Raamdeo Agrawal, Co-Founder, Motilal Oswal Financial Services is of the opinion that foreign investors are still interested in the India story. However, he does believe that measures to boost demand are the need of the hour.
He advocates resolving the liquidity bottleneck quickly and hopes that the government will start making timely payments to its vendors as this, according to him, is a key area of concern.
Here is an edited excerpt of his interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy.
Q: Are we in stock picking zone at all in terms of the market prices?
A: There are clearly ideas which are showing up now and it is going to be a lot of fun looking at the companies, which we used to buy at 20-25 prices to earnings multiple (P/E) or used to feel uneasy about not buying or looking at them now there are at 12-13 P/E. So yes, values are emerging at least in midcap space.
Q: Do you reckon that value is emerging now in the auto space? Maruti Suzuki, Bajaj Auto etc. are up about 10-15 percent this month already. Do you think the worst is over for the auto sector?
A: I would think so. They are all there in my portfolio. However, who knows at what pace the government steps in and all the measures. These things take time and liquidity transmission has to reach the right people (NBFCs, auto dealers and consumers) quickly. I think that this may take time so maybe we will stay here for some more time.
Q: Tell us a little bit about the conference. What are the themes your company is trying to explore with your guests?
A: Basically one of the things is that how the economy is looking, what are the current problems and what is the foreigners as well as domestic investors’ level of interest. One of the things which we are seeing is that very large teams have come from abroad. Every year it is becoming bigger but this year it is the biggest. A lot of big houses like Capital, Fidelity etc. have come in the groups of 10-12. So the interest in India is very high. Whether they invest or not comes later but at exploratory stage their interest is very high. They sensitise the investor base even for big deals such as Reliance Industries Ltd (RIL) - Saudi Aramco.
This is one economy which is not in sub-zero kind of a bond rate or struggling with 1-2 percent kind of growth. We still have 5-6 percent growth. So given the global backdrop, India still stands good. The real thing is that how do we handle it at a government and at a corporate level. But they are here to explore.
Q: In that context, over the weekend, there was an expectation that something would be announced by the Finance Minister in terms of sops to boost demand etc. Nothing came through. Committees are being formed, statements are being made but on the ground is there real improvement or announcement?
A: I think the government will do a comprehensive job and whenever they will come up with a package between now and the next budget, there should not be a need for further government intervention. I think they would do all the listening and I think the FM, she is in any case new to the job, doesn’t want to commit a mistake and I think she would like to do a comprehensive job. That is my sense.
Q: Your own brokerage has cut the Nifty earnings per share (EPS) by 4 percent and downgrades are three times the upgrades. You sounded a little positive on midcaps, where are these small islands of outperformance?
A: I am not talking about outperformance. I said they have started looking cheaper. Can it become cheaper still? From something which earlier would have been at 20 P/E, today it is at 12-13 P/E but can it go to 9-10 P/E? That we don’t know. Outperformance and performance is a much later.
We need to fundamentally address the current corporate profitability. Like this quarter, I think our aggregates are showing about 3-4 percent growth despite all the corporate banks delivering. Other segment of the economy, like this automotive pack, have collapsed. Whatever little bounce was coming from the corporate banks, has been taken away. So clearly, there is a problem of aggregate corporate profits right now and that is not going to come through that easily. It is going to take time.
Q: In your conference, is there a sense that there are green shoots in consumption companies? I ask this because in earnings we have seen that, whether it is an Asian Paints or Dabur or Hindustan Unilever Ltd (HUL), there is still about 5-10 percent volume growth. So do you that this space is only going to be move upwards?
A: Interaction with the companies are ongoing. My job is to figure out whether there are green shoots visible. Are things stabilising and is August better than July, that kind of thing. I keep asking whether the payments are coming on time because liquidity is important and currently getting delayed.
You are not going to see sales increase without money coming through. Somehow liquidity transmission is not happening, I don’t know where the plumbing has gone wrong and somebody, Reserve Bank of India (RBI) or finance ministry, has to look into it. Whys is it that somebody who was rolling his money four times a year has gone down to two? One of the things which is coming out is that even government payments are delayed. The government has to make these payment, so why not expedite it? All the agencies must pay – if it is 30 days contract, they must pay in 30 days. That itself can quickly relieve a lot of pressure.
Q: Seems this has resonated with North Block. In an interview to a business newspaper, PM Modi has said, “We are working very closely with the RBI and the banking system to remove blockages in the flow of credit to small and medium enterprises, we are looking to remove all the delays in government payments and tax refunds.” If you were asked what would you want done, what would you say?
A: Growth is a function of multiple forces. The demand situation should be good, the credit situation should be good, infrastructure situation should be good and even monsoon should be good. Basically a lot of things must come together to give a sustained growth.
The government is the largest consumer of everything – goods and services – and if they start paying on time, at least 5-10 percent of the problem will be sorted. Every single factor will have a contribution. If you resolve 10 factors, at least 80-90 percent of the problems will be sorted.
First Published: IST