In an interview to CNBC-TV18’s Menaka Doshi and Anuj Singhal, market veteran Raamdeo Agrawal spoke about the investor sentiment on India at the Motilal Oswal Investor Conference and his outlook on the economy and its stock market.
Below is a verbatim transcript of the interview
Menaka: The Supreme Court, in its scrutiny of coal block allocations, has determined that all the coal block allocations starting from the year 1993, all the way up to 2012, when the auction process would put in, all those allocations are illegal because they were done on the basis of some very ad hoc processes and methods. It has not decided on de-allocation of those coal blocks as yet. It said that the apex court will scrutinise further and debate further on de-allocations. As of now, the good news or the sliver lining to that cloud is that the SC has not passed any decision with regards to de-allocating those coal blocks, but they have held the allocations as illegal.
A: I think people are busy listening to what Gadkari is saying or the corporates are saying. We had some wonderful sessions, already five tracks are over. More significant was the transportation minister, Nitin Gadkari who said—he was completely speaking from his heart and the kind of plans he is talking for Mumbai and the whole nation—he has taken upon himself to add 2 percent to the gross domestic product (GDP) in next two to three years from the existing growth rates.
That is a very significant number and I would think that things will start happening in three or four months time in terms of addition to the GDP. So, that was pretty good remark.
We had a presentation from Pawan Munjal of Hero MotoCorp and he was also very confident. I think what is happening is the change in the mood in the nation and consumer confidence, which is visible and everybody is preparing for the up coming future and that has given confidence that they can only become bigger, they can also become much better. So, he was giving very confident margin expansion target of about 500 bps which looks to be very large in the sense that 500 bps even in five years 1 percentage point every year you could see more like 20 percent kind of earnings growth from current levels. So, that is very significant.
Menaka: Are you sensing from the investors that are present there based on all the commentary made by your guests at the conference that there are key or favourite areas of investment that they are at this point drawing up in terms of list saying roads look interesting—Mr Gadkari says two percent of GDP might come from there. So maybe we need to relook at roads and construction with fresh eyes. Any key favourite areas of investment opening up at this point of time based on the conversations you are having?
A: It is very early to say that. Of course, the minister will invite investors to invest in those segments where most of the contractors have gone bankrupt or projects have gone into trouble. Clearly, he is inviting the entire investing community to put more dollars into the project. That he can carry out his projects. But without that also he clearly laid out that road sector has enough funding already on the ground. So he doesn’t see much of funding gap.
Right now, the mood is about what can happen after the mandate. We also saw a track by O&M in terms of how they build the entire campaign and how they went about doing the ‘Ab ki baar Modi sarkar’. So the making of that particular campaign, how committed the theme was and how brilliant was the marketing piece. So it is a lot of variety of corporate presentations and thematic; to that extent to say the investors are making big judgement here is kind of little too early but in two days it will shape the minds of the investor in terms of whether to allocate more or it is enough at this juncture and wait for some more time. But my sense is that the mood is building up on a more positive side.
Menaka: Let me draw your attention back to the outcome to that Supreme Court decision. We have seen key stocks in the metal space such as JSPL, Hindalco down sharply in trade. JSPL is down by about 15 percent in the last few minutes or so, Hindalco down 8-10 percent and a variety of other stocks such as Sesa, Tata Steel, Tata Power are also getting impacted. I understand it is an early response because you haven’t looked at the decision nor have any of us in terms of the fine print but what is response to the outcome of such a Supreme Court decision no less consequential than what happened in the 2G scam?
A: One thing, which has happened in coal allocation, is that till about 2002 coal was a dirty stuff. In the sense that it was priced more like USD 20-25 and nobody would like to have coal allocation. So anything between 1993 and 2002-03 those allocations would really not matter much in the sense that there could be some paperwork here and there but I don’t think that was a hot stuff. But after the coal prices took off to USD 60-120 and then the allocations which took place in the second round post commodity boom those are the ones which would have impacted the judgement of the government but fortunately those allocations are not producing anything right now.
Overall impact should not be much but since it is a Supreme Court order. We could see some kind of disruption in the whole thing and this is a challenge for the government: how not to stop this mining and continue with the current production trends. But it is a bit of a mess, let us see what happens.
Anuj: We have one more interesting question and that is on the broader market and what is happening with the interest rates in US because it’s expected that interest rates will go up. A CNBC-TV18 viewer wants to know what impact that will have on India. The dollar index has rallied sharply. We have seen some Asian markets react but Indian markets somehow have been quite resilient even Indian currency. How do you think the market would perform in a rising interest rate scenario in the US?
A: Rising interest means rising stock market at least for that country. Interest rates is nothing but a break to the developing economy and job creation. Whenever there is a momentum in the economy, they raise the interest rate. So, the expanding economy, rapidly expanding economy falling under employment is a huge message of prosperity on the one side and second side the interest rate increase is kind of a break mechanism applied.
So, I would rather focus more on the prosperity and expansion of US economy, which creates much more of opportunities for exports and software demand and whole lot of things. There will be some blip in between. It will call for corrections but on the whole it will be bullish.