Motilal Oswal Financial Services started as a small stock sub-broking firm in 1989, but now has a market capitalisation of Rs 10,000 crore with interests across stock broking, mutual funds, wealth management, housing finance, private equity and investment banking. In an interview with THE WEEK, veteran investor Raamdeo Agrawal, co-founder and non-executive chairman of the Motilal Oswal Group, says one must never bet against India. The BSE’s benchmark Sensex has jumped 100 times in the last 35 years, and he sees an even better chance that the performance will be repeated. However, for all the new investors who are piling into the market, he has clear advice—this is not a casino where money can be made overnight. But building a right portfolio and staying invested through the crisis is what will help generate wealth over time.
Stock markets have seen a rally of over 40 per cent since we hit a low in March. What justifies the rally even as COVID-19 cases continue to rise and the economy has taken a big hit?
Equity markets are a predictive machine. It is not about the past or the present, but always about the future. Of course, economy and corporate earnings is key, but you should also look at interest rates and global liquidity flows. The kind of global liquidity flow we are seeing now is unprecedented.
Some amount of market optimism is also coming from the receding fear of COVID-19. Cities are opening up, the recovery rates are very high and there is now a high probability that a vaccine will be there in the next three-four months.
So, markets are all about predicting the future. We are in the midst of an earnings season, which is bad for many companies. How will markets react and how do you see overall things panning out from here on?
On March 23, markets signalled that April, May and June was going to be a washout. Today, the market is saying July, August and September will be significantly better than the previous three months. In some 5-10 per cent of the cases, it will be even better than last year.
I see that one tailwind comes in the economy every 5-7 years. First, it goes to zero and then it builds up. Now, (in this crisis) the government will do all the right things, because they want the 7-8 per cent economic growth back. Growth will come back. I have seen the worst of times, and things always come back.
We have been seeing a huge influx of retail investors into equity markets over the last several months. Trading volumes have reached a new high. As a veteran, how do you view this?
This campaign ‘mutual funds sahi hain’ created a lot of awareness about investing. Unfortunately, since that campaign came and a lot of money flowed into mutual funds, the market topped out. Corporate earnings growth was also nearly flat. But, specific stocks do move depending on results. So, now retail investors are saying, I don’t want to give money to professionals, I will invest myself. My fear is that in the process, a lot of new investors might end up becoming speculators.
Based on your past experience dealing with crisis, be it 2000 or 2008, what should these millions of new investors learn?
You can’t escape the ups and downs of the market. If the market goes down 50 per cent, your investment will go down 50 per cent. But if the market goes up 100 per cent, you also go up 100 per cent or even more. The only thing you can do is build a good portfolio. Your understanding of the market and the company you invest in is important. Don’t buy junk stocks.
There is a lot of excitement to buy something at Rs 20 and see it go to Rs 50-60, most of the trading volumes are there. Everyone wants to invest in something that will double the money in less than one year. People will not buy a company that will double in four-five years. If you want to enter the market for a casino experience, your exit will also be like a casino, where ten guys enter a casino and mostly nine go back with empty pockets.
COVID-19 has had a huge impact across sectors. Where do you find the opportunities currently?
The real opportunity is in the COVID-hit sectors. During COVID, almost 90 per cent of the businesses suffered, like automobiles—there was no production in April, May. But it will make a comeback as you can’t live without it. Pharma companies also suffered this quarter due to logistics issues. But, they will get better as you go along.
India now has the third largest forex balance. Oil prices are reasonable, the current account is much in the balance, harvest has been good, so food security is totally there, you have one of the best demographics in the world, the political base is very stable… It's a fantastic launching pad for an economic boom. Last 35 years, it's been 100x growth, and the next 35 has a better chance. When I started the career, Sensex was at 300-350 level. In 1989, headlines would be written on if Sensex could cross 1,000-level. Today, you have single days when Sensex moves 1,000 points. That’s the scale change of the economy.