Growth in corporate revenues will be muted for the next year as well, feels Raamdeo Agrawal, Joint Managing Director, Motilal Oswal Financial Services Ltd. But the time is right to invest in equities for those with a long-term horizon, he adds, in an interview with BusinessLine.

Corporate earnings have disappointed in the second quarter. When do you see them picking up?

I’m not thoroughly disappointed with any results, actually. The deflationary trend is now visible in corporate results; you will see deflation showing in the topline. Earlier’, if you had six per cent growth in the topline with seven per cent inflation, it showed as 13 per cent growth in the topline. Now, it’s a six plus two, six plus three as inflation comes done.

I think in the next four quarters, there will be deflation in the topline unless you see volumes increasing dramatically, which is unlikely. While the profit margin will be intact, growth will be very muted. Growth is likely to be in the low double digits or the high single digits. In such a situation, you will see stocks suffering further.

 

Are there any safe havens?

In companies, you have a franchise value and a growth value. Take HUL, for example. Here the franchise is safe, no one can touch the franchise, and you’re paying 40-50 PE for that franchise. That will continue, but you won’t make money from this if it doesn’t grow. If I want to make 12-15 per cent per annum on my investment, we need growth. Returns are going to be company-specific. On the total investment universe, 35-40 per cent of companies will perform very badly, and 15-20 per cent will be very good. And the rest will be flattish. We need to find that 15-20 per cent.

 

When do you see the markets rallying?

I think the index will suffer for a few more quarters. Once you reach the bottom of the commodity cycle – and we’re almost there – hopefully by 2016-17, companies will start performing well again over a very low base. So the rally will start next year.

 

I think the downside is limited. Once the Nifty breaks through the 8,000-9,000 levels, it can reach 16,000 about three or four years from then. But this depends on a lot of things, lower interest rates being most important.

 

Which sectors do you expect will do well in these times?

We’re still focussed on private banks, consumer, IT, pharmaceuticals, automotives, auto ancillaries. Infrastructure is a good sector but the Government has made it unviable for private money. India’s infrastructure needs runs into trillions. If the Government wants private capital, it needs to make it attractive. The fault also lies with private bidders, who undercut each other the first time. But the Government has also failed in delivery of land parcels for example. In the end, nobody made money. Look at the telecom sector – India built one of the largest networks from a zero base in just 10 years. Why can’t we do the same with roads, ports? Our own domestic savings are so good, but it’s going into gold and real estate instead. 

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