Bull market intact; banks may see more mergers: Raamdeo Agrawal

According to him the year 2018-19 is going to be very important for this government in terms of reforms, government expenditure, etc, taking shape.Below is the verbatim transcript of Raamdeo Agrawal's interview with Latha Venkatesh, Sonia Shenoy & Anuj Singhal on CNBC-TV18. Anuj: What is wrong if Rajan is leaving, the market is in the green? A: Stock market is the biggest machine in the world, most complex, biggest. We can have emotional outburst for somebody who is prominent, global but market is much bigger and these are times when you must remember why we are bullish and why we are in the market; not because of one person or one political party. It's because of the economy, the character of the economics, the demographics and the opportunity. This is the only market which is up 100 times in the last 30 years. Who was the Governor, who was the Prime Minister, what part was there, what coalition was there? The destiny of the nation is set, so I would not be bearish or bullish per se on the market. Individually about the event is one thing. Latha: But RBI worries about how the currency may pan out. We have had a remarkably stable currency over the past 30 months or so. We began with a fragile five; the four have gone through hell but probably the Indonesian rupiah little less but India's currency was the most stable in that fragile five. Would there be worries about that we will have to tide over global events now without that kind of an even hand at the helm? A: The intelligence of that person cannot be doubted and definitely he had a stamp on what you are saying about the stability of the currency, inflation fighting, opening of the entire banking sector in history; the kind of opening up he has done is stunning. So you cannot take away the achievements but we have to move on, in the sense that who is going to be the next guy, how competent is the next person and we don't know what is in store. It is realm of importance but not knowable. So let's not be too much worried about it. However, what you are saying is right that global currency management has become a nightmare job particularly if you are in emerging markets. So the flows are important, what the foreigners are thinking. In the last eight-ten years particularly 10-15 years, importance of foreigners, investors as well as investors in bonds as NRI or FII, has increased significantly and we are looking at them for the support in terms of massive trillions of dollars of capital expenditure which is planned in the future and fundamentally we are a current account deficit economy, so there is an importance of stable currency but it also doesn''t mean that nobody can manage it. There will be talents and I hope we get a better guy. I know one thing that if you are in a stock market you have to be optimist. Yes, lot of things can go wrong and lot of things can be better. Sonia: Until we get to know more about the next Governor, we have many other positive things working for us whether it is a pickup in earnings and now the monsoons have begun as well. A: Monsoon is a huge thing and it is expected that monsoon is going to be superb in the sense that it is going to be historically one of the biggest monsoon, extra precipitation. So at least I am looking for that development because that will have a much more sobering effect on inflation also which has become one of the contentious point. So, if inflation goes down, it will open up the room for more monetary action. However, any government would like to have fiscal as well as monetary policy to be in full control.Sonia: Do you think that this bull market theory is intact. We have moved from 6900 to 8200 since February. Do you think the uptrend is intact now? A: It is difficult to predict but if you say that bull market is intact, it is intact. I do not think this event will dent event a small thing into the bull market because the institutions are way bigger than an individual maybe there could be some small deviation whether you like it or not but the basic character of the economy, the strength of the economy, the corporate earnings - those are absolutely solid. Latha: It is not the equity markets which will worry especially the swathe of good run companies that you have in your midcap 30 or midcap 35 - those charts their own orbits and they move on but would you worry about bond investors. The big money came from there and therefore if the new man or woman is not perceived as pursuing the same inflation control zest and if the currency will not be as stable. Bond investors are playing for a small gain but if they move in droves, USD 40 billion came in one year only from bond investors. Is that a spot of bother? A: I am not a bond expert. I have never bought a single rupee bond in my life. However, we see everything moving; gold prices moving, metal prices are moving, bond prices are moving, currency is moving. You have to take into account all these variables. One of the fundamental thought I have is that rupee will remain weaker even if Governor Rajan is there and continues; fundamentally the direction of rupee is weak.Anuj: What do you think is going to lead the market higher? Is it going to be value stocks which are now trading at much lower valuations or is it still going to be those expensive stocks where growth is visible? A: Market move on two things. One, earnings, whichever sector gets higher earnings, those stocks and those sectors move up and second, an opinion about that. The real move is the PE multiple change, so earnings may remain at 1,400-1,500 but the PE multiple can shoot-up from 18-25-35 when you get the feel that there is a perfect monsoon, perfect monetary policy, perfect fiscal policy, we are on the growth bench. So, after six-eight months if the earnings are going to shoot-up ahead of that the opinion itself -- earnings will come whenever -- but the opinion about the earnings growth can take the market to different levels. So yes, eventually it will be confirmed by the earnings growth but initially the outlook on the earnings itself will drive the market. Latha: What have you made of all the recent events to clean up the banks? Now they have been given the right to write-down debt, so hopefully there will be more mergers and acquisitions (M&As) or at least existing companies will be able to sustain the debt they have. How will you play this whole game? Is there any part that attracts you? A: Those parts are very specific micro issues. The State Bank of India (SBI) merger; it was lingering on for so many years. So that tells me that many more are ahead. My sense is that we could see some more action on that side. Sonia: How do you approach the stocks specific action now because if you cut through sectors, all the companies that delivered good earnings have rewarded well whether it's Yes Bank, Tata Motors, Larsen and Toubro, cement? Do you continue to back these earnings related stories or do you look at some new themes now? A: New themes are also about possibility of earnings coming through. One of the statements we saw was that Mr Gadkari said we are doing about 30 km of road making which was 10 km; in next three years. However, 2018-19 is very important for this government. They are saying that in 2018-19 we want to do 100 km per day. I said forget about 100 km, even if you end up doing 50-60 km per day, you will not get cement anywhere. These are huge statements. So we have to read into that and we have to figure out what they are saying is actually planned because nothing happens overnight. If you want to do 100 km, you have to buy the land, you have to give the contract and those kinds of dollars must also be visible, so those are the opportunities.