The widespread selling that played out on Dalal-Street on Monday spared no one; every investor big or small was punished. But that doesn’t mean it is time to give up on India, says ace investor Raamdeo Agrawal, Joint MD, Motilal Oswal.
In an exclusive interview to CNBC-TV18’s Shereen Bhan, Agrawal says there isn’t any panic among the minds of the investors, despite it being one of the largest falls.
“Clearly, people are not scared and running away from the market, they are actually saying that this is a great opportunity to buy and somehow they are piling on and so much so that yesterday we couldn’t stamp some of the applications,” he says.
On what seems like a new trend, foreign institutional investors (FIIs) are now selling and domestic investors are buying and that set-off one against each other.
So, has the market bottomed now?
Agrawal doesn’t believe so. He says the market has some scope to fall further, but the long-term view (12-18) months is only getting better due to a lower base. However, he cautions investors to be prepared for muted short-term returns.
Below is the verbatim transcript of the interview to CNBC-TV18.
Q: What a 48 hours it has been. After Black Monday, we have seen a turnaround Tuesday for our markets. We have seen ofcourse now the PBoC in China cut interest rates for the fifth time. Global markets are reacting positively to that piece of information. What do you make of the kind of volatility and the kind of turbulence that we have seen specifically in our markets on account of global factors?
A: One of the issue is the adjustment within China. Communication from there is not very smooth and most of the people don’t believe in what comes out from there. There is always a lot of confusion about what they are saying. So, clearly hard commodity, soft commodity, currency, stock markets, whatever can move has moved significantly in last 5-15 days.
So, clearly stock markets were to be affected finally and that did happen. I think technical guys had the best call so far I have seen, they got it right. So, there is no perceptible change in the economy. Of course the commodity companies say oil companies or a steel company or a aluminium company, zinc company, these companies definitely have their fortunes plummeting by the day.
However, that is a very small portion – may be 15-20 percent of the index but broader market actually is benefitting from the lower raw material prices and lower inflation eventually. So, it will be a two speed market. Yesterdays fall did not spare anybody – good, bad, ugly, small, big everybody was hammered.
Q: Speaking of yesterday’s fall, when we saw that 1600 point drop in the Sensex, there was panic on the street. I know that you have held a conference call today with your clients, what is the sense that you are getting specially given the kind of difference that we have seen with the Foreign Institutional Investors (FIIs) sale figure yesterday and the buy figure the highest ever, what do you make of that kind of divergence and what are you sensing now from your clients?
A: Again two points, one is that this is the largest fall I have ever seen and yet there was no panic in the ground. At least among our retail clients and high networth individuals (HNIs), I don’t see any panic whatsoever. In fact we had the largest flow yesterday and even bigger today. So, clearly people are not scared and running away from the market, they are actually saying that this is a great opportunity to buy and somehow they are piling on and so much so that yesterday we couldn’t stamp some of the applications. So, clearly there is no panic among the minds of the investors but this is the largest fall per se. This a fundamental difference right now as far as the behaviour of the investor is concerned.
Second thing is that so far for last three-four years FIIs were buying, domestics were selling. Now FIIs are selling and domestics are buying, so in that situation-of course when there is a one set of and both of them are pretty big, now FIIs are 20-22 percent of the floating stock and probably retail and domestics are 16-17 percent, almost same size. So, they can take care of each other and so this bout of buying and of course FIIs are far more determined, far deeper pockets and they are present in all the blue chips, so clearly it will make a difference. I don’t think index can move significantly upward if FIIs remain bearish on India.
Q: Absolutely but you said that clients are seeing this as a buying opportunity and you have been flooded with calls over the last 48 hours but where do you really see value at this point in time and specifically as far as the midcaps are concerned, the kind of fall that we saw in the midcap index yesterday 9 percent being shaved off that index, would you hazard moving into nay midcaps at this point in time or would you stick with the blue chips?
A: First thing is we stick with the blue chips, the quality and growth, that is our theme, so clearly we will stick to that and just one day’s 5-7 percent fall doesn’t change the portfolio construct. We buy midcap, we buy large cap and wherever there is quality and growth we will buy, so clearly stocks are 5-10 percent cheaper, so the people who are coming now, they are getting a much better bargain. So, I would think that the shorter-term return expectation should be muted and probably it can have few percentage point fall for some time but 12-18 months outlook is actually becoming better because the base is lower.