Raamdeo Agrawal's top bets in this market | Economic Times

Focus on the biggest companies in every sector. That is veteran investor Raamdeo Agrawal’s investment strategy in the post-Covid era. The co-founder of Motilal Oswal Financial Services spoke on various topics such as gold, stock valuations and banks among others in an interview with ET ahead of its annual global investor conference this week. Edited Excerpts: How is your risk appetite these days? Where are you putting money?I'm 100% invested like it has always been. Of course, there have been some changes. There is a continuous churn in the sense that some ideas keep coming while others go. If you are 100% invested, you can buy something only after selling something. So, our portfolios are optimised. That said Covid is bringing a lot of changes in the corporate prospects across industries. There is going to be a lot of consolidation in businesses. For instance, in broking, a lot of small firms will go down even in this growing market. A few big ones will become very big. In such a situation, you cannot hold marginal companies. People need to throw out such companies out of their portfolios and buy the winners. Even in this market, I am being totally unemotional and buying large winning companies even if they might be a little expensive. That is the churn I am doing. Where else are you seeing opportunities other than broking?It is happening in all sectors even in banking. Even public sector banks will struggle. Earlier, public sector banks used to keep getting money regularly from the government for recapitalisation. I think now even that will not be available for them. That leaves the sector with only those with capital like HDFC Bank, ICICI Bank, Kotak Mahindra and Axis Bank. The rest of the banks don’t have capital. Broadly, 25-30% of the loan books have opted for moratorium. Even if a third becomes NPAs (non-performing assets), that will be 10% of the books. Let’s say if 3-4% default on loans, where is the growth capital left after trying to meet the capital adequacy. The economy will recover because the government is likely to pump in a lot of money but many of these banks won’t have anything to lend. So, the ones with capital will have a huge pricing power. So, investors should own the best of the lenders. And that is the same strategy I am adopting for all sectors. Any company that is not able to survive in Covid, I am not sure what will be its prospects after that. The worst impacted by Covid is financials and the impact is likely to be long-drawn. What are your thoughts on concerns over HDFC Bank after Aditya Puri's exit?Now, people say HDFC Bank will be a pale version of its past with Aditya Puri leaving. But news of him leaving is not something new and we must not forget that we have an insider leading the bank now. In fact, Sashidhar Jagdishan (the new CEO) is as old as Aditya Puri in the bank. It is just that he is younger. And he has been groomed by Aditya Puri. What more do you want? I do not think you will get that kind of a franchise at these valuationsAviation, multiplexes, travel and tourism companies are out of the market's favour. Do you expect them to return to their past glory anytime soon?It won't come back in a hurry. For instance, you do not have to travel for small things. My sense is that video conferencing will be the way of working life. Online is here to stay and will grow to gigantic proportions. A lot of businesses will benefit and those will not be pure online ones. I might not go to multiplexes for the next one year. A lot will also depend on what they are able to offer me in terms of value or experience. Travel will come back but business travel will come down. Growth in leisure travel can explode because many companies and people are saving costs. There will be a new expression of expenditure. So, what is in store for investors in travel and multiplexes?I don’t know how soon people will return to theatres but many people are dying to fly. There are just four companies in the sector. Air India is not in good shape. SpiceJet and GoAir are financially weak. So, the only strong company left is Indigo and they will be in a position to decide the market share. They will also be in a position to decide on the pricing. That is the reason why Indigo's stock price is not falling. Many investors in equity mutual funds have been disappointed with returns in the past five and ten years. Ten-year returns are not that bad but I agree that five years have been a disaster. Now see if the economy does not perform, how will the markets perform? For instance, in real estate, nobody has been able to make money irrespective of where he owned the flat. The current price of a flat in Samudra Mahal (South Mumbai) is almost around the same price as it was quoting in 2008. So, in 12 years, its zero returns, while the prices of many other properties are even lower. What I am trying to tell you is that the performance of India has not been inspiring both in terms of real estate and stocks. Past few years have not been good in terms of corporate profits. But, whenever the economic growth comes back to 7-8%, things will be different. The good part is both the government and RBI are talking about growth. The long-term looks fine but honestly, it’s difficult to see what will happen in the near future especially the next 12 to 24 months. Equity valuations are at pre-COVID levels while gold is near its all-time highs. Which one would you prefer at this juncture? I don’t understand gold and when you do something that you don’t understand, it becomes speculation. And I never speculate in life. People make money in all kinds of assets. I think they will end up making some money in gold too, but I think stocks are far more exciting. We have enough ideas still. Fundamentally gold doesn't have any earnings. If you had bought 10 grams of gold 100 years ago, it would still remain 10 grams today. Whereas within 10 years, Motilal Oswal has become so much bigger. The question is whether there is really inflation in the world. Gold is a hedge against inflation and the world is suffering from deflation, not inflation. If you see Europe or America, they're trying to keep the prices in the positive territory. The world is becoming like Japan. I see more of deflation everywhere except in India. It's true there's a lot of fear of inflation though there is none right now. That fear can drive gold prices higher. How much higher I don't know. Some people said gold can triple. It could because there's a massive liquidity. If gold can triple, stocks can go up 10 times. If the case is that rising liquidity will lift all assets, then I would rather buy Apple and other FAANG companies. At least, these companies have earnings. I am not saying that Gold will not go to $2500 but tell me how many people have become rich by betting only on gold.Were you surprised like many others when your guru Warren Buffett bought a gold mining co? Let me tell you that many of these macro calls even if they are from Mr. Buffett are not reliable. But, when it comes to stock or buying a company, he is a master. For instance, he bought Apple for $300-400 billion. Today Apple is at $2 trillion and the world's largest company. In May, he spoke of the macro outlook through his presentation of 40 slides. That day it was looking like the world is coming to an end. Look at where the market is today So, macro calls can really go wildly wrong and I do not believe themSo, what would be your advice to investors?Investors should stay in the market. I say this because nobody knows when the Dhamaaka will happen. Normally we do see Dhamaakas after deep corrections be it 2002-03 or 2008-09. So, it looks like the market performance over the next 2-3 years will be good if history is to go by. In equities, it is very difficult to time. That is the nature of the beast. So, I would say never bet against India and only take that much risk that you can handle and have patience. You have seen so many market cycles. Which one would you compare the current one to?Every phase is unique. It will never repeat itself. That I can guarantee you. 2000 and 2008 were global problems, while in the 1990s, the problem was unique to India. So, the last three crisis including this one are very global in character. Two of them--2000 and 2008-- were collapse of business cycles, while this one is a health care crisis. That is why the comeback has been very fast. Are you comfortable with the fact that valuations are back to the pre-Covid levels while the situation on the ground is far from rosy? After the Q1 results, our research head has upgraded Nifty earnings to 3% for the year. In FY21, he was expecting a marginal decline and now he is saying earnings will be marginally up. So, at the aggregate level, there will be enough winners to take care of the losers. So, valuations are reflecting this optimism and you cannot take away the quantum of liquidity and the cost of liquidity. We have never seen a reverse repo surplus of Rs8-9 lakh crore. Corporates borrowing for 90 days are getting it for 3-3.5%. So, the hope is that after the lockdown is lifted because of the vaccine, there will be a bumper year, which could be FY22. This is what the market is building in and whenever it changes this opinion, there will be a double correction. But today's opinion is that the economy is going to recover in FY22 on the back of vaccine, liquidity and fiscal stimulus. The economy's fate depends on what the government does. What are you expecting from the government?When the sick person tries to get out of the bed, it needs support. The economy also needs it now. The government has to give the economy an overdose of support. It should so much more in sectors such as education, agriculture and mining. In mining, I am unable to figure out why they are not giving licences. Mining is such a job-oriented sector. You have allowed permission in mining but the amount of processes required to get a licence is as good as giving no permission. The government should implement them in a time bound manner and make them digital. I am unable to understand what is missing. Can you believe it that there are a handful of the gold mining companies that have not got licences for 18 years? And these people say we have more gold than what Australia has. The acceptability of India worldwide is at a high level and we should make full use of this.