“After bad results, there would be very few investors who would say, boss you are a fantastic guy, you are suffering now and I will give you a high PE multiple. If your understanding of the company or the industry is better, then you must invest in them. It is great opportunity to buy unbroken franchises at broken prices,” Agrawal, chairman and co-founder of Motilal Oswal Financial Services, said in a presentation recently.
Stating that the market is going to punish every company with bad results, the billionaire market guru said many fundamentally-strong companies are hit because of the slowdown.
Giving the example of liquor companies, he said if shops are closed and sales are affected at the moment, it doesn’t mean there will be no sales in the future as well. “You can get some companies with bad results for this quarter at good prices. You have to build those kinds of portfolios,” Agrawal said.
Sectorally speaking, he is bullish on private life insurance, banks, IT and pharma stocks.
“Insurance companies will get bumper underwriting opportunities like what happened till March. People are scared, they will definetely like more insurance. Insurance rates have also gone up. It is going to be an opportune sector,” he said.
On banks, he said both rewards and punishments are disproportionate because of leverage. “They will be punished because they are high-beta stocks. Rightfully so, markets are very scared of leverage machines. The opportunity size is going to be big because there is value migration from the public sector to private sector. It is very challenging and technology intensive. I think they are going to make a lot of money.”
Trying second-guess which sectors will benefit from the pandemic and which sectors should investors remain invested in, Raamdeo singled out IT and pharma. In both the sectors, India has a competitive advantage globally.
“Incidentally, they are the beneficiaries of this pandemic because of technology realignments. In global corporations, the main capex is IT and that IT spend is handled by TCS,
and others. They have an unprecedented order book even in pandemic time,” he said and advised investors to have a good allocation from the sector in their portfolio.
On pharma, he cited Covid vaccine production as an opportunity for Indian companies. “You need to have allocation in this global opportunity where demand will not be affected because of a slowdown in our economy.”
In Motilal Oswal’s wealth creation study last year, Agrawal had listed
, Alembic Pharma, HDFC Bank, HDFC Life Insurance, and among the 25 stocks that are likely to deliver handsome returns for investors in the next 25 years.
Market correction in the offing?
“Somewhere you win big and somewhere you might be hurt more than what you ever thought. You don’t know how bad the second or the third wave is going to be. You have to be quite cautious,” he said, adding that after the U-shaped recovery after March 2020-lows, investors should have muted expectations from the market in the next 12 months.
“The markets will remain fearful at this juncture… There’s scope for correction but how much will it correct and when I don’t know. But markets do not collapse for the same reason twice,” the Dalal Street veteran said. He is hopeful that besides vaccinations, monetary and fiscal support from the government will keep the market range-bound.
