'We will see big winners & big losers this year'
Inflation will be the dominant theme on the bourses this year, and while equity indices may be range-bound, there will be big winners and big losers, feels Raamdeo Agarwal, managing director, Motilal Oswal Securities
By TNN |
| Raamdeo Agarwal, managing director, Motilal Oswal Securities |
Inflation will be the dominant theme on the bourses this year, and while equity indices may be range-bound, there will be big winners and big losers, feels Raamdeo Agarwal, managing director, Motilal Oswal Securities. In an interview he says that opportunities for financial intermediaries will be massive as India���s economy doubles over the next 5-6 years. Excerpts from the interview:
How do you expect the market to play out this year? What is the theme likely to be?
The market is likely to be range-bound this year. If things go really bad, we could see the indices fall by 10% from current levels, and if things turn out to be much better than expected, the indices could rise about 20%. Unlike the earlier year when we used to see only big winners, this year we could see big winners and big losers.
Inflation will be dominant theme.
There will be one set of sectors like steel and cement, which will be contributing to inflation and at the same time benefiting from it. Then there will be a host of other sectors, that will be hurt by high inflation. The main worry for companies will be high interest costs. So you will see topline growing by 20-22% and bottomline by around 18%.
What are the sectors you are bullish on?
But won���t the tariff wars hurt the profitability of telecom companies?
Volume growth will more than compensate for the reduction in call rates. With higher volumes, the cost of production comes down. The companies are lowering their call rates only to the extent that it matches the corresponding fall in their cost of production. If you notice, the operating margins of the companies are not getting affected.
How do you see the stock broking industry in India evolving over the next few years?
Indian broking houses are not well capitalised yet. We are still talking about $200-$300 million balance sheet size. But in an economy growing at 9-10%, and with a market base of $2-3 trillion, broking houses have to be much better capitalised. I think this is just about the beginning of broking firms coming into their own. Right now our (India���s) savings are about $300-400 billion every year.
Has the recent slump in the stock market affected your expansion plans?
We are not looking to grow much in terms of our own branches as planned before. But we intend to grow our franchisee network by 15-20% this year. What we are working on right now is productivity improvement within the existing network.
How are trading volumes on the bourses expected to be this year?
Market should grow 15-20% this year, it could be back-ended, but still achievable. A volume growth of 15-20% is also what we have projected in our corporate plan.
How do you expect the market to play out this year? What is the theme likely to be?
The market is likely to be range-bound this year. If things go really bad, we could see the indices fall by 10% from current levels, and if things turn out to be much better than expected, the indices could rise about 20%. Unlike the earlier year when we used to see only big winners, this year we could see big winners and big losers.
Inflation will be dominant theme.
There will be one set of sectors like steel and cement, which will be contributing to inflation and at the same time benefiting from it. Then there will be a host of other sectors, that will be hurt by high inflation. The main worry for companies will be high interest costs. So you will see topline growing by 20-22% and bottomline by around 18%.
What are the sectors you are bullish on?
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We are very bullish on wireless (telecommunications). Contrary to general perception, we feel the sector could still grow 40-50% per year for the next 2-3 years. We are also bullish on the steel and cement sectors.But won���t the tariff wars hurt the profitability of telecom companies?
Volume growth will more than compensate for the reduction in call rates. With higher volumes, the cost of production comes down. The companies are lowering their call rates only to the extent that it matches the corresponding fall in their cost of production. If you notice, the operating margins of the companies are not getting affected.
How do you see the stock broking industry in India evolving over the next few years?
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If India is going to be a $2 trillion economy in the next 5-6 years, and corporate earnings continue to be 5% of GDP, we are talking about Rs 5 lakh crore of earnings. At a price earning multiple of 20, the market capitalisation would be around Rs 1,00,00,000 crore. It is going to be a much bigger canvas; India is going to be a much more important player among global capital markets. Also, many Indian investors are now interested in diversifying their portfolio beyond Indian securities. This trend will only increase in the coming days.Indian broking houses are not well capitalised yet. We are still talking about $200-$300 million balance sheet size. But in an economy growing at 9-10%, and with a market base of $2-3 trillion, broking houses have to be much better capitalised. I think this is just about the beginning of broking firms coming into their own. Right now our (India���s) savings are about $300-400 billion every year.
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In 7-8 years, I expect the GDP to grow to about $2-2.5 trillion, and savings to be around $1 trillion a year. When you have that kind of savings annually, the opportunities for financial intermediation are going to be massive. The way you do financial intermediation is that you have to be a bank, you have to be an insurance company, and one of the very important back-end for all these players will be broking. Individual stock ownership is rising both globally as well as in India. Has the recent slump in the stock market affected your expansion plans?
We are not looking to grow much in terms of our own branches as planned before. But we intend to grow our franchisee network by 15-20% this year. What we are working on right now is productivity improvement within the existing network.
How are trading volumes on the bourses expected to be this year?
Market should grow 15-20% this year, it could be back-ended, but still achievable. A volume growth of 15-20% is also what we have projected in our corporate plan.
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