Introduction

In a recent discussion on CNBC TV 18, Raamdeo Agrawal, Chairman and Co-founder of Motilal Oswal Financial Services, shared his insightful perspective on current market trends, earnings season, the banking system, and future prospects of the Indian economy.

Source: The Economics Times

Key Highlights from the Discussion

On Earnings Season

• Agrawal observes some positive surprises from the fourth quarter earnings, citing examples like Nestle and Maruti.
• He acknowledges that the banking system seems robust with promising profit and loan growth across private and public banks.
• Despite challenges due to the Ukraine war and inflation, he is optimistic about seeing improvements in Q1 and Q2 due to declining costs.
• He believes earnings momentum will gradually build, positively impacting the Indian economy’s growth.

On Indian Banking System

• Agrawal highlights the robustness of the Indian banking system, noting that it doesn’t require any capital support from the government and is ready to fund the Indian economy’s growth.
• He anticipates good earnings from the banking sector this year, though he suggests that any significant outperformance may be uncertain.

On IT Sector

• The IT sector has been a disappointment, but Agrawal suggests that the decline in valuations makes it a good time to invest.
• He asserts that the growth story of Indian IT will come back “with vengeance” once the world economy revives its investment in IT.

On Manufacturing and Auto Sectors

• Agrawal sees the auto sector as the largest part of manufacturing in India. He notes that the demand for autos has picked up, which he sees as a promising sign for the sector.
• Despite some confusion over transitioning from Internal Combustion Engines (ICE) to Electric Vehicles (EV), he believes that earnings will continue to come from the ICE sector.

On Real Estate Sector

• Agrawal sees the demand for housing as very good, driving the manufacturing of building materials.
• He suggests that a decline in interest rates could increase the demand for housing even more, driving a positive trend for the real estate sector.

On Indian Economy

• Agrawal believes that India is at an interesting turning point, citing a stronger rupee and a slump in the current account deficit.
• He sees long-term growth prospects for India, with potential for it to grow from a 3.5 trillion economy to a 7 trillion economy.
• He also predicts a bright future for India in the year 2030, asserting that the economy will look very different by then.

On Rural Market

• Agrawal expresses some concern about the rural market, acknowledging that the low-end discretionary spend in the rural economy is weak. However, he believes that once the earnings momentum picks up, this trend will improve.

Economy and Market Trends:

• The basic demand in the market exists, but discretionary spending is not faring well. This may be due to factors like high inflation, increased taxation, and slow trickle-down of funds from urban centers to rural areas due to COVID-induced disruptions.
• He anticipates that the situation might improve in the next six months or so, aided by a good monsoon season.
• Agrawal observed that foreign institutional investors (FIIs) are having a challenging time exiting the market, and re-entry could be even more painful given higher market levels. However, FII flows are starting to move.
• Domestic flows have cooled down as investors have not lost money but also have not made significant profits. This has led some investors to switch to fixed income, which offers a more steady return.
• Agrawal predicts that as the market moves upward by 20%, the allure of equity will return. This change will assert itself once the index moves from the current 17-18,000 to around 20-22,000.
• He suggests that the real fun will begin when earnings growth picks up to 20%, the rupee stabilizes, and P multiple also reaches 20.

Performance of Different Sectors:

• Housing finance appears to be a bright spot with around 50-60% growth in profits, while asset and wealth management have been subdued on a year-on-year basis.
• His firm’s operating business has done about four to five percent higher, contributing to a net worth growth of about 12 to 15 percent in the current year.
• He predicts the compounded growth in net worth for the last eight years, approximately 24-25%, to return.

Index and Investment Perspectives:

• Agrawal is optimistic that the index will be higher in a year’s time, although he’s unsure of the exact increase.
• His investment portfolio has remained stable, with public and private markets maintaining a split. He also mentions the regulatory changes which have lowered the accretion to the investment portfolio.
• Agrawal is positive about new-age businesses, mentioning that the worst is behind for companies like Zomato. He notes a shift in sentiment and a push towards profitability among these businesses, albeit at the cost of some growth.

Agrawal’s perspectives provide valuable insights into the current state of the Indian economy and markets. His optimistic outlook indicates potential opportunities for growth and profitability in the future, particularly in the housing finance sector and new-age businesses.