See '09 as terrific year for investing: Raamdeo Agrawal

Q: There is a one view that after a terrible 2008 we may have another six odd months where the market was listless and then in the second half of 2009 you could see a recovery. Do you belong to that school of thought?

A: Predicting this kind of very precise movements in the market is difficult and I have seen that whenever this kind of consensus gets developed six months or first half of 2009 is going to be down kind of a period. Generally things happen differently so I am not focusing on that. I am looking at 2009 as a year of terrific investing if somebody has money.   

Q: But you think it would be the last year of this bear market or could people be made to wait for a long time for the money which they are putting in 2009?

A: Definitely it's not going to be - you buy today and in next six months or one year you are going to be handsomely rewarded. But you do not know when that one-two year will start because 12 months from the day of start could be very exciting. Since we have seen a dramatic fall in every asset class in 2008 and now oil and interest rates and everything is hitting the new lows everyday.

At some point of time in 2009 or maybe in 2010, we do not know the dates, if you are getting the assets cheap, the companies which always aspire to have in a portfolio and for the first time if they are coming within your range; I think one should just buy and kind of hold and whenever the follow-up starts maybe second half of 2009 or 2010, I think we should be there for good days.

But patience will be the key issue; you have to literally supply unlimited patience not six months-one-two years but patience till things work out and it will work out in next 12-18 months or so.    

Q: What about choosing the right time and price for investing? How do you calibrate that in 2009, the right price is to pick up stocks and the right time is to go out and be brave because a lot of people have bought at various points in 2008 where prices seemed good but they have only regretted it after buying?

A: I think right price is the only thing you can time - once you get the right price, there is no guarantee in the market that you buy something at price to book one or price to book even half, there is no guarantee that it will not go below that but that doesn't mean that you have overpaid for those stocks.

I think one of the most important thing is that whether you understand what you are buying because that allows you to understand the underlying value of the company and once you think that something which is worth 1,000 crore, you have been able to pick it up for 200-300 crore I think the price going even below that 200-300 crore to maybe 150 crore and all, you cannot stop that, nobody can control it. But having bought a dollar for 30 cents I think you have done a good job. Now your only job is to supply patience, that is the investing process, I know and it does work.

Q: What's your own sense of when earnings start troughing out in 2009? Do you think it is this quarter, the January quarter and the next quarter and after that you have seen the worst of earnings or that risk remains that you get four-five six quarters of bad earnings even from here?

A: Definitely four quarters. Year on year till the base changes; next four quarters have to be looking in relation to the YoY it will look bad because today CMIE (Centre for Monitoring Indian Economy) prediction have come that it is going to be 46% down YoY and our own estimates are coming to be ex-banks it will be more like 20% kind of drop. I think we are still compiling the numbers. But the issue is that its going to be a drop and in March also it will be a drop and then you are left with June and September.

Given the kind of days you have base effect of 2008, including December next four quarters are guaranteed that it will be lower than that of last year. The issue is how much worse and is it going to be sector specific and will the market be divided in two parts - one is global commodities and cyclical which will be down big time maybe anywhere between 50% to 80-90% and there will be other segment which will be beneficiary of that and the financials and services which will be significantly up in some quarters. So I think you will have two sides of earnings starting from December quarter. 

Q: What is the risk that things other than earnings influence the outcome of when the markets bottom out, whether it is politics or geopolitics, do you see these external risks playing an important role or this is just noise which will not affect the market beyond a point?

A: In very long-term, it may not impact but if one is talking about next quarter or next half year which is the attention of masses, clearly it will be impacted. If you have a polarized kind of an election outcome, clearly it will be positive.

I don't think this war news is going to help at least in attracting foreign investment into the country and even big investment decisions by the local entrepreneurs would also be impacted. So, clearly short-term implications of these things cannot be ruled out. In any case you are not riding a kind of overconfidence view; you are already into a psychologically more depressed kind of a situation. So any kind of negative news doesn't help at this juncture.

Q: Would you stick your neck out then and buy some of the cyclicals which have collapsed in 2008 playing for an eventual recovery in another year's time specifically something like autos which you track but four-wheelers not two-wheelers like Hero Honda which are doing well but things like Tata Motors and Maruti , would you have the confidence to buy today?

A: I would put my first bet on Maruti because that is not a business decision for anybody. In commercial vehicles, Tata Motors is another issue. They have a handicap of JLR problem but even for Ashok Leyland and Mahindra & Mahindra (M&M), I think the issue - a lot of purchasing is based on the industrial growth in movement of goods for exports and imports and iron and steel movements, raw material movements and those kind of stuff but as far as the Maruti car sales are concerned that is the function of what is the funding cost of the car and what is the price of the car itself and I think on both the fronts, we are going to see significant improvement in terms of excise cut, in terms of raw material cost coming down and hence being passed on through discounts and lower prices, newer models and hopefully the banks should be willing to lend against the autos and my sense is that in six-eight months time, slowing down of the economy will force banks to look at auto lending very seriously.

Q: What about Satyam . How have you read the situation and are you willing to take a contrarian call on that and pick it up at this price hoping that eventually there will be some kind of a corporate move which sorts this problem out?

A: Apart from Satyam, I think it has become in general a very big issue in Indian corporate governance kind of situation because one of the fallout I see is the corporate structure is not been respected and very large managements are also treating it as a proprietary kind of situation and they are not disposing off the earned income in a proper way. The kind of pay out that they should have they should learn from what's happening in other parts of the world. We have the lowest pay out in this country and so much of corporate treasuries have been managed and even the laws are in favour of management of corporate treasuries where the treasury income is post tax more or less and the cost of fund within the corporate are pre-tax.

So I think the corporate governance issue of course it has come out in a worst possible shape here but I think its going to be a matter of discussion in most of the companies. In fact investors are asking to write in reports; two-three corporate governance issues in every company. So in 2009 and from here onwards if the companies do not behave in a responsible way most likely we are going to seem massive derating of the companies. In the sector, you will find the companies which are well governed, which are transparent, which care for the minority shareholders at a much high PE multiple than the companies which do not care and in the boom times the companies which got much better ratings than what they deserve.  

Q: Since we are talking about contrarion calls and picking out stocks at deep value, do you think the point has come in real estate as well where you can look at value, would you buy a Unitech at Rs 30 or you don't have the conviction to do that?

A: I think the time has come because this sector is a very large sector and very interest rate sensitive. I think somehow the market forces have not come to bring down the real estate prices to a level where it has become a very popular thing to be bought in the sense that people who can afford 20 lakh worth of house are looking at the house which they would like to buy which is right now quoting at 30-35 lakh.

I think there are a lot of developmental profits for which people are not finding justifications. So I think at some point of time secondary market since real estate is not traded like stocks I think it will take its own time but I am sure that over a period of time reasonable valuation for real estate will come and this industry will flourish. Since this is the first beginning most likely the well-managed companies will come up and become much bigger. Some of the well-managed real estate companies at these kind of prices must be picked up; the issue is that which are those few well-managed and clean book companies available at those 80-90% corrected prices.