Days before leaving for his yearly ‘pilgrimage’ to learn from his investing guru Warren Buffet at the annual general meeting of Berkshire Hathaway in Omaha, Motilal Oswal Chairman Raamdeo Agrawal sat down for an exclusive interaction with Forbes India. In an hour-long conversation, Agrawal spoke about shifts in the global economy and his outlook for Indian markets.
“This is not a fundamental rally. It’s a liquidity-driven rally. India is the only worthwhile investment destination in comparison to the US and China, in the current situation,” he said. “We have seen the worst.”
Agrawal discussed why he is bullish about quick commerce despite the high cash burn and intense competition. “There's enough space for five players. It’s a $1 trillion market and growing at 10 to 12 percent,” he said. “But every company won’t survive. There could be some consolidation.”
The veteran investor also expects a strong revival in the primary market. “Companies are scared now but there are roadshows happening,” he explained. “I'm sure there must be 200 to 300 IPOs in the pipeline ready to go, like boom.” Edited excerpts from the interview:
There is 45- to 60-day inventory in the US. I would think they have two-to-three months inventory. So, American consumers are not going to feel the pinch in terms of price or availability. But companies can’t commit to production now [given the uncertainty]. Factories in China have shut immediately. The pain has started in China, in terms of chaos. But America is still fine. Trump will be in a hurry to finish the deal in the next 30 to 40 days before the inventory [dries up]. He has a game plan. The main problem is the fiscal deficit at 8 percent which they need to reduce. Joe Biden [former US president] didn’t do it.
[The tariff calculations] will give a permanent advantage to India over China. I think the world doesn’t want more of China and the world doesn’t want more of America. The world wants more of India. My sense is that the world now wants a strategy of China, US plus one. But US and China are big markets. So, let’s see.
Q. But when elephants fight, the grass suffers. Isn’t it?
That’s a good angle. But ours is predominantly a domestic economy. So, if there is no alternative supply… say if Boeing is not being bought by China… we need 50 planes immediately so that there is some sanity in ticket pricing. So, my sense is a lot of good things will happen for India. It’s all coming together. We are more like America than China. India is more market driven—less state capitalism. So, we will align more with the US, and hopefully that will benefit us.
But the question is: Can our bureaucrats can keep pace? We have all the institutions; it's just the bureaucracy. It’s about how the political leadership pushes it. There is no problem there. We have the capability also. The issue is will we push for it. We have to increase our GDP growth by only one percent… 6.5 percent to 7.5 to 8 percent. See, for business and development, the government tailwind is very important.
Q. There’s rising geopolitical concern and India isn’t decoupled from the global economy. Do you see supply chain shocks?
[There’s] interdependence. I'm telling you, if bottles come, the caps come from another country. A small screw could be coming from somewhere else. For example, Boeing cannot produce planes without China and Korea. But the world will find a way. They will have to reorganise their supply chains.
There’s an opportunity. This is a holistic moment for India to increase the size of its funnel. These are not six months-one year kind of global shifts. We have to plan for 2047. It's an opportunity. This is a global tailwind; we can feel it.
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Q. Why aren’t companies showing the same level of confidence?
See, they are playing both sides. One is global opportunity and the other is local opportunity. The world will be deflationary. Oil price will be low. Your inflation has already come down to below 4 percent. I would say let us not go to 2 percent inflation. Keep buying growth. My suggestion would be to have inflation at about 4 to 5 percent rather than saying I will do 7 percent growth and 2 percent… let us have inflation of 4 percent but grow at 19 percent.
Q. What would you say is different about the market correction this time around from what we have seen in the past? How are the corporate earnings which look lacklustre?
So, pre-Covid, it was Rs500 per share. It became Rs1,000 in the last four years. Will this tailwind push the earnings from Rs1,000 to Rs2,000 in the next five years? The potential direction is positive; whether it happens in five years, it happens in six years… so, the activity will increase. Can the economy expand at 7.5 to 8 percent? That's the game.
Q. The earnings commentary from IT companies has been quite cautious. TCS, for example, is going slow on hiring.
The IT sector is seeing headwinds. Of 50 sectors, for example, you have to figure out which ones will see tailwinds. There is a constant churn.
Q. The IT boom in the 90s changed the course of India’s growth trajectory. Which sector can be a growth catalyst against the current backdrop?
This time it is much more manufacturing driven. The ‘Make in India’ theme. See, for example, China exports a lot of plastic products. Our companies can export a lot of plastic products too. China exports almost a trillion-dollar worth of goods to the US. This can create a multiplier effect and then, of course, leveraging the domestic opportunity. Then you have the capital goods requirement.
Now everybody is getting money. We have talked about China, America and the global opportunity. Now look at the local side. What is happening is that the risk capital flow was limited till 2020… it was only, say, corporate money or institutional money. Now you're getting 30 to 40 lakh customers [retail investors] every month. India is the hottest listing market in the world. In the last two to three years, 260 companies listed in India while the London Stock Exchange had four listings and 20 deal listings last year. Every exchange is shrinking. Only India is exploding.
Q. When do you expect the IPO market to revive?
Companies are also scared now. But there are roadshows happening. There are companies which have already filed DRHPs. There are about 50 to 60 companies waiting in our office, so I'm sure all over the country there must be 200 to 300 IPOs in the pipeline ready to go, like boom. But they also got to gear up. Let the market touch a new high and see how IPOs take off.
Q. Are you saying the market has bottomed out and the worst is behind us?
Yeah. We have seen the worst. I’d say, US Liberation Day marked Indian markets’ liberation [from bearish sentiment].
Q. By the end of FY26, where do you see the Index?
Tough to say, but I will be surprised if Nifty50 is not at 25,000 to 26,000 levels. I think the market will go up 15 to 20 percent.
Q. What will give it legs?
Earnings and multiple expansion as well. This time it will be led by earnings growth, of course, earnings are required… 10 percent could be led by earnings, 5 percent could be re-ratings, but that God only knows. FIIs will be net positive and DIIs will be also positive. The promoters will be the main sellers.
Q. Against this backdrop, where do you see opportunities at current market levels?
Sector after sector… take, for instance, quick commerce. New internet-based companies are springing up now. This is possible because of our digital infrastructure. I see lot of growth within these sectors. Of course, there’s opportunity in financial services companies, like banks, real estate and energy transition.
Q. You bet on quick commerce when everyone else was quite cautious. Many new entrants are eyeing the Q-comm opportunity now…
But it's not that easy. I also feel like doing quick commerce, I have money also, but it's tough. You have to understand the competition and you need that mindset. The gearing has changed because the new norm will be 15 minutes, and not a few hours.
Q. Are you worried about the cash burn though?
Once you become $5 billion/ $10 billion/ $15 billion companies. Look at Zepto, Blinkit, for example, you're talking about some crazy numbers. They're expanding their base before anybody else comes in, and then they can go and negotiate with the companies for a higher discount, or ask them to advertise elsewhere… that's how they're able to get Rs120 crore to Rs130 crore of advertising per month. Forget about anything, even advertising income can drive growth. It’s a large market.
Q. Is it a two-horse race? Zepto and Blinkit?
Swiggy’s Instamart is also there.
Q. There’s Flipkart and Amazon as well.
They are the contenders, if they would like to be. There's enough space for five players. It’s a $1 trillion market and growing at 10 to 12 percent. In the next five years it will become a $2 trillion market. But every company won’t survive. There could be some consolidation.