Q&A: Raamdeo Agrawal, Motilal Oswal Financial Services

'Investors should start accumulating at current levels'

Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services, tells Krishna Merchant that investors need not panic due to the steep fall in Indian equity markets and should start accumulating stocks at the current levels. Edited excerpts:

Given the sharp fall, would you say the markets are close to bottoming out?
It is tough to say so. Inflation should moderate, with commodity prices easing, which will bring relief from the high interest rates. However, if the global selloff continues, I think we could see lower levels in coming days.

Should investors start bottom-fishing now?
Yes, they should start accumulating. Hold on to the stocks invested or, perhaps, put in more money. Those not invested can look to enter markets at current levels, as valuations seem reasonable.

At earnings per share (EPS) of Rs 1,200 for 2011-12, the Sensex at around 16,000 levels is currently trading in a range of 13-14 times the P/E (price to earnings) multiple. If seven-eight per cent growth continues next year, then EPS will climb to Rs 1,300, at least for the Sensex, which is close to 11-12 times one-year forward P/E. We cannot predict that it can go down to 10 times one-year forward P/E. But if there is a further global selloff, the markets can decline further.

What is your advice to people willing to invest in the current market conditions?
If the stocks are strong and one knows the value of the company, it does not matter whether the market is at 5,000 or 7,000 levels. One can still make money. However, individual stock picking will be a challenge and one should do homework before investing.

Most information technology stocks have shed 10-20 per cent in the past month. Should investors stay away, especially given their dependence on the US and the recent developments?
We have Infosys in our portfolio and we are still buying the stock. However, the scrip has been on a downtrend. Such things happen in a portfolio. At Rs 2,300, Infosys is trading at 17-18 times calendar year P/E (If EPS stays at Rs 130), and the valuations are much more reasonable now.

I do not believe the world is coming to an end. People are becoming too emotional about the downgrade by rating agencies, due to past experiences. Things right now are nothing close to the Lehman crisis.

After the downgrade by Standard & Poor’s, do you expect another round of quantitative easing in the US?
Further scope for easing is limited in the US because of the recent credit rating downgrade. Technically speaking, if there was nobody to rate, the US could just print its problems away because all the loans are in dollars and people accept the dollar as the reserve currency. The downgrade in credit rating will restrict the way they can take care of the deficit. We could see deflationary pressure across the world if the US and Europe buy less. There are concerns over Spanish and Italian bonds and the European Central Bank has started buying these bonds as well. The cost of money should go up.