Capital markets will be the theme for the next 10 years: Raamdeo Agrawal of Motilal Oswal

I have been in this market for 40 years and have never seen a change like what we are going through. During COVID-19, the physical KYC was given a pass, and digital onboarding started. Suddenly, every month, we started getting 10 times more customers — from around 0.4 million to four million. At that time, the total number of demat accounts was about 40 million. In three years, we have now reached 140 million. There is a massive network effect. Now markets have gone to Tier-3, Tier-4 (towns), and, in some cases, probably villages as well. My sense is that in the next five to seven years, this 140 million could grow to 300 million — around 30 million per year — and the existing investors are giving more money because they are doing well. Finally, the shift from pure banking to capital markets will happen. Instead of putting your money into bank deposits, you'll start putting some of it in the capital markets.

This is going to become very vigorous as the participation depth increases and people test the power of equity in India. Till about 2020, there was an acute shortage of equity for entrepreneurs. And if your equity was not there, it was a challenge for the debt as well. That's why there was a hollow between 2010 and 2020. Now you have excess liquidity because people are bringing in their hard-earned savings.

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FIIs have lost 3 percent of the market share, and my sense is they'll keep losing market share. I don't think they'll buy because they have other markets that are much cheaper. But domestic money will stay here and take care of the market, and it will horizontally expand. So it's a very interesting time.

My only fear is that the market should not become parabolic the way it did in 1992 — the first bull run. Those lessons, and the challenges and problems of the first bull market are still not over. The sector for the next 10 years is the capital market. Then you have the rest of the financial sector, which will also do very well. Like your insurance products will do well, health insurance, in particular, will do well.

Are there any other sectors/themes?

Then you have the capex boom — general capex as well as very specialised ones, railways, defense, infrastructure, and so on. All those capex companies will do well.

Then there is a massive wealth effect because the stock markets have done well. So all the people who are holders of shares, they have seen appreciation beyond their imagination. They will open their purses, go buy houses and cars, and travel. So, all this trickle-down will happen. The government's tax collection will also do well, even beyond what the government is estimating. That will allow the government to raise social sector spending as well as the capex for infrastructure.

Does the power space excite you?

Yes. Recently, the government said they wanted to ensure 24x7 power for India. So, I think the power generation capacity has to be built up. We are also talking about building some more thermal power plants and renewables. In any case, they are roaring and have a huge cascading effect on all sorts of utility companies as well as the capex companies. In 2008, what happened was that power and cement had private sector capex. And this time, it was completely missing so far. Now, the demand-led power shortage is leading to yet another start of setting up power plants. This will be a multi-year trend, as it's a global shortage, not only in India. And power is one thing you cannot import. And as your economy is surging at 7 percent, I would think power demand will grow at 8 to 10 percent.

So you are saying that we are probably in the third year of the bull run. How do you reorient your portfolio at this stage?

The first thing is that I'm fully allocated. So I'm sticking to that. The only fear is that it (the market) moves parabolically, that is, go up eight times or 10 times and then drops by 50 percent. It is inevitable and has happened three times. There is no reason why it will not happen a fourth time. It is the nature of the market.

Is there any one thing that you can call out that really worries you?

The volume of options and the kind of complexity of it. The rest all is fine, in the sense that we are doing very well. It should just not become parabolic. Otherwise, we are fine. I mean, there will be corrections. There'll be one or two years of no return. That'll be good; that'll be healthy. But I don't think I see a disaster in this.

What are you expecting in this budget?

It's an interim budget. They'll wait for two more months. I think I would look for the expected GDP numbers for the next year. These numbers will all translate into the budget.

What are the three things in the market that could surprise?

One big event is elections, post elections how the FIIs behave. Will they actually come back because they are feeling left out? And if they come back with $40 -$50 billion because they've burned enough money in China, my sense is that can have a very huge impact on the performance of large-caps, which has been somewhat muted in the past. If they come back with a vengeance, I think you'll see a lot of action. It can change the character of the market; it can shift from mid- and small-caps to large-caps because ultimately they'll go where money is being made.

Other events could be the performance of corporate profits, oil prices coming down sharply, or interest rates being cut very sharply.

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What could disappoint?

I'm always worried about corporate earnings because if corporate earnings are intact, whatever happens in the market is (transitory)... it will come back.

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