Raamdeo Agrawal lauds Q4 nos, sees drastic rate cuts ahead

In an interview to CNBC-TV18, Raamdeo Agrawal, director and co founder of Motilal Oswal Financial Services says, it was very much expected and he is not surprised. “It’s all there in the price,” he adds.

Surprisingly, he says, Q4 profits are up 25-28%. "Even ex- refining companies, the profits are up by 18-19%. So far, till March, corporate profits are very well intact," he adds. 

He sees a dramatic decline in the rates in the next 18 months. "We are at the peak of rate cycle. One is hoping that the rates will come down," he adds.

According to him, it will take about 12-18 months for the economy to see real bottom.

Also read: Weak GDP number not a shocker, says Sanju Verma

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: Where does the market go from here?

A: We knew that things were slowing down. It’s just that some kind of number comes, 5-6%, you revise it after one-year by 1-2%. So, I think the real thing is that economy is slowing down. One knows that it is slowing down and it’s all there in the price. So, I don’t think it’s that big a revolution that it is slowing down.

GDP at 5.3% looks little more depressing than if it would have been over 6%. Atleast the politicians would have loved to see 6% plus. But I think worse is clearly ahead. I think it was very much expected. Atleast to me it is not a surprise.

Q: We are at a nine-year low on the GDP with the rupee at an all time low, why is 16,000 such a sacrosanct number? How can you say that 16,000 Sensex, all bad news is in the price, when you are staring at lowest growth in nine years with the currency at an all time low?

A: It reminds of 2002-03. Post dot com burst, we had major problems, and almost 4-5% of kind of growth was there in 2002-03. At that point of time, I clearly remember the corporate profits were at pits, very bad. But this time for a change, the corporate profits are holding out very well. Surprisingly, Q4 profits are up 25-28%. Even ex- refining companies, the profits are up by 18-19%. So far, till March, corporate profits are very well intact. I don’t know how things are going to pan out in the next three-four quarters.

We are at the peak of rate cycle also. Most likely in next 18 months we will see a dramatic decline in the rates. One is hoping that they will take cognizance of it and rates will come down. So, once you have corporate profits at a steady level, rates hopefully coming down, I think that is what sets the market. Rest all is headlines.

Q: A lot of these corporates who spoke to us through earning season actually pointed out that now they are beginning to feel the pinch. They are beginning to see the signs of a slowdown coming. In your experience, how long does this entire timeline or sequence of events take place where first the headline growth collapses, then you start seeing it in corporate earnings? How long does the market go through a period like this?

A: In the last 10 years, there are two cycles of major decline of interest rate and economy slowdown. One was in post dot-com bust in 2002-03 and then the last one was 2008-09, post Lehman crisis. It took 18 months for the country to come from almost double digit interest rate to come down to 5% or sub 5%. And then you see the revival of the economy again. A lot of other things also happen, but visually atleast interest rate cycle tells me that from the top to bottom is about 18-20 months.

Every time the story can be different. It will be different this time also. It could happen in one-year, if the crisis is too deep. Authorities will give in to bigger liquidity, higher interest rate, lower commodity prices world wide only over a period of time. India is much more globalised right now. India is not only important for India, but India is important for global growth also. So, my sense is that it will take about 12-18 months for us to see real bottom of the economy.