Best time to buy stocks is when everybody is bearish: Motilal Oswal Financial Services

Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services, is bullish on selective fast moving consumer goods companies, two-wheelers and energy stocks in the current bearish market, which he says is a good time to buy. In an interview to ET NOW, the ace stock picker shares the findings of Motilal Oswal Wealth Creation Study. Edited excerpts:

Why has the Indian market been so volatile in the past one month? What is making investors nervous?

Indian markets are under-performing because of local problems and what is happening in Delhi. The problem from the eurozone is far from over and currency is also weak. I think we could remain in the tunnel for some more time till some clarity emerges.

How are you approaching this market?

I am looking at it as an opportunity to buy, but very selectively. I am buying companies which I understand and currently outlook for Indian equities is at a multi-year low. I still remain bullish on selective fast moving consumer goods companies, two-wheelers and some energy stocks.

What are the key findings of 16th Motilal Oswal Wealth Creation Study?

The study reveals that it is important to buy blue-chip stocks at reasonable levels rather than buying mid-cap stocks at distorted prices. Over the years, we have realised that blue-chip stocks create more wealth. Stocks like HUL, ITC and Infosys have created greater wealth than mid-caps. So, one should always invest in blue-chips that offer high margin of safety and low risk. Reliance has emerged as the biggest wealth creator for the fifth time in a row from 2007. This is a record. Kotak Mahindra Bank is the most consistent wealth creator and the stock has grown at 47% on a compounded annualised basis in the last 10 years.

How many companies qualify as wealth creator in your studies?

We have looked at 47 companies in the study based on three parameters: market performance, growth in earnings and valuation. Based on these, wealth creators have given a compounded annualised return of 18% in the past five years against 12% for BSE Sensex. The perfect example here is HUL which has been in a 10-year bear market but in the past 20 years, the stock has grown 20%. Indian market has remained very volatile.

Your study insists on the importance of buying stocks which offer good dividends. In a growth country like India how important is dividend investing?

Genuine investors only invest in dividends. We must not undermine the importance of dividends. I personally never thought that dividends are so important. Over the years, my view has changed. I invested in Hero Honda in 1997 and that year they gave a dividend of Rs 7 crore. In 2011, they gave dividend of Rs 2,100 crore, which is a jump of 300 times in 12 years. So, if you buy companies which are growing at 20% plus, then dividend yields will also grow with earnings.