Bull market not behind but ahead, PSUs to lead: Ramesh Damani

A major bull market is ahead for Indian equities and steps by the government to reform or privatise some struggling public sector companies likely in the Budget will help PSU stocks lead the market higher, says veteran investor Ramesh Damani.In an interview with CNBC-TV18, Damani also talked about demonetisation, saying that one should wait for a few months to watch its impact play out on various sectors.Due to a fall in consumption, he said FMCG stocks are going to suffer for the next 1-2 quarters.In the same interview, Motilal Oswal Joint MD Raamdeo Agarwal said the market will offer many multi-fold opportunities over the medium term but warned that in the near term, earnings are likely to be subdued on the back of demonetisation."Next two-three quarters will see pain of demonetisation," he said.Below is the verbatim transcript of Ramesh Damani and Raamdeo Agrawal's interview to Latha Venkatesh, Sonia Shenoy, Anuj Singhal and Udayan Mukherjee on CNBC-TV18. Anuj: What stands out in the last 17 years, any one moment? Damani: Basically if you have been bullish on India over the last 17 years, you have done enormously well for yourself. I have been in this market a bit more than that maybe 30 years now, when I came, the index was 600. It is closer to 30,000 and we have seen lots of events take place, lots of monetary events happening, India pledging gold, Kargil happening, tech boom happening. So you have to take it in your stride and as some wise man once told me -- this too shall pass. So any fear we have of demonetisation, rising interest rates, let us take it with a pinch of salt, India grows even at night. It is a great growth economy, it is a great consumption economy and it will master all the hiccups that the markets are so worried about right now which are demonetisation, rise of interest rates. I think the big bet in India for the last 30 years has been stay bullish on India. Anuj: The phase that I remember most from the last bull market of yours was that this is the market in which investors have made money like bandits. Do you see that kind of phase coming back especially for those investors who are pretty young and may have started investments in 2008 or 2009? Damani: In every bull market you make money like bandits. The question is how do you retain it once the bull market gets over. So I have no doubt that this bull market will be bigger and make more money opportunities than the previous bull market and this is just barely underway so this has got a way to go. If you want some reassurance on that, I talk to some of the more famous investors in India who don’t like to come on television and they told me in their career, the best money making opportunities are ahead of us, not behind of us. It is hard to be pessimistic when you look back with a perspective of time and see how many great businesses are sprung up, how great the trajectory of the Sensex has been, you have to take some of these downfalls in your stride. Sonia: With all the investors and experts that you have spoken to, how fearful are people about demonetisation? Off camera, a lot of people seem to be a bit more cautious than on camera but what is your feedback then? Damani: There is a whiff of panic in north block. There is no question about it when you come back and talk to people who are in Delhi, I don’t go to Delhi too often but when I come back, there is a whiff of panic going on, large parts of the economy are strangulating but this is my take on it. I believe in two parts -- first is that ever since you start your channel or since I start m career, we have been bemoaning black money in India. Now someone is doing something about it. So you have to give him a chance to let him succeed. I don’t think I would put it down as the economy strangulated for two months, so it is a failure. I think it is a bit too harsh. Then look at the narrative that the Prime Minister himself has employed when he came on November 8 and made his famous speech, he was referring about black money, he was referring about terrorism, he was referring about fake currency notes , all those sort of things. In his latest speech, he was talking about cashless digital economy. So here is my proposition to you, rather than -- there is an old saying, if God gives you lemon, make lemonades, so rather than worry about what is going wrong, let us see what is going right. How do we profit from the movement towards the cashless digital economy, which companies are transiting the fastest and which companies are going to be impacted because that will tell us where the opportunities lie in the next year ahead. In my belief, there are two more things coming just to pre-empt you on the Budget, the first thing is that the government is -- from what I understand from north block making some major moves in privatisation, they put down a committee of the PSUs and they go into move very dramatically ahead of that. That will need the large amount of money again for the exchequer, I believe so. Secondly, there will be limits on cash withdrawals in banks in my opinion. So we find that in the Budget that you cannot keep more than Rs 5 lakh or Rs 10 lakh cash balance, which will completely change the equation of black money and white money in India. In the long run, I think he deserves the chance, we need to give him a chance, yes, there is some pain in the economy right now but in the long run this will be hugely beneficial for country. Udayan: Since you are an observer of the market for so many decades, the last 30 years have also been the heydays of capitalism and while this will not happen next month or next quarter or next year, does one get a sense that we are probably in the twilight zone of this fantastic thing for capital market which we call for capitalism and is that the signal which is popping up in almost all the major economies in the world that people are rooting for something which is different and this is not for today\\'s trade or even for next quarter\\'s trade but is the turf changing for capital markets and what we have got used to a very supportive Central Bank, a very supportive government to the whole capital market structure, could it be something different in the next 4-5 years which might have very deep implications for returns from capital markets that we have got used to over the last 30 years. I don’t claim to know the answer to that but I think it should be somewhere at the back of the mind for everybody who is observing what is going on in the world today? Damani: It is a question that analysts should grapple their heads around. Is the Anglo-Saxon western world centric order coming to an end because you have so many populist inward looking governments? So the world we built since 1950, is it coming to an end? I wish I had better answers for it, I don’t know. I am going to assume that people will realise the folly of protectionism, folly of trade worlds and you are pretty soon reverse course because we will all be poorer as a result of that. In the short run of course protectionism will be very harmful to all emerging markets because they base their economies on exports to the west. So if that scenario does play out, it would cause us a moment to rethink. Good part about India is that, we are a domestic focused economy mainly, we are going to do services and goods to each other and there is lots and lots of room for growth which has built up the standard of living. Second point was about this black money. How to curb black money is two ways. First, there will be fear, there is palpable fear with people doing this same thing. That will lead to behavioural change, so people will be used to taking cash, stashing it out. The second way you can curb this is by saying that nobody in India can own more than Rs 5 lakh in cash. So which means nobody can transport the money, there is no way to -- if you have to pay everything through credit card or debit card, it will reduce incidents of cash in the economy almost dramatically. So that itself will act as a sponge against black money. I think those kind of measures are coming. Latha: Basically withdrawal limits is what you are talking about? Damani: Yes, withdrawal limit is Rs 5 lakh, Rs 10 lakh some sort of limit for gold also. They are going to push this economy, I have been a student of Indian economic history also -- in the 1980s Rajiv Gandhi talked about moving us into the information age and here is someone who is finally trying to push us into this age, you have to give it a chance. Was it planned badly? Probably yes. But you have to do it in secrecies. So what can you do? Have people taken advantage of that? Yes, absolutely they have taken advantage of that but it has created a middle class which has got a lot of disposable income thanks to this measure and I think beginning January, these guys are going to be spending that money. What I understand it will show up from two-wheeler sales, consumer durable sales, beginning January. So if those number show an uptick, we know that the economy is back moving because of this huge stimulus that has been given to a class that is going to spend that bonanza that they have got.Anuj: The issue with that is that most of these themes are not listed, we are talking about listed market right now. Of course there are couple of opportunities, you spoke about them on the Muhurat day also, maybe some of the IT companies which are into e-governance or maybe cyber security that could be the way to play. For listed market if we have to move up from here, what could take leadership because the last leaders were banks and consumption and both of them have seen slowdown offlate? Damani: We will have to wait for the judgement over there. I am not sure clearly fast moving consumer goods (FMCG) will not lead the next leg of its bull market because the sales would be bad for one quarter maybe even two quarters, pharma has a bit of a trouble, IT has a bit of a trouble. So what the market is indicating to you -- whether that happens or not, I cannot say -- is that public sector stocks will resume leadership in this market. For example, yesterday five stocks made 52-week highs, four were PSUs and that is a pattern I have seen since demonetisation. So either the market is preparing for privatisation or some big bang reform in PSUs. So if you ask me to stick my neck out and say which sector will lead this market higher, I will say the public sector stocks. The entire basket -- you have to pick and choose which ones. If you look at the new high list, it is consistently showing new highs by public sector owned companies which is very unusual for the stage of this bull market. All the power companies, Engineers India Ltd (EIL), Bharat Electronics Ltd (BEL), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) before they corrected. State Bank of India (SBI) is close to its 52 week high, so there is some sort of leadership component in the PSU sectors, I am not recommending them but that is what their market data is suggesting. Sonia: The kind of wealth that one has perhaps created in the last 17 years, do you see the same kind of opportunities in the next 17 years? Agrawal: Opportunities will definitely be multi-fold. The issue is that would you be able to see -- even in last 17 years opportunities had been massive, ITC or Infosys, the issue is could we see that? We could see that and could we bet enough? Whenever we could see the real thing is could we bet enough? So we had a very long discussion with Ramesh Damani on that but it was a massive 17 years, I only hope that in next 17 years opportunities will definitely come, it must pass through our retina and we should be able to bet enough with the experience which we have and with the wealth we have. Latha: What is the next 17 months looking like? Agrawal: You saw today's paper? Every single analysis is wrong by huge margin and I am quite sure 17 months therefore again all of us will be wrong. It doesn’t mean that we should not talk about it. Latha: Analysis of what, in terms of earnings, in terms of gross domestic product (GDP) growth? Agrawal: I think earnings are looking more subdued right now. What the governor does or do they have extraordinary monetary policy, I don’t know. But earnings are looking to be definitely slow because of the demonetisation effect will have its own bearing on the slowdown for maybe one-two quarters. So if you look at next four quarters, it will have two quarters as -- if it is going to last for three quarters, I don’t know. I hope after that it sets the stage for much stronger growth. Anuj: One of our favourite themes two-wheelers, we have seen that play out in stock prices, do you ignore the next couple of quarters, not look at near-term earnings and take a call for longer-term or do you think these stocks are in for some more pain? Agrawal: We have buy and hold, so we are not selling because this has happened. If we have money and we find the levels attractive, we will definitely buy. We have bought when the market was somewhat lower than this, we did buy some of these names which are there in our portfolio. So that opportunity keeps going on. You don’t buy or sell because of demonetisations happen and these are two quarter earnings blip and something like that. It is good for CNBC but not good for portfolio investment.Latha: What are your thoughts on the ability to stay with your investors?Agrawal: That is very important. One of the things is that as Buffet said, time is friend of good companies and time is equally enemy of the bad companies.Latha: So we should also know when to sell and take?Agrawal: You have to buy right, you have to buy outstanding companies for you to stay on. Rakesh to make a billion dollar money out of Titan -- he chose a good company, a good business run by good management. That is a good starting point. Of course he bought it at throwaway prices and then he stayed on for 15-20 years. So compounding will work over a period of time but the compounding machine has to be positive. By chance it is negative then what? So first is to buy well, buy good companies at good price and then sit on.Anuj: At what point did you say that I got into a wrong stock and let me get out because there could be equal case of you buying a stock, it falling 20 percent but after that seeing a multi-year bull market? At what point do you realise  that I got my investment wrong?Agrawal: It is not about multiyear bull market, it is about multiyear bull position for the stock -- in 1993 Infosys got listed and now in 24-25 years, they have gone up 10,000 times where is the bull market and bear market.Latha: Think of Hindustan Unilever Ltd (HUL), it peaked off at some point and if you held it probably on the divestment day 1975 or 1973, we also saw it go to Rs 100 in 2008. So there was a point when you should have taken profit, how do you identify the sell moment?Agrawal: When you were talking about 10-years holding, you are talking about 3,065 days, no summer holidays. You cannot be in and out because you cannot time.Latha: I am just saying when do you book profit in a very good multi bagger?Agrawal: In 2000 and in 1999, I could see that what is happening in Wipro and Infosys -- way out of proportion. I did sell right at the top. What happened later on is a long story but I did sell at the top.Latha: You wanted to add to that?Damani: My argument is simple that great businesses should be held for long periods of time. Typically though experience teaches us that whenever you think the bull market is ending -- you go back and study any bull market that has ended the 1992, 2003 whichever 2000 tech boom then when the bull market ends good stocks will be down 50 percent bad stocks will be down 90 percent. So, if you think the bull market is ending pay more attention to that.Take out some cash at that time of the bull market or when you buy a stock -- it has not worked out as you mentioned if your intellectual hypothesis is not being met; I have a intellectual hypothesis right now that India is going to move from cash to a cashless economy and I want to play that now for some reason those things are hold back. I truly believe that the economy transforms over the next two to three years and I want to play the players that will benefit from that. So, until that hypothesis is invalidated, I will keep betting on those stocks or being patient with those stocks. When I see the bull market ending and there is lots of evidence and I disagree strong with Udayan Mukherjee when he said the next bull market will be led by Infosys stocks. Sorry, the bull market is ongoing. It started three years ago. In has got a long way to go yet. So when it is ending then we will take some cash because we know from history, they are all stocks which will fall between, the index will fall 30 percent. So you might as well book profits.For full discussion, watch accompanying videos...