Correction is inevitable in the equity market. Raamdeo Agrawal, Chairman & Co-Founder of Motilal Oswal Financial Services, highlighted the importance of staying resilient for wealth accumulation. In an interaction withBusiness TodayTV, the veteran market watcher said the benchmark equity index NSE Nifty could reach the 50,000 mark by 2030-31 and 75,000 mark in the next 10 years, citing a broad-based recovery in the economy which is happening right now. Additionally, he discussed potential investment themes that could yield attractive returns for investors in the future. Edited excerpts:
Q: How do you see the Indian market at the moment? Do you see the possibility of further upside from here, given that valuations have risen pretty high?
Raamdeo Agrawal:The market currently sits in a very good position as the financial year winds down, with supply-side dynamics gaining traction after a prolonged period. Despite a minor correction, the best is yet to come and there is a lot of energy in the market. The Indian economy grew by 8.4% in the third quarter of FY23. On the other hand, economists projected growth of about 6.5%. This shows the economy is moving at full pace. And good thing is that economic growth is translating into corporate profits. That is leading to a lot of tax collection gains for the government. Everything is in place right now. We have huge economic, huge political events ahead in the next two-three months and then a big budget. There’s a lot to look forward to. The best thing is that corporate profits are also matching with economic growth. The final destination will be decided by where corporate profit is headed.
Q: Where are corporate profits headed?
Raamdeo Agrawal:Various global and local factors such as interest rates, inflation rates, and macroeconomic conditions influence market trends. Predicting interest rate movements remains challenging, although it appears that rates have peaked. Uncertainty looms over the timing of the first rate cut in the US and its subsequent impact locally. However, a potential decrease in fixed-income returns could benefit corporations by enhancing equity earnings. Lower interest rates not only increase earnings but also improve valuations through higher discounts. This Goldilocks scenario, where corporate earnings rise regardless of interest rates, coupled with possible rate cuts, promises a further boost to earnings and sustained growth. In a declining interest rate environment, earnings growth could become more robust, supporting higher multiples. Thus, current conditions suggest a favourable outlook for markets with the potential for sustained earnings growth and improved valuation multiples.
Q: Where do you see returns coming from?
Raamdeo Agrawal:There is no shortage of news, with potential inaugurations and government collaborations on the horizon. Talks about the government’s fourth term are gaining momentum, alongside the upcoming mega budget in June-July will outline the execution plan for the next five years. It’s crucial to recognise that the economy operates as a compounded machine. It took 75 years to reach around $4 trillion economy. The journey from $4 trillion to $8 trillion GDP is expected between 2030 and 2032. Identifying profitable industries and businesses amidst this growth is key. Budgetary discussions, emphasising capital expenditure across sectors like defence and infrastructure, are significant markers. The timing of private sector investment revival will further bolster economic growth, potentially driving GDP expansion beyond current projections. Despite minor weaknesses like fluctuating customer demand, a broad-based economic recovery is underway, indicating a largely positive outlook.
Q: Which top three themes will be outperformers over the next five?
Raamdeo Agrawal:You should keep looking for disruptions. There is always an opportunity for disruptions. There will be one side which gets hurt, but there'll be another set which will beneficiary. This is called value migration. We see a tremendous buildup of infrastructure in the next 5-10 years in India. The scale will be unbelievably big and it'll be very quick. Because what PM is saying is that I will lay the foundation and I will inaugurate also. You're talking about less than five years of tenure for any kind of project announced. The amount of money available to them in the next five years is almost a trillion-dollar capex possibility. My sense is best is yet to come in terms of capex buildup on the infra side. The indigenisation of defence procurement is another theme. These two are looking very big. Another theme is capital markets as the retail revolution includes millions of people in the market every month. There's once in a lifetime opportunity to build on the capital market, and capital market participants, whether it is brokers, asset managers, wealth managers, depository participants or exchanges. All of them will have a fantastic time and asset-light. I think the return on return on capital is very high, the size of opportunities is very large and the good thing is at this time the liquidity which is coming is not temporary.
Q: As you see a doubling of the economy by 2032, could you also provide insight into when the markets might double from their current levels? Is it reasonable to expect the Nifty to reach 50,000 in the next five to six years?
Raamdeo Agrawal:Nifty is hovering around 22,000 levels. If you get 15% compounded on a five-year basis, you’re talking about 44,000-45,000 in the next five years. Nifty should kiss the 50,000 mark by 2030-2031.
Q: What are the common mistakes that retail investors should avoid when they are trying to build a portfolio?
Raamdeo Agrawal:Small investors should remain invested in the market. Market highs are a constant occurrence, and even if you’re currently at 22,000 or around 20,300, it’s nowhere near the all-time high for the next five years or 10 years. The focus should be on the future rather than dwelling on the past. For long-term investors, looking ahead ten years is essential. In the next decade, we could potentially be talking about the Nifty reaching 75,000. Therefore, staying invested in the market is crucial. While adjusting your portfolio to include better opportunities is wise, exiting the market altogether is not advisable as timing the market is difficult. The Indian market is vibrant and exiting prematurely may lead to missed opportunities. Instead, prioritise quality investments as the bull market cycle progresses. Avoid getting stuck with poor-quality stocks, as institutions typically gravitate towards blue-chip companies towards the end of a bull run. It's essential to be prepared for when this bull market eventually comes to a close.
Q: How should one invest at a time when elections and political news take centre stage?
Raamdeo Agrawal:Use every single opportunity of unimportant news flows hurting the sentiment of the market. The market is trying to encompass all the news. But if some kind of political news has no bearing on the performance of the economy, the performance of the corporates per se, but it just hurts the sentiment of the market. I think those are times to be used as an opportunity to buy more into the stock that you are convinced about.
Q: When the market is at an all-time high, is it possible to get good returns?
Raamdeo Agrawal:You are buying at a fully priced market. So in that case, your return expectation has to be moderated, particularly for the shorter term. Like if you’re looking for three years, I would say don’t expect more than 12% per year. But if you talk about 10 years then you may start looking at 13%-14%-15% compounded kind of return.
Q: What are your thoughts on the recent performance of IPOs?
Raamdeo Agrawal:I am not a big fan of IPO as to get allocation for my kind of size is a big problem. Yes, for retail investors it could be a great opportunity. If you’re an investor, there is no difference between investing in a listed company in the same segment compared with a new company coming from IPO. The regulator has made the market very efficient.
Q: What is your view on PSU space? Is there steam left in the PSU rally or is it too late to enter the segment now?
Raamdeo Agrawal:PSU has been discarded in the last 15-17 years. The last 10 years stood horrible for PSU stock investors. However, PSUs have come back with a big vigour in past 12 to 18 months. It is now one of the best-performing segments of the market. I think one should now not differentiate between PSUs and non-PSUs. Investors should see if it is a good capex player like BEL or HAL or whatever. One should look at unique companies from the PSU segment based on merits.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
