We have to wait for the doors to open for the infra spend or housing boom, both of which have been dead for the last 15 years but it can come back, says Raamdeo Agrawal, Chairman, MOFSL.
How worrisome is this narrow pool of profits in the market? Now with the sudden move and the rotation into banks, would more bottom-up stories be in focus?
The markets will go where the momentum in the profits are and it is now in consolidating sectors. It is a proper K-shape recovery where maybe one-third of the companies will benefit, one third will stay where they are and one third are definitely losing. Whosoever is losing out, is being added up to the top.
Among banks, one third are private sector, two thirds are public sector. The public sector banks do not know from where the capital will come and when it will come. When the economy is coming back, the good quality business will go to the private sector banks and that is how there will be migration from 60% current share at 2%, 3% per annum. Banking itself will grow at about 12-15% and private sector banks might grow at 22-25% and within them, some banks can grow even higher.
Markets are reading somewhere that this migration from the public sector to private sector is going to accelerate and we are not seeing much support for public sector banks from the central government also. But markets are not going to wait and in the next three years, Delhi might decide to privatise or even recap but that may take time. The economy is on the move and there are large opportunities.
There are 40 sectors of the economy and out of that in good times, between 2003 and 2007-2008, 32 industry groups did very well and in 2002-03 when recession was there, it was just about six sectors out of 40. Right now, only six sectors are doing well and 34 sectors are not doing well. Corporate profit to GDP which was more like 7% in 2007, has come down to less than 2% and so there is a complete dearth of corporate profits in aggregate.
There are pockets where there are profits and those pockets are basically IT, consumer products, private sector banking, auto to some extent and oil and gas, basically Reliance. If you talk about trend growth over the last 25 years, IT which made 1% of the total corporate profits in 1995, today counts for 25%. That is the size of change we are talking about. Infosys was a Rs 1,000-crore company and today it is running into lakhs of crores. We have to figure out where the next big trend is happening and whether we can log on to them in time. It does not matter whether you do it today or do it after a month or so.
Big migrations have been happening from the public sector to private sector and the next 10 years will be the most exciting and big bucks will be created by the existing large banks and even one or two emerging mid-size banks which will successfully become larger banks. That is where I see a big opportunity. Opportunities remain very focussed but if by chance, government spend comes into infra very seriously, because globally coordinated liquidity flow into infra has never really happened, then it can give birth to a very different set of companies which are dying or are completely out of shape right now.
But when you do not expect anything in the market, that is when it really happens. We have to wait for the doors to open for the infra spend or housing boom, both of which have been dead for the last 15 years but it can come back.
Three stocks that you wish you invested in or you invested a little late and you regret that?
Tesla when it was about $ 20-$ 30 billion. I am a big petitioner of value migration and I could see it is happening, it is still on. It is not so much about making money but really betting in the conviction — at least a few thousand shares or 100-1000 shares or something. I didn’t do it. I thought it is 20x but it is not about money. I was so clear it was going to happen. So that was one.
Most of the global big stocks have made so much money in the US. Take Microsoft, particularly when Mr Nadella took over. At that point it was $ 40-$ 45 a share. They just about launched the cloud in 2014 or 2015 and I had met one Microsoft senior guy and he had explained to me what cloud means. Again this was a value-migration based stock. These are one or two stocks which come to my mind which are very close to everybody and yet I could not buy them.
What are the two data points you look at first when you wake up in the morning and when you start your trading day?
I look at what has happened overnight in the global markets. I look at the commodities and the indices. Then I go for a walk and come back and read my four-five newspapers and that is a real kind of a good morning show for me. So there is nothing very pointed in the morning because I do not trade. We have become very global and we have to keep in mind what is happening worldwide.