you look at it, there are
exceptions like Northwest or Southwest Airlines in the US. It is a 1000 bagger in last 15-20 years
and they have been trading at very high PE multiple also. This is a very large country where people
fly from one side to other, value is migrating from full service carrier to an LCC, value is migrating
from railways to LCC like Indigo. So we have a huge territory to cater to a 20-25 per cent volume
growth, good margin, good cash flow. It is a company which works on negative capital employed,
so I see a lot of good features. But we are open to revising our view whenever we think it is not
right.

https://economictimes.indiatimes.com/opinion/interviews/lower-expectations-from-reforms-earnings-right-setting-for-likely-big-move-raamdeo-agrawal/articleshow
4/24/2018 Lower expectations from reforms, earnings right setting for likely big move: Raamdeo Agrawal - The Economic Times

ET Now: Because of what has happened in Bihar or even otherwise the government is now
in full drive when it comes to reforms, not that they have not been. Would you look closely
at what the government could do on the reforms process, which may actually make some of
the bad sectors appear fairly good, because there will be a tailwind of government support
in terms of new funds so on and so forth?

Raamdeo Agrawal: The government has taken one big agenda that is the ease of doing business
and they are finding pockets of businesses where it is getting stuck, where people are suffering,
where they are queuing up and bureaucracy is taking a lot of time. So giving automatic route
simply removing the hurdles of percentages here and there and addressing all kinds of complaints
wherever they are getting them -- they are just going in wholesale and very aggressive now.
Improving the ease of doing business in India is the real thing. Here ease of disrupting business is
very high and now we are saying in a happy note that they are really reducing that and making the
ease of doing business better. And as they keep combining the cumulative effect of that, at some
point of time -- maybe three months, six months, nine months -- India will start flying again. So, the
first decade was defined by Chinese rise, the second decade has a chance of India rise, whether it
happens or not one has to keep the fingers crossed.

ET Now: The mega trend for this financial year and the previous Samvat year has been a
crack in commodity prices. Oil has seen a 50 per cent drop, iron ore prices are down 50 per
cent. On paper, that is great news for India. But somehow that is not translating into a real
earnings acceleration. So when do you think the drop in commodity prices will filter
through at margin level and at EPS level?

Raamdeo Agrawal: What happens is that when this kind of a disruptive thing happens, there is
one set of companies which suffer and one set of companies which start taking advantage of this.
So if you look at it, all the commodity companies like say Tata Steel or Hindalco or Coal India -- all
these companies which are big daddy’s had massive gains in profits in 2003-2013 but are now
suffering almost Ebitda losses and it is a massive adjustment. But if you look at the other side, oil
marketing companies HP, BP, IOC -- of course this quarter has been bit of an exception because of
inventory loss -- but year on year they are seeing fabulous gain in profits. In fact 10 per cent of the
entire corporate profits, almost Rs 35,000-40,000 crore, will come to this particular segment from
literally nothing.

Then we are talking about say all the automotive companies -- look at Maruti, look at its margin
expansion, look at Britannia, a whole lot of companies. Look at even IndiGo in terms of aviation, so
all the aviation companies there have been in complete red and today you see they are flying in the
sense they are trying to gain the momentum. So the benefits will come slowly, but the decline is
vertical. So we have to wait for the full gains to come. And the biggest thing will be inflation.
Inflation will be killed forever till the commodity prices remain low and the benefit of that will be
lower interest rate, high investment. So a lot of things are going to happen in the future.

ET Now: Is the financial space really the problem area for this market -- and I am keeping

https://economictimes.indiatimes.com/opinion/interviews/lower-expectations-from-reforms-earnings-right-setting-for-likely-big-move-raamdeo-agrawal/articleshow
4/24/2018 Lower expectations from reforms, earnings right setting for likely big move: Raamdeo Agrawal - The Economic Times

one or two hallowed stocks like HDFC Bank and Kotak Mahindra aside, because they are
better management companies and their liability franchise is better? At a time when the
entire banking sector has a problem -- whether it is NPA or poor credit growth -- how can
the economy revive and how can the market revive? That is 35 per cent of your market. That
is the heart of the market, which is not ticking?

Raamdeo Agrawal: So that is why the thrust of the reforms should be there. What are the sources
of these banks getting into trouble apart from whatever managerial gap is there? You have the
entire discoms with Rs 3-4 lakh crore of bad debts. Goel is trying to rectify that. We saw the UDAY
scheme, how it gets implemented we have to see. So you have to go one by one. Of course, steel
cannot be repaired, but once you repair things like the infrastructure companies and the power
sector, these sectors will automatically have a lot of good assets rather than bad assets and then
an interest rate cut would be the mother of all reforms, mother of all changes.

Because for industry, inflation is minus 5 per cent. So they lack pricing power at their end and then
they have the highest interest cost. If the interest cost comes down by 100-200 bps, you see gains
for the banks. So it is a package. You have to do all of it for it to have a very healthy start.
Otherwise we are going to have one segment of the index, which is going to be very healthy, and
another segment which is going to be very sick, and all combined it will be sick.

ET Now: Besides earnings what has really dampened sentiment on the Street has been the
US FDA clampdown on pharma companies. I do not recall the last time Dr Reddy’s falling
12-14 per cent in just one day. How do you approach pharmaceuticals as a sector right
now? Do you buy the pain or do you wait for the news flow to stabilise?

Raamdeo Agrawal: It is part of the game. You made a lot of money and these stocks are up 3
times-4 times in last three-four years. So clearly there were outsized gains in these companies
and, of course, this regulatory thing is unpredictable and it is part of the game. It is going to stay
there, but then the size of opportunity is massive. Let us not go away from the size of the
opportunity. Somebody is going to send those pills or injectables to the US and developed markets
and going to make a lot of money. So this is one of the biggest value migration stories after the IT.
This is the largest global value migration for Indian companies. So yes, there is a temporary
problem. They have to go through these regulatory hassles, but the opportunity is unprecedented
and this company will become stronger and better after this particular inspection. So, I would think
these are hiccups for long-term investors and they know their companies well, they would last
much longer.

ET Now: Everybody will be looking up to you for ideas or thoughts. I am not asking you to
name a stock necessarily. Where do you think the best chance for compounding returns
stay in the market currently?

Raamdeo Agrawal: Honestly speaking, stock risk has increased significantly because of global
issue. I just read in the paper today that China is selling $60 billion of US treasuries every month,

https://economictimes.indiatimes.com/opinion/interviews/lower-expectations-from-reforms-earnings-right-setting-for-likely-big-move-raamdeo-agrawal/articleshow
4/24/2018 Lower expectations from reforms, earnings right setting for likely big move: Raamdeo Agrawal - The Economic Times

so probably the US monetary policies are getting decided in China rather than in Washington. So
what I am saying is that it is a crazy time in terms of individual stock selection. You have to have a
nice portfolio, a very well-balanced portfolio and from all aspects of it. So I would urge viewers who
are not very good in stock picking in their own capacity, those who are masters of course I do not
have to give the advice to them, but the guys who are not smart should really choose a good fund
manager, give the money to not one fund manager, but to two-three of them and spread the bets
across through SIPs or say five, seven, eight kind of lots. So you diversify the market timing,
diversify the manager risk and you will have a wonderful time in the stock market.

ET Now: What our viewers really want to hear is your soothing bullish conviction every
Diwali so as to keep the faith in equities.

Raamdeo Agrawal: This is actually a very depressed market, so it is the best time to start
investing in equities.

https://economictimes.indiatimes.com/opinion/interviews/lower-expectations-from-reforms-earnings-right-setting-for-likely-big-move-raamdeo-agrawal/articleshow
4/23/2018 Do not see revival in corporate earnings in 2 quarters: Raamdeo Agrawal, MOFSL - The Economic Times

Do not see revival in corporate earnings in 2


quarters: Raamdeo Agrawal, MOFSL
ET Now | Updated: Nov 06, 2015, 04.10 PM IST
0 In an
Comments

interaction with ET Now, Raamdeo


Agrawal, Joint MD, MOFSL, shares his views on
Indian markets and corporate earnings. Excerpts:

ET Now: There is a lot of speculation about


the Bihar elections, the possibility that the BJP
might not win. Are you worried about the sort of
reaction that we will see in the market if that
happens?

Markets factoring in BJP’s loss: Raamdeo Agrawal,


Raamdeo Agrawal: Reactions have already
MOFSL
happened, because the prospect for the BJP’s win in
the unofficial market had been falling continuously.
The odds were falling and, hence, the market has been very nervous in last two weeks. Actually,
last fortnight has been one of the best for equity markets all over the world, whereas we had a very
low performance, which means the market has already discounted an adverse verdict in Bihar.

On Monday, the event risk will be behind whether BJP wins or loses. I mean of course if it is a
complete Delhi kind of affair, maybe we will have some more tear shed in the market for some
time, but the market will find its natural course starting Tuesday.

ET Now: Do you think that sort of a outcome will delay reforms in the future?

Raamdeo Agrawal: A win would be reaffirmation of whatever their stance is about development or
various policies that they are following, and it would have been a shot in the arm for sure. But if by
chance there is a setback, clearly they will have to rethink some of the things. But broadly, the
reform agenda is going to be on.

ET Now: Well, 80 per cent of the earnings are nearly done now. Do you foresee any delay in
revival that we were hoping for? Is it still hazy? How are you looking at corporate earnings
at this point?
https://economictimes.indiatimes.com/opinion/interviews/do-not-see-revival-in-corporate-earnings-in-2-quarters-raamdeo-agrawal-mofsl/articleshow/49688188.cm
4/23/2018 Do not see revival in corporate earnings in 2 quarters: Raamdeo Agrawal, MOFSL - The Economic Times

Raamdeo Agrawal: As expected, this is absolutely in line in the sense that all commodity
companies are getting busted. So users of the commodities are doing well and we are seeing
some kind of consumer confidence in automotive companies and things like that. It might be very
early but we are at the bottom right now and I do not see any dramatic revival in corporate
earnings for at least two more quarters.

The commodity play, which is depressing earnings, will remain for next two quarters more and then
the base effect will come and maybe 16-17 could be a bumper year in terms of corporate earnings
growth.

ET Now: We have heard the government has just announced the power sector reforms.
Going forward, which other sectors do you think are going to benefit from reforms? Where
do you think the focus will be?

Raamdeo Agrawal: The good thing is that every ministry is coming out with their own policy --
whether it is telecom policy, aviation policy, now power sector policy. Once the policies are clear,
the rules of the game are clear and they actually implement only that and do not change it every
six months or every three months, entrepreneurs will find it very easy to understand their rules and
go about making money and putting up their projects.

So, government’s effort should, of course, go for ease of doing business, I mean as much as they
can make it easy. But while doing that, they must also see that the ease of disrupting business
should not be too high.

We have seen some high profile disruptions in recent times that should be avoided and whenever
there is a disruption, the government must come with a heavy hand and restore the business as
quickly as possible. Because then we have further affirmation that this government actually means
ease of doing business.

ET Now: Well among the sectors that you are looking at right now, where do you see the
greatest potential for growth in the future?

Raamdeo Agrawal: In India, there is potential for every single sector, whether it is infrastructure,
whether it is power, whether it is consumption, whether it is… I mean we consume nothing. At
$1000-1500 per capita, that is the income, your consumption is just about $1000 when you save
very high too.

Clearly, I mean global average is about $10,000. So we can do 10 times of everything whether it is
housing, whether it is roads, whether it is ports; you name it. Consumption has not even started in
a meaningful way.

ET Now: Well, the road shows that you have been doing, when you have been travelling,

https://economictimes.indiatimes.com/opinion/interviews/do-not-see-revival-in-corporate-earnings-in-2-quarters-raamdeo-agrawal-mofsl/articleshow/49688188.cm
4/23/2018 Do not see revival in corporate earnings in 2 quarters: Raamdeo Agrawal, MOFSL - The Economic Times

what sort of interest are you seeing from the foreign investor community towards India?
Where is that investing interest focused on right now in terms of sectors or areas within our
market?

Raamdeo Agrawal: One of the things is that it is now a global village of investing. Of course,
developed markets are doing well. America is doing well. Europe is also recovering. But actual
challenges in the emerging markets and in the emerging markets space, India, are clearly standing
out. Whether it is Brazil, South Africa or Russia --they are all in shambles. They have their own
problems because their dependence on commodities is very high.

India is the only country, fortunately, which is net user of commodity, particularly oil. So when these
things have collapsed and we have a new government, we are well poised to do well in the next
decade, that is what the thinking is. So India has a very favourable spot and as growth picks up, I
am sure foreigners will come in droves and the $20-25 billion per annum investment into India will
come back. So, it looks like a positive outlook.

ET Now: Across all of your businesses in India right now, are you seeing more retail money
coming into the equity market, directly and indirectly?

Raamdeo Agrawal: For last 15 months, starting from January 2014, on the eve of new
government coming in, the election itself was very exciting and at that point it was a very small
inflow. Then it kept on getting momentum. This year, the first half was very good and it is still
continuing. As we talk, inflow is still positive and it is not as strong as it was in August, September
but is still pretty good.

https://economictimes.indiatimes.com/opinion/interviews/do-not-see-revival-in-corporate-earnings-in-2-quarters-raamdeo-agrawal-mofsl/articleshow/49688188.cm
4/24/2018 No Modi effect now, but India will move far ahead of most of the markets in the world: Raamdeo Agrawal - The Economic Times

No Modi effect now, but India will move far ahead


of most of the markets in the world: Raamdeo
Agrawal
ET Online | Updated: Oct 19, 2015, 11.48 AM IST
7 NEW
Comments

DELHI: The domestic equity market is trading at


attractive valuations at current level. The much-awaited recovery in
India’s growth is around the corner, which will put the market in a
much better footing compared with most other markets over the
next five years, Raamdeo Agrawal, Joint MD, Motilal
Oswal Financial Services, said in an interview with ET Now.

Given the fact that the valuations One reason for the outperformance could be the fact that the
remain attractive, investors should not
government is working very hard to put things back on track for
lose the opportunity and remain
the economy as well as for corporate India.
invested, Agrawal said.

“The government is working very hard on all departments. The


Prime Minister is working very hard. Earlier the expectations were running very high. The good
thing is that expectations have kind of subsided now and there is no so-called Modi effect in the
valuations,” Agrawal said.

“Everybody is now grounded and things cannot go worse from here on. So, expectations can only
go up. But it will take some time,” he said. “Whenever corporate earnings rebound and the
investment cycle finally picks up, we are going to see some spectacular show in the yearly
performance,” explained Agrawal.

The S&P BSE Sensex is already up 100 times in the last 30 years when the Sensex was trading at
271 level in 1984. Given the fact that the valuations remain attractive, investors should not lose the
opportunity and remain invested, Agrawal said.

“The market has been flat in last one year. But since corporate earnings are flat, it seems the
market is unlikely to make any significant upward move. That said, the economy is about to turn
around may be 6-8 months down the line,” Agrawal said.

https://economictimes.indiatimes.com/markets/stocks/news/no-modi-effect-now-but-india-will-move-far-ahead-of-most-of-the-markets-in-the-world-raamdeo-agraw
4/24/2018 No Modi effect now, but India will move far ahead of most of the markets in the world: Raamdeo Agrawal - The Economic Times

“The market will be the first to know that the economy is finally turning around. That will be
reflected in the NSE benchmark, which may scale the 9,000 level,” he said.

He further said stocks are different from the market. In the last 20 years, Infosys is up 6,000 times,
but the market is up only five times. The Indian market is up 100 times in last 30 years. But, global
markets are not up 100 times.

“We have to acknowledge that India has a distinct story for the longer run. I believe India will move
far ahead of most of the markets in the world,” Agrawal said.

The current valuations – if we look at only in terms of PE multiples – look stretched. A part of the
reason could be corporate profits, which are quite depressed because of high interest rates and a
low economic growth rate.

“But, if we look at the broader valuation ratios such as market cap to GDP, we have a very
reasonable valuation of less than 70 per cent. At its peak, just for the record, the number went to
1.8 times GDP,” Agrawal said.

He is of the view that the downside looks limited for the broader market and if an investor enters
the market, a significant upside is likely on a five-year basis.

Can it be three times? “Yes, I think so. Clearly, we are at a very interesting juncture and we are
very excited about what is going to happen in next six to eight months,” Agrawal said.

https://economictimes.indiatimes.com/markets/stocks/news/no-modi-effect-now-but-india-will-move-far-ahead-of-most-of-the-markets-in-the-world-raamdeo-agraw
4/24/2018 Flat earnings may cap upside in market; economic turnaround holds the key: Raamdeo Agrawal - The Economic Times

Flat earnings may cap upside in market;


economic turnaround holds the key: Raamdeo
Agrawal
ET Now | Updated: Oct 19, 2015, 11.36 AM IST
0 In an
Comments

interview with ET Now, Raamdeo


Agrawal, Joint MD, Motilal Oswal Financial Services,
talks about the triggers that may help the NSE
benchmark Nifty50 scale past 9,000 level. Excerpts:

ET Now: What do you make of the recent rally in


the domestic market? Nifty was ruling at sub-8,000
levels, three-and-a-half weeks ago. But, bulls have
managed to engineer a very strong comeback. Do
you think that the market range has got shifted on
'Markets unlikely to make any significant move'
the upside now?

Raamdeo Agrawal: The market has been flat for the last one year. I am surprised that it has not
moved. So, we were wrong in predicting the market a year back and it looks as if we will be wrong
today as well in whatever we predict.

But since corporate earnings are flat, it seems that the market is very unlikely to make any
significant upmove. That said, the Indian economy is just about to turnaround, may be 6-8 months
down the line. The market will be the first to know in advance that the economy is finally turning
around. That will be reflected by the NSE benchmark, which may scale past 9,000 level. Now,
when will the index hit that level, is something that I have no idea.

ET Now: What are you making of the market situation at present? Do you think that the
market would be in this range for a while?

Raamdeo Agrawal: The current valuations - if you look at only in terms of PE multiples - look
stretched. Corporate profits are quite depressed because of high interest rates and low economic
growth rates. So if you look at the broader valuation ratios like market cap to GDP, we have a very
reasonable valuation of less than 70 per cent. At the peak, just for the record, the number went to
1.8 times GDP. Clearly, the downside looks limited for a broader market and if an investor enters
this market, a significant upside is likely on a five-year scale basis. Can it be three times? Yes, I
think. . So clearly, we are at a very interesting juncture and we are very excited about what is going
to happen in next six to eight months.

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4/24/2018 Flat earnings may cap upside in market; economic turnaround holds the key: Raamdeo Agrawal - The Economic Times

ET Now: How are you observing the current earnings season because we did not kick off to
a great start? IT companies have disappointed. For Hindustan Unilever (HUL), margins were
under intense pressure. The only surprise so far has been Reliance Industries.

Raamdeo Agrawal: Earnings for this quarter is not likely to be very exciting on an aggregate
basis. But there will be a lot of fireworks on the positive side. There will be a lot of disappointments,
particularly in the commodity space. A lot of companies will declare losses, which will be way
beyond most of the analysts' expectations. So, we will have two spectrums - there will be
companies, which will benefit from the losses of the commodity companies and there will be
companies…. So those companies will show massive jump in the market operating margins. The
total declared profit could be up by 50-70 per cent for few companies and there will be companies
which might see 80-90 per cent correction in the profits. Maybe, a lot of companies will go from
profits to losses.

ET Now: India has suffered in the last few weeks, largely due to big risk off environment
globally. Do you see that easing?
Raamdeo Agrawal: It is very difficult to figure out. We really do not know right now…

See, in the short run, everything will be aligned. When the market falls, all the good stocks too will
correct. But eventually we will realise that domestic stocks are different. In 20 years, Infosys has
surged 6000 times, while the market is up only five times. Indian markets are up 100 times in last
30 years, but global markets are not up 100 times. Clearly, we have to acknowledge that India has
had distinctly different story in the longer run. I believe that India will move far ahead of most of the
markets in the world.

ET Now: What is your own assessment on the policy initiatives in India so far by the ruling
establishment? Do you think that enough has been done by the government to convince
global investors?

Raamdeo Agrawal: The government is working very hard in all the departments. The Prime
Minister is working very hard. Earlier the expectations were running very high. The good thing is
that expectations have kind of subsided now and there is no so-called Modi effect in the valuations.
Everybody is now grounded. From here, things cannot go worse. So, the expectations can only go
up. But it will take some time. Now, people want delivery on the ground and then the expectations
will built. So maybe it is 6-8 months, whenever corporate earnings rebound and investment cycle
finally picks up, we are going to see some spectacular show in the yearly performance.

https://economictimes.indiatimes.com/opinion/interviews/flat-earnings-may-cap-upside-in-market-economic-turnaround-holds-the-key-raamdeo-agrawal/articlesho
4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Commodity prices may retest 2002-03 levels:


Raamdeo Agrawal
ET Now | Updated: Aug 30, 2015, 01.21 PM IST
3
In a
Comments
chat
with Nikunj Dalmia of ET Now, Raamdeo Agrawal, MD
& Co-Founder, Motilal Oswal, stresses on Benjamin
Graham's famous saying that while the market is a
voting machine in the short-term, it is a weighing
machine in the long term. Excerpts:

Nikunj Dalmia: There is a mess in the global


environment. Parallels are being drawn of what
happened in 2008, 2013 and 2011. But you are of
You make only as much money as much as the
the view that it is time to buy. Are you really
company makes; if the company makes abnormal
serious about it?
money, you also make abnormal money in the stock,
says Agrawal.
Raamdeo Agrawal: I am very serious about it. The
time to buy is always there, if you have money. This
time, there is a global synchronised decline and we are still figuring out why it fell like this. But,
there is no panic. This is a very different one (the fall in markets). I mean with a 6-7 per cent drop
or more than 1,000-point fall should result in people running here and there. People should
generally be scared to death in such a case.

But this time, people are excited about this fall as they hope to find opportunities to get into the
market. That is what we are seeing in the inflows. So my sense is that this is a very different one
and probably people do not think that we should have fallen. Maybe, it is due to global cues and
global flows. That is something to do with the globalised market system right now. People see US
futures trading in the morning and decide what should be the market trend.

So in the short run, it is all voting machine. In the long run, ultimately you will make money if you
pick the right stock. Thus, it is a weighing machine in the long run and voting machine in the short
term. There is a problem in China; there is a problem in the US i.e. the rates are going up or US
future is up or down. Even the US market is voting a lot to the global short-term fluctuations and we
have definitely followed. So this confusion, I hope, may get clear as the days go by. At least, I do
not see it to have any permanent damage.

Nikunj Dalmia: You are of view that look there is a problem in the world that we cannot
sugar-coat, but the intensity or the magnitude of selloff is largely emotional in nature. Am I
right?

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4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: Yes. For the first time I saw some technical guys saying that the market is
going to fall and that too they are saying for the last three months and, finally, it did happen. So,
this is a buy time. This is the best technical call I have seen that have played out well in the market.
All the fundamental guys are finding it good. I have not found a good reason why market fell so
much all over the world — not only China, but India, Saudi Arabia, entire Europe, America have
fallen at least by 5-6 per cent.

I cannot explain why the US markets, on a day, opened with a complete circuit down. The market
has its own mind. May be, after one or two months, we will come to know how big the global
problem is because India is not a small thing. India is not a Greece. It is a 10 trillion pound gorilla in
the global economy. It is the second important player and probably the most important player for a
lot of industries including commodities. The way India has consumed in last 10 years, clearly, will
have a huge repercussion on those industries.

Nikunj Dalmia: You are of the view that value has emerged in this market, but why?

Raamdeo Agrawal: It is not that it has emerged because the market has fallen by 6 per cent.
Values are always there, if you are looking for one.

Nikunj Dalmia: So irrespective of the fall, you are of the view that this market, selectively, is
offering value for stock pickers?

Raamdeo Agrawal: Always. Even at 9,000 (on Nifty), there values were available. They are
available if you give long enough time to build a portfolio of 15-20 good companies, which to your
understanding are good and are likely going to make money.

You make only as much money as much as the company makes. If company makes abnormal
money, you also make abnormal money in the stock. All this ongoing trouble will not stop banks
and companies making money. Once they keep making money and you give long enough time
(Even if the stocks will go down for sometime or remain depressed) of three-five years, it will prove
to be weighing machine. If the earnings have gone from 10 to say 30 or 40, stocks will follow the
trend in earnings growth. So if it is 3 times in terms of earnings, the return in stock would be at
least 3x, if not 5x.

https://economictimes.indiatimes.com/opinion/interviews/commodity-prices-may-retest-2002-03-levels-raamdeo-agrawal/articleshow/48721877.cms
4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Nikunj Dalmia: But just to counter your belief, what drive any financial markets are two
factors — liquidity and growth. Global growth expectations have got reset, given what is
happening with China. We do not know what will happen to emerging markets, but within
emerging markets you have got Brazil and Russia that have got unique problems because
they are commodity producers. In addition, you got Turkey and perhaps Thailand, which
have political problems. All I am asking you is that — are there genuine concerns about
global growth?

Raamdeo Agrawal: The world is becoming very complex. We are realising now that with internet
around, it is very complex. But investing is much simpler, if you keep it simple. There is important
information and there is unimportant information; there is a knowable information and not knowable
information. You can work only in the realm of knowable. So, knowable and important information
is where we should focus on 90-95 per cent of the time. All this noise is important in terms of
whatever countries and global economies you talked about, but they are not knowable.

What is going to happen to China or Chinese economy or America, if I knew...

Or say if I knew that oil is going to fall to $40 a barrel a year back, then …

What could have been the implications of that? So really this could have been very important
information — $110 oil coming to $42. What would have been your investment strategy at that
point of time? You would have thought that India will be at say 60,000 index because oil prices
have halved.

Nikunj Dalmia: The message what you are trying to communicate to our viewers and to
perhaps some your shareholders is that you are confident irrespective of the noisy global
backdrop; your investment thesis and your belief has not changed. Am I right?

Raamdeo Agrawal: Definitely not; in fact, this is reinforced. It is just reinforced that…
See, fundamentally market moves between QG and KG which I was talking about -- a very high
quality growth companies and very low quality kachra growth companies.

Nikunj Dalmia: So where are we right now?

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4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: The issue is that what your investment strategy is. My investment strategy is
very clearly quality growth (QG). We will buy quality and growth…
Nikunj Dalmia: But what if growth is not there

Raamdeo Agrawal: We do not need 100 companies or 80 companies in a portfolio to make


money. We need 15-17 companies and, of that, I have right to go wrong in one-third of them. If 10
companies of those 17 companies do well, we are well off. If all 17 do well, then we will just burst
all the charts.

Nikunj Dalmia: Do you see more and more money will migrate towards high quality/high
growth companies because there is a growth scare — very few companies are growing. If
very few companies are growing where visibility is high, money will move
disproportionately. Can that also happen?

Raamdeo Agrawal: My sense is that market will have a two-speed market. One is the companies
which became very large in last 10 years of Chinese expansion. China's growth has positively
impacted some of the businesses.

https://economictimes.indiatimes.com/opinion/interviews/commodity-prices-may-retest-2002-03-levels-raamdeo-agrawal/articleshow/48721877.cms
4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Nikunj Dalmia: Commodities…

Raamdeo Agrawal: Commodities and whatever. Here, I mean export-import. If you are exporting
to China, that might have done very well. The commodities which are underlying, they have done, I
mean some of them have become so large and so humongously profitable. If your marginal cost of
production of say iron ore is $20 and you can sell it at $180, you can imagine the amount of profit
you are talking about.

Therefore, clearly those kinds of expansions…


My sense is that, at one level, the whole thing will go back to 2002-2003 levels, when say oil prices
was $20, $25, $30; iron ore price was $25. All of them at that point were in that $25 kind of range.

Nikunj Dalmia: So you see a big correction in commodities?

Raamdeo Agrawal: Yes. Commodities are going to go back home after ten years of what you call
a ‘bull run’. That will have its implication on the underlying industries. Whether they get
destroyed…
Unfortunately, everybody has expanded and they have taken on debt in their books, which will be
quite crazy — particularly in a country like India where interest rates are 8-12 per cent, it will be
very unsustainable for these industries.

ET Now: Should one avoid commodity producers, avoid companies which have huge debt
on their balance sheet?

Raamdeo Agrawal: Do not have any generalise theme. Look at company by company. What are
the problems there and what are the prospects there. There will be huge winners and huge
gainers. Try to have few companies in your portfolio. The individual stock management has
become very challenging because what you say is right today is challenged tomorrow itself. Like, if
say ONGC was a terrific company a year back because they have all oil reserves of India. Today,
the oil prices are such that the company is barely covering their cost of production.
Therefore, despite the deregulation, the company will not have the kind of profitability which was…

What I am saying is that just 12 months can change your entire competitive advantage, the source
of profits. We have to be very careful. We have to be watching our portfolio very carefully.
Therefore, we cannot do a wonderful job if the number of companies is too many in the portfolio,
particularly in this kind of economy where…

https://economictimes.indiatimes.com/opinion/interviews/commodity-prices-may-retest-2002-03-levels-raamdeo-agrawal/articleshow/48721877.cms
4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Nikunj Dalmia: How many stocks do you own in the portfolio?

Raamdeo Agrawal: I have always maintained less than 20.

Nikunj Dalmia: That is it?

Raamdeo Agrawal: That is it.

Nikunj Dalmia: So you run a very concentrated portfolio.

Raamdeo Agrawal: Yes, our managers run very concentrated portfolio and that is our standard
policy. But what I am saying is opportunities are becoming few and fewer. To find multiple
opportunities in the market is going to… When the markets are booming, when the markets come
back from a slowdown to this thing, all the companies which are at the brink of death or collapse,
those companies come back, they come back very strongly.

Nikunj Dalmia: That is not going to happen now.

Raamdeo Agrawal: I am seeing that to be little away.

Nikunj Dalmia: Government of India has announced a slew of reforms for PSU banks -
Indradhanush, the seven layers of comprehensive scheme. Is that enough to revive them?
Should one not focus on PSU banks?

Raamdeo Agrawal: Yes. The issue pertains to execution. Execution is one very important thing.
How much management changes they (the government) bring in because there are 25-27 banks is
important. I see the action around fewer banks at this juncture. The experimentation is on.

At least, they (the government) have recognised that it is a big problem in the economy. To solve
any problem first you have to know the problem. Clearly, the government has recognised that it is a
big problem. They have to focus on it.

My personal thinking is -it may not be sufficient. But it is action in the right direction and one
success…

Nikunj Dalmia: But it is not enough to make you invest in that pack?

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4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: My investing style is very different. I am not looking at some very bad
company becoming very good. I want to buy good companies or great companies because I am
not running my prop money. I have lot of money on trust and my problem is, forget about how
much money it makes, I have to see how I save the downside because in investing….

Nikunj Dalmia: Margin of safety is very important.

Raamdeo Agrawal: Yes. In investing, what is important is not how much you make, how little you
lose like Buffett's rule number one - do not lose money. His rule number two is 'Do not forget rule
number one'. So the downside has to be constantly… because my downside has to be limited and
upside has to be unlimited.

Nikunj Dalmia: So in this global environment, what could be the downside for Indian stocks,
fundamental downside?

Raamdeo Agrawal: One is, of course, the global economy itself. If everybody starts saying that we
do not want to buy anything from any country...

Nikunj Dalmia: Can it happen?

Raamdeo Agrawal: No. You said what can happen. I believe a lot of things can happen.

See in one year before and today if you…, That is why forecasting is useless, but world will be far
more…

I know one thing. I am optimist and I am telling you that ten year henceforth, the world will be far
more prosperous. Every person in the world will have a lot more to spend and corporate will have a
lot more opportunities to do business. Today, it is $75 trillion global economy and $10,000 is the
per capita. It is growing at 5 per cent nominal. So, in 15-20 years, it will be a $150 trillion global
economy, that is what our future is.

Nikunj Dalmia: But if consumption is the way forward — if global demand comes back, per
capita income increases — consumption demand will always make a comeback. What I
worry about some of the consumer names, whether it is Nestle, HUL or P&G (all being great
companies, franchise, brand), is their valuations i.e. Nestle at 100 times, P&G at 70 times
and, for HUL, I do not want to even talk about it.

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4/23/2018 Commodity prices may retest 2002-03 levels: Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: But why do you have to have portfolio of only those companies? They are
outliers. In any place, you will find few outliers.

Nikunj Dalmia: So you do not like top consumer names?

Raamdeo Agrawal: You can see my portfolio. It is all disclosed. Yes, we like them as great
companies…

Nikunj Dalmia: But not as great investments?

Raamdeo Agarwal: …but not great investment. At least to best of my understanding, though they
have defied every single valuation so far, but when you buy them, it is about Q (quality) and G
(growth). See, they have a terrific quality of franchise, but G is limited and, hence, what money you
will make in the future is also going to be much more limited. We did some numbers. On a 20-year
basis, most of these companies have underperformed the index itself; forget about making serious
money.

Nikunj Dalmia: Where do you think serious money will be made?

Raamdeo Agrawal: I am not at liberty to discuss every single stock, but then there are
opportunities. Your pace of making money will be equivalent to your underlying portfolio's growth in
the earnings.

Nikunj Dalmia: So focus should be on earnings and that is the ultimate mantra?

Raamdeo Agrawal: Market is a slave of earnings power. There is nothing beyond earnings.

https://economictimes.indiatimes.com/opinion/interviews/commodity-prices-may-retest-2002-03-levels-raamdeo-agrawal/articleshow/48721877.cms
4/24/2018 You do not need 100 stocks to make money, 15-20 good names will do the trick: Raamdeo Agrawal - The Economic Times

You do not need 100 stocks to make money, 15-


20 good names will do the trick: Raamdeo
Agrawal
ET Online | Updated: Aug 27, 2015, 11.24 AM IST
32 NEW
Comments

DELHI: An investor does not require 100 stocks to


make money, but a wise selection of good-quality 15-20 counters
with growth potential can earn significant returns, Raamdeo
Agrawal, joint MD & Co-founder, Motilal Oswal NSE -0.08 % , said in
an interview with ET Now on Wednesday.

The current market decline comes as a good opportunity for


Invest in quality over quantity:
investors with a long-term view, and they should select stocks
Raamdeo Agrawal
wisely instead of panicking at the precipitous fall, he said.

He added that markets have their own mind and the large selloff across the globe still remains
perplexing.

Company Summary
"I mean, at least I cannot explain what is it, but
NSE BSE
market has its own mind. Maybe after one or two
Motilal O… -0.75 (-0.08%) months, we will come to know how big is the global
problem shaping up, because India is not a small
thing, India is not a Greece. China is a 10 trillion pound gorilla in the global economy. They are
second important player or probably the most important player for lot of industries like all the
commodities, the way they consumed in last 10 years clearly will have huge repercussions on
those industries," he said.

Commenting on the valuation, Raamdeo is of the view that there is still value in Indian market.
Investors should look at building a portfolio with 15-20 good names that are high-quality, high-
growth companies in portfolio.

"If you (investors) give long enough time and build a portfolio of 15-20 good companies which you
understand, they are going to make money," said Agrawal.

However, there are some rules to make money, he said. The first thing is that you make only as
much money as the company makes. If company makes abnormal money, you should do, too.
https://economictimes.indiatimes.com/markets/stocks/news/you-do-not-need-100-stocks-to-make-money-15-20-good-names-will-do-the-trick-raamdeo-agrawal/a
4/24/2018 You do not need 100 stocks to make money, 15-20 good names will do the trick: Raamdeo Agrawal - The Economic Times

The second rule he highlighted is that once they (companies) keep making money, investors
should give long enough time to them. In the meantime, there is a possibility that stocks will go
down for sometime or remain depressed.

He advised investors to be particular about what he calls QG, that is, quality and growth. "We do
not need 100 companies or 80 companies in a portfolio to make money, we just need 15-16
companies and of that I have right to go wrong in one-third of them," he added.

Raamdeo sees a big correction in commodity prices, which may go back to 2003 levels. "If you are
exporting to China that might have done very well, but my sense is at one level, the whole thing will
go back to reset of 2002-2003 when say oil price was $20, $25, $30, iron ore price was $25," he
added.

"Everybody has expanded and they have taken on debt in the books which will be quite crazy and
particularly in country like India where interest rates are 8%, 10%, 12%, it will be very
unsustainable for these industries," he concludes.

https://economictimes.indiatimes.com/markets/stocks/news/you-do-not-need-100-stocks-to-make-money-15-20-good-names-will-do-the-trick-raamdeo-agrawal/a
4/24/2018 Choose 'quality growth' companies among 'kachra growth' firms: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Choose 'quality growth' companies among


'kachra growth' firms: Raamdeo Agrawal, Motilal
Oswal
ET Now | Updated: Aug 26, 2015, 12.40 PM IST
1 In an
Comments

interview with Raamdeo Agrawal, JT


MD & Co Founder, Motilal Oswal, shares his views on
markets. Excerpts:

ET Now: How do you explain the recent market


fall?

Raamdeo Agrawal: I saw some technical guy saying


that it is going to fall and that too they are saying for
Fundamentally, market moves between QG and KG
the last three months and finally it fell. So, this is by far
which I was talking about-- very high 'quality growth'
companies and very low quality 'kachra growth'
the best technical call I have seen in the market play.
companies. All the fundamental guys they are finding good
reasons. I have read Bloomberg. I have seen here
and there, but I have not found a good reason why market fell so much all over the world. I mean
not only China. China is in a problem, so it fell by 5, 6, 7 per cent But India, Saudi Arabia, Europe,
America have been falling by 5-6 per cent at least. US too opened with a complete circuit down.

At least I cannot explain what is it, but market has its own mind. Maybe after one or two months,
we will come to know how big is the global problem shaping up. India is not a small thing. India is
not Greece. China is a 10 trillion pound gorilla in the global economy. It is the second most
important player or probably the most important player for a lot of industries like commodities. The
way they have been consumed in last 10 years, it will have a huge repercussion on those
industries.

ET Now: You are of the view that value has emerged in this market. Why?

https://economictimes.indiatimes.com/opinion/interviews/choose-quality-growth-companies-among-kachra-growth-firms-raamdeo-agrawal-motilal-oswal/articlesho
4/24/2018 Choose 'quality growth' companies among 'kachra growth' firms: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Raamdeo Agrawal: It is not that it has emerged because market has fallen by 6 per cent. Value is
always there if you are looking for one.

ET Now: So irrespective of the fall, you are of the view that this market, selectively, is
offering value for a stock picker?

Raamdeo Agrawal: Always. Even at a 9000 (on Nifty), there were values available. If you give it
enough time and build a portfolio of 15-20 good companies which you understand are good and
are going to make money. First thing is, let us understand how money is made in the market-- you
make only as much money as the company makes. If the company makes abnormal money, you
also make abnormal money in the stock. Second is that all these troubles will not stop the banks
and the companies which are doing well to make money. Stocks will go down for sometime or
remain depressed. But over a three or five year period, it is a weighing machine. If the earnings
have gone from 10 to say 30 or 40, stocks will take the trend earnings growth. So, if it is 3x in
terms of earnings, at least 3x will be stop if not 5x.

ET Now: Global growth expectations have got reset given what is happening to China. Are
there genuine concerns about global growth?

Raamdeo Agrawal: The world is becoming very complex. It was actually very complex. Only we
are realising now, with the internet around that it is very complex. Investing, on the other hand, is
much simple if you keep it simple. There is an important information and unimportant information.
There is a knowable information and not knowable information. You can work only in the realm of
knowable. Knowable and important is where we should focus our 90-95 per cent of the time. All
this noise is important in terms of whatever countries and global economies. But it is not knowable,
say, what is going to happen to Chinese economy or American. For example, a year back, nobody
told us that oil NSE 0.50 % is going to fall to $40 and yet it is there at 40. So what are the implications
of that? This was a very important information-- oil coming down from $110 to $40. If you knew it,
what would have been your investment strategy at that point of time? You would have thought that
India will be at, say, 60,000 index because oil is half. Where are we? Year on year, we are zero.

https://economictimes.indiatimes.com/opinion/interviews/choose-quality-growth-companies-among-kachra-growth-firms-raamdeo-agrawal-motilal-oswal/articlesho
4/24/2018 Choose 'quality growth' companies among 'kachra growth' firms: Raamdeo Agrawal, Motilal Oswal - The Economic Times

ET Now: So the message what you are trying to communicate to our viewers and to perhaps
some your shareholders and unit holders is that you are confident irrespective of the noisy
global backdrop, your investment thesis and your belief has not changed.

Raamdeo Agrawal: Definitely. In fact, it is reinforced. Fundamentally, market moves between QG


and KG which I was talking about-- very high 'quality growth' companies and very low quality
'kachra growth' companies.

ET Now: So where are we right now?

Raamdeo Agrawal: No. The issue is that that what is your investment strategy. My investment
strategy is very clearly QG. We will buy quality and growth. Not at individual company level. We do
not need 100 or 80 companies in a portfolio to make money. We need 15-16 companies and of that
I have right to go wrong in one-third of them. So if 10 companies do well, we are well off. If all 17
do well, we will just burst all the charts.

ET Now: Do you see more and more money will migrate towards high quality/high growth
companies? There is a growth scare that a very few companies are growing.

Raamdeo Agrawal: My sense is that we will have a two-speed market. One is the companies
which became very large in last 10 years of Chinese expansion. China’s growth has positively
impacted some of the businesses.

ET Now: Commodities..

https://economictimes.indiatimes.com/opinion/interviews/choose-quality-growth-companies-among-kachra-growth-firms-raamdeo-agrawal-motilal-oswal/articlesho
4/24/2018 Choose 'quality growth' companies among 'kachra growth' firms: Raamdeo Agrawal, Motilal Oswal - The Economic Times

Raamdeo Agrawal: Commodities and export-import. If you are exporting to China, you might have
done very well. Some of the underlying commodities have become so large and so humongously
profitable. See if your marginal cost of production of, say, iron ore is $20 and you can sell at $180,
you can imagine the amount of profit you are talking about. My sense is at one level, the whole
thing will go back to reset of 2002-2003, when say oil price was $20, $25, $30 and iron ore price
was $25.

ET Now: So, you will see a big correction in commodities?


Raamdeo Agrawal: Yes. Commodities are going to go back home after 10 years of a bull run.
That will have its own implication on the underlying industries if they get destroyed. Unfortunately,
everybody has expanded and they have taken on debt in the books which will be quite crazy.
Particularly, in a country like India, where interest rates are 8%, 10%, 12%; it will be very
unsustainable for these industries.

ET Now: So, avoid commodity producers? Avoid companies having a huge debt on their
balance sheet?

Raamdeo Agrawal: Do not have any generalised theme. Look at company by company. What are
the problems there and what are the prospects there? There will be huge winners and huge
gainers. Try to have few companies in your portfolio but have winners. This is a very important
theme I think. Individual stock management has become very challenging because today, what you
say is right is getting challenged tomorrow. For instance, ONGC NSE -0.71 % was a terrific company
a year back because they have all the oil users of India. Today, the oil prices are such that it barely
comes in their cost of production. So, despite the deregulation, they will not have the kind of
profitability. What I am saying is that just 12 months can change your entire fate. The competitive
advantage or whatever they had, the source of profits. So we have to be very careful. We have to
be watching our portfolio very carefully. We cannot do a wonderful job if the number of companies
is too many in the portfolio, particularly, in this kind of an economy.

ET Now: How many stocks do you own in the portfolio?

Raamdeo Agrawal: I have always less than 20.

https://economictimes.indiatimes.com/opinion/interviews/choose-quality-growth-companies-among-kachra-growth-firms-raamdeo-agrawal-motilal-oswal/articlesho
4/24/2018 Choose 'quality growth' companies among 'kachra growth' firms: Raamdeo Agrawal, Motilal Oswal - The Economic Times

ET Now: That is it?

Raamdeo Agrawal: That is it.

ET Now: So, you run a very concentrated portfolio.

Raamdeo Agrawal: Yes. I mean our managers run very concentrated portfolio and that is a
standard policy. Opportunities are becoming few and fewer to find multiple opportunities in the
market. When the markets come back from a slowdown to this thing, all the companies which were
at the brink of death come back very strongly.

https://economictimes.indiatimes.com/opinion/interviews/choose-quality-growth-companies-among-kachra-growth-firms-raamdeo-agrawal-motilal-oswal/articlesho
4/24/2018 Nestle's reputation 100 times more than govt of India, will buy the stock: Raamdeo Agrawal, MoFSL - The Economic Times

Nestle's reputation 100 times more than govt of


India, will buy the stock: Raamdeo Agrawal,
MoFSL
ET Now | Jun 22, 2015, 02.45 PM IST
In an interview
145
Comments
with ET
Now, Raamdeo Agrawal, Joint MD, MoFSL, shares his
views on Nestle NSE -2.80 % . Excerpts:

ET Now: You mentioned Nestle in your book as


well as one of those stocks you have studied. Do
you have the courage to buy Maggi now,
considering the kind of trouble it is in the
country? Is this the time to be patient with the
stock and say I believe in the valuations?
Invest more aggressively in Nestle stocks: MOSL

Raamdeo Agrawal: Patience and aggression to buy


more.

ET Now: Really? Buy more Nestle at this point?

Raamdeo Agrawal: Yes. At the right price I will buy double.

ET Now: So you are not worried at all?

Raamdeo Agrawal: Not at all. Nestle's reputation, worldwide, is at least 100 times more
than government of India itself. Nestle bonds in Europe trade at negative yield. Government of
India bonds trade at 7-8% yield. This is the kind of reputational gap. Today, Nestle is in trouble but
it is still making about Rs 1,000 crore. Last year, they made Rs 1,000 crore profit. 10 years on, will
it make 5000 crore or 500 crore profit? This is the question to be answered. If the answer to your
question is that it will make 500 crore profit after 10 years; obviously, this is not the stock to be in. If
they are going to make 5,000 crore profit in 10 years, then you should welcome the downturn in the
stock to load up enough.

ET Now: So this is the time to load up on good-quality companies?


https://economictimes.indiatimes.com/opinion/interviews/nestles-reputation-100-times-more-than-govt-of-india-will-buy-the-stock-raamdeo-agrawal-mofsl/articlesh
4/24/2018 Nestle's reputation 100 times more than govt of India, will buy the stock: Raamdeo Agrawal, MoFSL - The Economic Times

Raamdeo Agrawal: Yes. It is always a good time to buy quality stocks. But you must know at what
price you are buying. In a bad market, if the stock is very expensive then you should not buy it. But
if in a very good market, the stock is available cheap, you should buy it.

https://economictimes.indiatimes.com/opinion/interviews/nestles-reputation-100-times-more-than-govt-of-india-will-buy-the-stock-raamdeo-agrawal-mofsl/articlesh
4/23/2018 Investors can see 'Modi magic' in 6 months, says Raamdeo Agrawal - The Economic Times

Investors can see 'Modi magic' in 6 months, says


Raamdeo Agrawal
ET Online | Updated: Jun 01, 2015, 11.52 AM IST
16 NEW
Comments

DELHI: Investment cycle is no "prisoner" to interest


rate cuts, and the RBi will eventually ease rates, Raamdeo
Agrawal, managing director & co-founder of Motilal Oswal
Financial Services NSE -0.08 % , said in an interview to ET Now.

"Even if RBI does not cut rates in June, I do not think investment
cycle is completely prisoner of current interest rates and over a
Investors can see 'Modi magic' in 6 period of time, it is going to come down because RBI governor has
months, says Raamdeo Agrawal
already stated that direction is down. I do not think it is such a
make-or-break kind of a situation," said Agrawal.

The anticipation over RBI's rate action on Tuesday is going to rule the markets today. However,
Agrawal believes that there is a 60% chance that we would see a rate cut, even though bond
markets are giving no indication on the same.

NSE BSE
"Bond markets are not giving any indication, but we
Company Summary
are optimistic and I would think that the governor will
Motilal O… -0.75 (-0.08%) do what is right. There is a 60% chance that we
should get a rate cut," said Agrawal.

"There are a lot of challenges in terms of how global markets are moving. The decline in inflation
and growth slowing down in the US is stoking concerns that the Fed may go in for a rate hike.
Domestically, March quarter is probably one of the worst corporate earnings quarter. So,
governor Raghuram Rajan will take notice of this before stepping on a rate cut," explained
Agrawal.

Below are the edited excerpts of the interview:

ET Now: How would you now approach financials, if the RBI Governor’s commentary is
slightly dovish? Is it time to revisit financials, and especially PSU banks?

https://economictimes.indiatimes.com/markets/stocks/news/investors-can-see-modi-magic-in-6-months-says-raamdeo-agrawal/articleshow/47496008.cms
4/23/2018 Investors can see 'Modi magic' in 6 months, says Raamdeo Agrawal - The Economic Times

Raamdeo Agrawal: No, there is no problem. Only one year of Modi government is over and they
have just started. They have made a lot of beginning. It is good that the market has corrected and
expectations are now running low. My sense is that corporate earnings are going to be subdued for
the FY16 Q1, and, hopefully they will start picking up after that.

ET Now: What has been your take on the corporate earnings, given the kind of lacklustre
quarter that we have had?

Raamdeo Agrawal: I think we saw quite a divergent trend. Some of the good companies showed
much better earnings than what we were expecting, and we also saw quite a few disastrous
results. On the whole, it was a disappointing quarter. We were expecting about 2% decline and
what we have seen so far is more like minus 6%.

Q1 FY16 is going to be a challenge, because last year, Q1 was one of the best. So, clearly it will
be minus 5 to minus 10 even if the rate cut comes. I do not think there is much to read in the
corporate earnings in the short while but as we go further, my sense is Q4 FY16 should be one of
the best.

ET Now: Is Auto constructive? We are looking at sectors and companies within the sector. It
is showing signs of revival but there are worries of rural demand tapering out. How should
one play the sector?

Raamdeo Agrawal: In autos, you have predominantly urban demand as well as some bit of rural
demand of, like, tractors, but when it comes to passenger cars, motorcycles, trucks and a whole lot
of other things, the urban demand and the industrial demand should take care of it. So, lot of these
things will play out and I am not particularly worried that rural demand will kill any of the industries,
per se.

ET Now: What is your take on the one year of the Modi sarkar? Are you happy with the
reforms pace?

Raamdeo Agrawal: Yes, I am very happy. Delhi is different now. You can sense the difference,
give them another six months and that entire so-called Modi magic should happen. It may take
another year, because a lot of these things are not in anybody’s hand.

https://economictimes.indiatimes.com/markets/stocks/news/investors-can-see-modi-magic-in-6-months-says-raamdeo-agrawal/articleshow/47496008.cms
4/24/2018 India remains the hottest story among US investors: Raamdeo Agrawal, Motilal Oswal Fin Services - The Economic Times

India remains the hottest story among US


investors: Raamdeo Agrawal, Motilal Oswal Fin
Services
By Biswajit Baruah, ET Bureau | Updated: May 18, 2015, 03.26 PM IST
30 US
Comments

investor sentiment towards India is


positive, said Raamdeo Agrawal, joint
managing director at Motilal Oswal Financial Services,
who attended the recent Berkshire Hathaway’s annual
shareholders meeting in Omaha. But, investors in the
US are disappointed with the pace at which the Indian
government is turning around the economy, said
Agrawal in an interview with Biswajit Baruah.
Excerpts:

US investor sentiment towards India is positive. India’s


You were in the US recently, what are investors
is still the hottest story among the investors,
says Raamdeo Agrawal.
thinking about India?

US investor sentiment towards India is positive. India’s


is still the hottest story among the investors. I was attending a private equity conference in the US
where 100 seats were reserved for investors, but over 150 attended that meeting. So, you can
imagine the level of interest in India.

However, there is a concern among investors over when will India see an economic turnaround,
which prime minister Narendra Modi promised a year ago. Investors also had some angst about
the retrospective tax issue and corporate earnings slowdown. There were select investors there
who have held back their investments for India given the current situation.

FIIs have pulled out about $2 billion from India in the past one month. Do you think the
selling is over or some more is still to come?

Most of the funds are global now and within that there is an allocation towards India. About two
months back, China had the lower hand and India had the upper hand, but the situation has
reversed.

https://economictimes.indiatimes.com/opinion/interviews/india-remains-the-hottest-story-among-us-investors-raamdeo-agrawal-motilal-oswal-fin-services/articlesh
4/24/2018 India remains the hottest story among US investors: Raamdeo Agrawal, Motilal Oswal Fin Services - The Economic Times

I believe these kinds of ups and downs in fund allocation will go on, with some amount of exits and
entries into respective markets. But if you take the larger picture, I expect foreign inflows will pick
up provided India shows strong signs of economic traction; and if that happens, the flows will be
very strong.

How realistic were the market’s expectations from the Modi government? How much of that
has been achieved?

One can expect anything from anyone, but it takes time when it comes to delivery. If you look at the
actions taken by the government on environment, roads, finance and income tax, it looks like they
are trying to move things. It takes little time for things to pick up. At present, the liquidity situation is
tight and inflation is still high. I think all these things must fall into place before the economy starts
picking up. One should remember that this government is only 12 months old, and this year’s
Budget is actually its first.

Government spending, decontrol of fuel prices and reduction in subsidies will all play out in some
point. We are seeing some signs of recovery in tax collection, air travel, road construction and
corporate earnings.

If you look at earnings delivered by Maruti, HUL NSE -1.03 % , Nestle or Emami, they were
encouraging. On the whole, we are doing ok.

Is the worst over for the markets?

I think the worst is almost over. The bulk of the froth, which was built around at 9,000 (Nifty), has
been removed, and this is good for the markets.

After the 10% correction, I am not so worried. I believe the government is pushing things and there
will be a turnaround. If you take an investment horizon of about five years, there is possibility of a
10% downside from these levels, and a 100% upside from the current levels.

Do valuations look attractive post the recent 10% correction?

I think valuations are just ok. One should remember that these are cyclically depressed earnings
levels. When the m-cap is about 80% of the GDP, I don’t think markets are expensive.

Which are the companies that have impressed you the most in this earnings season?

All the good companies which can hold their gains from a reduction in raw material prices and
decline in interest rates will do well. Consumer companies like HUL have done well in this regard.
In the auto space, Maruti