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Markets will welcome a smooth transition from one regime to the next: Raamdeo Agrawal

We have gone through the pain, hopefully the next phase will be growth, says Agrawal

, ET Now|
Updated: May 14, 2019, 03.30 PM IST
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This time elections are turning out to be very noisy with allegations & counter allegations flowing freely which have not been seen in a long time, Raamdeo Agrawal, MD & Co-Founder, Motilal Oswal, who has been a spectator to the markets & to the election process in India for about 30 years, tells ETNOW in a candid chat.

Edited excerpts:


There is a lot of uncertainty over the election outcome. What is the market thinking?
A good thing is that this time there is a lot of data flow about election though opinion polls. Though one does not know which one is more authentic, but depending on estimates by psephologists on the numbers, the market is getting a lot of data and based on that, the market is believing is that there is not going to be a disruption, that the current government is going to come with a slightly reduced majority -- about 245-250 this time. But ultimately prediction is prediction and there will be mistakes. It could be even 300, it could be even a little lower than 245, but at least the market is not saying that there will be any major disruption in the current dispensation in Delhi.



After Balakot, there was a sense in the market that there are chances of a complete swipe by the current government. But over the last couple of weeks, the way voting has progressed has coincided with Nifty coming down from almost 12000 to 11300. Is it good that the market is going into this event with tempered expectations?

One month is a lot of time with such a noisy election with claim and counter claim and various other issues. The kind of feeling which was there at the time of Balakot incident a month-month and a half back, that impact has got muted but, somewhere, a lot of opposition leaders kind of lost the way. So there is no alternative. Now the BJP or Mr Modi looks to be a a there is no alternative (TINA) kind of situation. So, to that extent, the certainty of coming back has increased in the minds of the people but as the time passes, other factors start coming and uncertainty starts building up.

Somebody says that NDA tally might be 180-190. Suddenly it brings down the confidence and then globally also a lot is happening. The stock market is a reflection of everything, it is not only about the election. I would say, the other things have a bigger role in the sense of how the dollar is behaving, how the US-China Trade War is on, how the oil is behaving etc.

If you see, the FII flow as an indicator of what foreigners are thinking about India right now. I think they have become muted and the decline is because the aggression with which they bought in March and early April, has tapered down.

Even the China-US situation has completely changed in the last one week or so as was absolutely not envisaged earlier. Is this a surprise for the market? They are at daggers drawn because they almost kissed and made up a couple of weeks back?

They seem to have a love-and-hate kind of a situation where every time they find a new reason for postponing a deal by another one month-two months. But the US has gone ahead and raised the tariff by 25%. If by chance it becomes permanent, then it will have a huge repercussion on global trade and global competitiveness of China. A lot of things which China exports right now, the scale and the price at which they can sell is not possible by anybody else but with 25% duty, a lot of other countries particularly India will be very fast to sieze the opportunity. But it has to become permanent. If it is only for a month or two, you cannot take a business decision based on that.

There are sections where the market is already talking about how India may actually turn out to be a gainer because a lot of manufacturing capacity from China can shift to India?

It is too early to say that. I would not count on that too much. That is one aspect. Second, is the how the FIIs react. In March, they came out with Rs 32,000 crore of buying which is unprecedented and that took the market to different levels. The cooling off of the domestic investors from October-November have continued. The March flow is the lowest. Domestics are still very cautious and foreigners are also now sitting on the fence. They are not selling. It all depends on May 23 outcome.

Half the Nifty earnings is almost getting over. What are your reading in the numbers so far? Auto companies are talking about a slowdown which is visible clearly. But even an Asian Paints with 12% volume growth, Kajaria at 11-12% volume growth and HUL with a sombre commentary giving 7% volume growth are there. What is the reality in your view?

It is very confusing right now as to how much is the actual slowdown and how much is impacted because of the slowdown in entire credit flow. There is a disruption in the smooth credit flow in the system. There is an aversion to lend and lot of winding down of the NBFCs are happening because they want to become safe. This is a very confusing environment.

If NDA gets anything upwards of 220-230, how do you think the market will react? If the tally is closer to 190-200, how would the markets react?

It is a huge event risk. A lot of local clients I speak to, have taken money out or they are sitting on the fence. It is not about the number. It is about the stability. Even with 225 or even 220, if you are able to provide a stable transition without much noise or breakdown, it is okay. Nobody wants to come with a ruling party who has to make it up from 220 to 272 and midnight oil is being burnt to figure it out. If that kind of situation does not come, where there is a comfortable transition from one regime to the next, the market will be fine and welcome it.

If there is a question mark on that, then probably we should be....

Yes, the market does not like uncertainty. See right now, there is uncertainty. We might say anything about 245, but market wants certainty and the event to be out. That event is not out and so event will be out only on 23rd. If the market corrects further from here, that will be very good. Market expectation will be much more muted.

How do you rate the five years gone by of this government and where do you see the next focus area?

One of the things which is coming out very clearly is job creation. There was a lot of correction of old practices in terms of how real estate industry was taken care of, how the indirect taxes were unorganised. There was demonetisation. A lot of these big changes have been made. Whenever you make big changes, it has its own cost. You cannot do big surgery without pain. So the pain we have gone through, hopefully the next phase will be for growth.

Let us see how much cost they have to bear?

Yes everybody is pro-poor but the pro-poorness has to come from the taxes and taxes can be collected only when the economy grows. I think the growth in the economy and will bring all kinds of things like good job creation, feel-good factor, corporate profits and hence the stock markets. A lot of good things will happen. The focus is on growth rather than beating the significant players in the economy.
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