Motilal Oswal Financial Services’ bets on new-age companies in 2022 went wrong and the securities firm paid the price, Chairman Raamdeo Agrawal said in an exclusive interview to Moneycontrol.
The valuations of these firms are still not cheap and they continue to make losses, Agrawal said.
His comments dovetail with concerns relating to Mamaearth’s valuations. Digital-led beauty and personal care company Mamaearth was the first unicorn of 2022 and filed for an Initial Public Offering (IPO) before the end of 2022.
In the interview, Agrawal revealed his strategy of being unleveraged in the markets and not being too much concerned about the fundamentals of the markets to manage volatility-induced stress.
On a lighter note, he shared his favourite book and alternative career choice. Agrawal spoke extensively on Tesla and Twitter CEO Elon Musk, who has become the first person to lose $ 200 billion. Edited excerpts:
Talk about asset allocation. Equities, gold or real estate, what will be the better option for 2023?
I prefer equity. So for me, equity is the best. But even in fixed- income now, I think returns have become a little better at 7.5 percent 8 percent…. People who are looking to build an equity portfolio (where returns) have come down below 5 percent, I think that opportunity is there but I would go all the way into equities.
One thing that you probably got wrong in 2022?
2022 – we got wrong on the digital companies. We became a little optimistic on that. We got it completely wrong on new-age companies. I mean we paid a good price for that. So, yes, I mean, you get something wrong at some point of time. But we remain bullish on the market, overall allocation always remain 100 percent. So that helps somewhat.
Talk about the valuation of these new-age companies. Talk about Nykaa, Zomato and probably something like Mamaearth IPO valuation – do you actually think they're a little on the expensive side?
The less said the better because they are already expensive by 50 percent, 60 percent 70 percent. So how much more to go? They're definitely not cheap. I can tell you this even today, I mean from what we know, they're still making losses, they're still not in profit.
So when they're under stress in terms of valuation, I mean anything can be the right price in the sense that right now you're still looking at significantly high PE (price-earnings) multiples or high valuation multiples like price to sales, price to book. Earning toh hai hee nahi, toh kya karogey (there are no earnings, so what do you do?). So earnings not being there and with interest rates rising, I think it becomes tough for these companies to justify valuations.
One inspirational quote that you keep in mind while managing investor wealth?
Don't lose money. I mean, what Buffett keeps saying, don't lose money. Buy at some price. Buy what you understand. Second, buy at a reasonable price, so that even if it is wrong, it doesn't hurt you that deeply. And we will keep making money. But trying to make too much money too quickly, that destroys the portfolio.
Your favorite book?
I think I read last year Howard Marks' book - Mastering The Cycle. That seems to be a good book.
Your view on Twitter CEO Elon Musk? Is he better off managing Tesla?
Smart guy. I mean the headline was about losing $200 billion, but a guy who can make $300-$400 billion, he only can afford to lose $200 billion. So first, we should give credit to him that he did make $300-$400 billion, and of that, half is gone. So yeah, I mean he is quite a guy. He's fearless and he's still young, 50 years of age. So a lot to go. And a lot of it is there in his head about the innovation of the internet and how to explore space and things like that. So interesting guy, very expensive still, I would say, still more correct in Tesla's stock.
Which, according to you, was a bigger corporate governance nightmare – Paytm's buyback or Nykaa's bonus issue for 2022?
No, no, but buyback for a loss-making company, I don't understand. And that will be the IPO money. If you have your own reserve money, it is one thing. But with IPO money to buy back, there was no very good reason for doing that.
One thing that you like the most and which keeps you off stress?
Stress-buster is that I don't bother too much about the market fundamentally, because I'm unleveraged and I go the extra mile to see that I'm not leveraged. So in markets, if you are not leveraged, you can lose only your money. And you do not lose more than say Rs. 5,000 crore, I can lose maybe 20 percent, 30 percent, 40 percent, 50 percent. What more? But what is left is also a lot for me. So that frame of mind should be there, that God has more than well taken care of you. So be stress-free, and then you run as far as you can.
If not for the Chairman of MOSL, what would be your alternative career choice?
Well, I would have been a stock-picker all the way, whether as chairman of Motilal Oswal, as well as an individual investor or some flunky somewhere, but I would have been a stock picker.
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