As panic-stricken investors look for clues in the market swings amid a sliding rupee, higher crude prices and governance issues in corporate groups, Raamdeo Agrawal, Chairman, Motilal Oswal Asset Management Company (MOAMC), says the current correction provides a rare decadal opportunity for investors to buy into private banking and NBFCs. However, he has words of caution too. Edited excerpts from an interview with BusinessLine :

The current market slide has created panic among the investors. Does this correction worry you?

From the market point of view, it is not. Because this correction was overdue. There has been sustained domestic flow in the last four years, and the markets were refusing to go down. So, different kind of companies went up, and quite unreasonably in some cases. The domestic flow has not stopped but has significantly slowed down; so, the stocks that were supported by this flow saw correction. With the correction, they have found their natural levels at the current underlying value. In my view, this is a very healthy correction.

How do you look at the recent sell-off in banking and NBFC stocks? Is there a housing finance crisis brewing?

This is a different problem than what we had seen in the Lehman Brothers’ incident in the US. They had given loans to the wrong customers, while in India, the problem is not from the customer side, the problem is with the management of the balance sheet of the lenders themselves. The worrying part is the regulatory oversight, be it the RBI or SEBI. Also, of concern is the role rating agencies. The shock came due to the higher rating — AAA given to companies earlier and then reduced to junk. The mistake is not the ‘junk’ rating, but the AAA rating. The market has relied upon the regulatory and rating systems. This came as a shock and it has jolted the market. However, it is recovering from there now.

How long do you think this correction will continue?

The markets may not fall further. But it is not good either if it stays here. Where will the buying come from?

The domestic flow is gone and foreign investors are still selling. And the news flow is not so good either. Keeping all these factors in mind, the market may remain subdued till oil prices stabilise at one point.

Do you see an opportunity for investors in this market?

We have already seen pessimism. But in reality, things are not as bad as they appear, particularly if IL&FS is taken care of. In this fast-growing NBFC culture, we need more discipline. If that is taken care of, there is unprecedented opportunity for investors.

The entire growth burden is currently on private sector banks and NBFCs, because it will take a while to repair the PSU banks, which form the majority of the Indian economy. Hence, we see an unprecedented decadal opportunity for investors. The growth momentum has shifted to one-third of the economy, which is the private sector (banks). There are good private sector (companies) and bad private sector (companies). We have companies with PE of 5, and companies with PE of 50. The good will become very good, while the bad will not even be touched.

Are there sectoral opportunities for investors?

Oil is clouding all guesses. But the promising sectors appear to be auto, private banks, NBFCs, consumer companies, and white goods companies. However, current valuations are high, and factors influencing these sectors are oil, inflation and RBI interest rates. At these high valuations, I can’t risk making a guess. Hence, I would be cautious till oil prices stabilise.

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