Price fall does not mean business failure, says Raamdeo Agrawal

Short-term stock price declines should not be mistaken for deterioration in a company’s fundamentals, according to veteran investor Raamdeo Agrawal.

Raamdeo Agrawal, Chairman and Co-founder of Motilal Oswal Financial Services, was speaking at the Moneycontrol Global Wealth Summit during a panel discussion on long-term investing and the relevance of the buy-and-hold strategy.

Agrawal cautioned investors against judging companies purely on the basis of stock price movements, arguing that market prices and underlying business value often move differently in the short term. “At times we confuse the failure of a company from the price point of view,” he said.

According to him, the stock market operates through two separate mechanisms — value creation in the business and price discovery in the market. “There are two machines — value machine and price machine. We judge only by the price machine,” Agrawal said.

He noted that stock prices can often behave irrationally, both on the upside and the downside, which can lead investors to draw incorrect conclusions about a company’s performance.

“Price can be extremely irrational on the upside as well as downside,” he said. Agrawal cited examples of well-known companies such as HDFC Bank and Asian Paints, whose stocks have underperformed in recent years despite stable underlying businesses.

“Asian Paints has not failed, HDFC Bank has not failed — the stock has failed for the last two or three years,” he said. According to Agrawal, investors should therefore focus on the long-term value creation of businesses rather than reacting to short-term price volatility in the market.