Year 2010 began with a lot of promise, but as the year comes to a close, Indian markets seem to have risen by only a modest 15%. As the markets usher in a new year, ET Now catches up with Raamdeo Agrawal, Joint MD, Motilal Oswal on general market trends as well as individual sectors that may lead the rally ahead.
ET NOW: The year started with a lot of promise but as we wrap up the year 2010, Indian markets on a YTD basis have appreciated by just 15%. Now Dow Jones this year is up 11% and the Sensex or the Nifty 50 this year is up only 15%...
Raamdeo Agrawal : Yes, actually if you look back this is a good performance on the back of 85% in 2009, 2009 was a big year and in any case this was expected to be a moderate year and we had lot of fun in the sense that we saw the markets scaling up to almost new high of about what about 21000 plus. Then we saw a little bit of correction of 5%-6% though midcap has corrected a lot more but at current levels i think it is a fairly good valuation and it was a very active year.
I think the primary market was also very active and we raised through various means more than a lakh crore so on the whole I think it was a tremendous year for the market and at the end of the year for last 4-5 and I think we had one of the most brilliant Diwali also. It is a perfect Diwali and then post Diwali what all has happened on the whole the year has been very satisfying so looking forward to kind of again cautiously optimistic year and 2011.
ET NOW:In the near term though, last fortnight so, we seemed to be in this quiet consolidation, low-lying sort of phase. When it comes to the equities, does it seem like there is a correction in store before we make the next leap higher?
Raamdeo Agrawal : It all depends on right now two things. One is whatever is happening in Delhi in terms of political uncertainty which we were going through right now. Second is that what will happened to the FII inflow today it is not being supported by retail or domestic participations as much as it is supported by the global flows and still it is said that gradient is in favour of emerging markets and particularly India.
But whatever is happening in Delhi whether it is going to impact negatively for sometime at least in New Year so is to be yet. I think those 2-3 things will determine because corporate performance which is foundation of all this is broadly in line still not impacted so much by the recent happenings in Delhi. So these are the things going through the mind right now.
ET NOW:At 1940, Hero Honda fairly priced, under priced?
Raamdeo Agrawal : I think it is reasonably priced, neither very cheap nor it is very expensive. It is like the market right now and a lot is happening in the company and management is very excited about whatever deal they have got in hand. I am more excited about the opportunity in two-wheeler segments in the immediate future so I think we have a tremendous growth in last year and again we are looking at a big year in 2011. The full good monsoon effect is going to come into the market in the days to come- even December was very good.
The business conditions are extremely buoyant, the competition still remains kind of 2-3 steep layers and now Honda will be free to compete in a completely under-strain way. So I think it will become little more competitive for sure but my sense is that No.1 position of Hero Honda is very well intact and there is no reason to change the long term view on the stock.
ET NOW:Would you recommend adding positions at the current levels on Hero Honda?
Raamdeo Agrawal : If somebody is having it they must hold it. For a new trigger to buy, one should look at what is the management action- they have not unveiled what will be their plans in the post this deal scenario-so one must look for clues out there because stock is not running in a hurry. So you can have a reassessment of buying fresh after you have seen the plans. But if you are holding it I think you have gone through the worst and you should keep holding on.
How have you used the November sell off and the December volatility to your advantage? Which are the themes, ideas, or stocks you have added or you have topped up more?
ET NOW:Raamdeo Agrawal : Whatever has happened in the market that keeps happening and I have not done much. Actually I have bought some stocks but I have added to the existing portfolio I do not think I have added any new names so far. So net-net I have been buying in fact now literally my cash levels are zero. So whatever little money I had of dividends and all in last 2 months that has been kind of invested.
ET NOW:So your existing portfolio, correct me if I am wrong, your existing portfolio is Central Bank, Bharti, Hero Honda, a bit of Nestle and a lot of IOC have you bought all the stocks?
Raamdeo Agrawal : Yes, these are names some more names are there so.
Which are the other names?
Raamdeo Agrawal : Let's avoid that.
ET NOW:What is the call on sugar and whether or not are you bullish on any of the stocks there?
Raamdeo Agrawal : I do not understand sugar, once or twice I tried to buy sugar companies and lost money. I think the sugar economy in India is for farmers, not for the sugar manufacturers even if they make it, it will be for few months definitely not permanently. So current sugar policy is completely loaded in favour of farmers. The manufacturers do not have any control over either the sugar price or the sugar cost of production. So, unless it is a trading bet, I would not apply too much of my time to understand this industry. I am not been able to get on top of it in the past.
ET NOW:What about underperformance of the year gone by in power and infrastructure. Can the trends reverse in 2011?
Raamdeo Agrawal : If markets do not go anywhere in that case they have seen their worse so they might technically outperform the index but basically I do not see anything happening for them because both of them are very close to the government kind of initiatives. Whereas at least the government conditions are right now we are not in position to take any firm decisions on anything. In fact more confusion is coming through so anything where government holds is very high, I want to stay away from that.
ET NOW:If I look at the commodity cluster last one year silver is up about 80%, copper prices are up about 25%, the largest commodity which is crude is up only 7%. Now crude in last 15 days has appreciated by about 7.5% to 8% is the biggest risk for Indian markets crude if it moves up and if crude prices cross $100 per barrel it could be a nightmarish situation for us?
Raamdeo Agrawal : It eventually leads to big problem for India because 75%-80% of our petroleum needs are being imported so clearly it is not a positive for India. It is very inflationary in character but if you go by, somehow it is contributed into by the global economic conditions. Higher crude price means better global economic conditions and more optimism in global economy and your exports start doing very well and hence there is lot of profits, there is lot of corporate activity in the system.
If you see our all time high reaches with the all time high of the crude. So if this time crude goes to 125-130 my sense is that yes some of the sectors will definitely be impacted. It will be lot of problem for India but my sense is that this is not necessary that markets will do badly.
ET NOW:What about financials? What would you lean on, would it be NBFCs, PSUs or the private banking lot?
Raamdeo Agrawal : I think banks in general will do very well. It is a lenders market right now so some kind of adjustment between the cost of money and the money is at the price at which money is available to corporates that negotiation will be on for some more time. I think much more stable conditions will prevail in the money markets may be post March after this budget is over and this calendar year is over, this financial year is over because government has two problems one is the inflation and second is that of liquidity crisis.
So I do not know how they will juggle it out but I think longer term banks are in a very good situation here. Credit cost is much much lower, volumes are expanding in a very predictable way so if the bank is reasonably managed and has a distribution network whether it is private sector or public sector I think both category banks will do very well.
ET NOW:Your wealth creation study this year has identified two banking names Central Bank and Yes Bank. Can I assume that these are your big ideas for the year 2011?
Raamdeo Agrawal : It is not the idea for 2011, it is for idea to which we think might work well for investors if they remain invest over 3 to 5 years at least because in one year things can be pretty unpredictable. The PE multiples can shrink for temporarily because earnings will come through. But you do not know on one year basis what is going to be the PE multiple change in next 12 months but if you look at 5 years-7 years even if there is a 20%-30%-40% deterioration in the PE multiple still the earnings take care of any kind of change in the PE multiple.
So you got to give them 3 to 5 years time period for them to play out complete story but yes it is an idea which we have put our neck out that long term we think that these banks can surprise us.
ET NOW:And if you have to pick and choose and if I put a gun to your head Raamdeo Agrawal pick and choose one Central Bank or Yes Bank which one would you endorse?
Raamdeo Agrawal : I have already bought Central Bank so I would say sit with Central Bank.
ET NOW:Given what is happening in the telecom sector too much of bad news, scam 2G, 3G, what to your mind are the chances the by the time we wrap the year 2011 telecom stocks could emerge as clear big winners?
Raamdeo Agrawal : I would think so, I mean chances are that by end of 2011 so you are talking about 4 quarters ahead I think lot would have happened in terms of competitive landscape. Government would have decided whether they want to punish anybody at all in this system and most likely the competition is going to be in general competition will be weaker for the existing players. So in next 4 quarters my sense is that the pace of deterioration of the sector which was happening going on for last 8 quarters or so would come to halt and may be some kind of a reversal of the trend, weakening of the competition and improvement of profitability in cash flow would happen at least we will see the trend in next 3-4 quarters.
ET NOW:What about pharma as a sector because the tide clearly seems to be in favour of pharma stocks right now?
Raamdeo Agrawal : I think the moving average total, the kind AC Nielsen brings out for industry trends, is running at about 19%-20% which is historically the a highest number. Industry is clearly asserting the affordability in the way which is happening across so 20% growth for the industry is fantastic.
The companies which are generating prescriptions in India and which are large they would do in any case very well but the global markets are also very favourable for Indian companies. Combination of this factors companies like Sun or Cipla or Glaxo, the guys who were good in India and it is double good if they are good abroad also. So I think it’s a very good situation for Indian pharma.
ET NOW:At Motilal Oswal the house is now looking at launching some global ETFs is that a message across that for 2011 retail investors they should actually look beyond India as well?
Raamdeo Agrawal : Yes, definitely they must because India story is very good but investing is becoming very global and some of the more pessimistic markets large markets like US where people have given up hopes I think they may surprise people. We will be launching the first product as NASDAQ ETF it is a complete to access to what happens in NASDAQ, so you can buy into Google or Apple , Microsoft , ebay. So if the whole initiative is successful then we can give access to many more products so early days to say anything what investors will like in India but investing is clearly going global very rapidly.
ET NOW:What about auto ancillaries are there any stocks or companies that you may be bullish on right now?
Raamdeo Agrawal : I think auto is one space which is just booming and I think it will surprise everybody whether it is Mahindra whether it is Hero Honda, Bajaj, Telco, Maruti. I think prosperity is really visible in, I mean, December month most of the dealers were saying that they usually used to give extra discount to sell the stuff in December because that is the end of the year and change of the year from 2010 to 2011 but this time the stock is zero. There is absolutely no inventory and December feels like Diwali month so I think the 8%-9% sustain GDP growth is clearly visible in the car automobile counters. So I would remain very fully invested in auto stocks.
ET NOW:Before we wrap, why is that you have always liked Hero Honda and you have never recommended Bajaj Auto on television channels?
Raamdeo Agrawal : That is because of my own position in the stock but I think Bajaj has done amazingly well and there is no reason why it is any less than Hero Honda particularly they have already got established R&D. They have got established export markets and they are in the control of their own destiny and I have been going to their AGMs, interact very closely with the management just that I end up buying Hero Honda historically but I think Bajaj is as good there is absolutely no gaps in that.
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