I am okay with Udta Sensex, 70% chance GST will go through: Raamdeo Agrawal

The tug-of-war between the BJP and the Congress over the GST continues, delaying a nod to the much-awaited tax reforms. If implemented, GST will have a far-reaching effect on India Inc and the broader economy. But might take at least two years for it to show the results, says Raamdeo Agrawal, MD & Co-Founder, Motilal Oswal Financial Services. In an interview with Kshitij Anand of ETMarkets.com, he said there was a 65-70 per cent possibility that the legislation will go through in monsoon session. Excerpt:

ETMarkets.com: There is a lot of hope that the GST will get through in the ongoing monsoon session of Parliament. However, there is no clear signs that the opposition Congress will support the bill. How important is the GST for the market as well as FII sentiment? If it does get through, what kind of impact do you expect on the economy and on specific sectors?

Raamdeo Agrawal: This is a very important issue. The probability may be significantly higher than the 50 per cent right now. I would say more there is a 65- 70 per cent chance that it (GST) will go through this session.

The environment is conducive and that is why the market has started performing. The market is thinking that there is a good chance of it going through. There is no obstruction and the market has not built up too much in the price yet.

Second, this is a business reform. It could be chaotic to start with, but will yield results in future. All the big changes will have some pain and we have to figure that out. It will become one freight across, which means you could produce anywhere, sell anywhere – this is big. You could sell online, or offline, any state, any Union Territory.

It is a good thing and it will bring a lot of productivity gain. GST is also deflationary to some extent. It is going to give impetus to the growth. GST is going to give a new design to the logistic sector. Logistic will be completely revamped. There are far-reaching effects like when mobile came, nobody knew that it will be used for the smart phone.

Remember, when this kind of far-reaching reforms come, nobody knows the end-result. What is in the right direction will come through and, maybe, after a year or two, one will realise what has been the impact of it. But is will surely be positive.

ETMarkets.com: Specifically for the economy, some economists are building estimates that the GST would probably add another 1 per cent or 2 per cent to the GDP? Are you building in a similar estimate?

Raamdeo Agrawal: Yes, that is one part of it. Second is that the country can move forward. The whole world (FIIs) thinks this is a country with a paralysis and what is good for the country also does not happen.

If that kind of thinking is there, then what happens is that the country which is in the process of development will face the obstructions – some are manmade while some will be legislative or global in nature.

In the process of development, if GST is an important reform and can lead to positive development. Once GST is implemented, it will give confidence to outsiders as well as insiders.

ETMarkets.com: There is one clear trend which is visible in the past few weeks is the continuous selling by DIIs and the inflow from FIIs, although positive, has slowed down. Is this redemption pressure? Does it signal anything significant about the future trend? What will be the fund flow situation according to you for the rest of year?

Raamdeo Agrawal: No, no. Investor behaviour is crazy, because these advisers have seen the market rise to 9,000, and then falling to 7,000 or 8,000 levels on the Nifty50.

A lot of technical guys keep advising investors to sell and there is enough selling and when the market keeps climbing, there is a lot of worries. That is how it happens.

The guys trying to time the market get hurt. It is very difficult to figure out anything that is happening in the stock market in the short term. It is completely irrational in the short run.

ETMarkets.com: The S&P SBE Sensex, as well as Nifty50, rose over 20 per cent from their respective 52-week lows in quick time. How comfortable are you with the Udta Sensex phenomena, considering the fact that it was powered by sentiments and global liquidity?

Raamdeo Agrawal: I am 100 per cent comfortable in doing my shopping at current levels. I am buying stocks much beyond this short term. I do not have insights that it will go back to 8,000 or 7,500 level and even if it is there, the stock was very different.

In the same period when the market will go down by 10 per cent, there will be stocks that might go up by 10 per cent because I am not buying the market, I am buying stocks. I am concerned about the moment— because you cannot manage portfolios selling at 8,000 and buying at 7,500. That is not investing, it is speculation.

This is not the way investing is done. This is all speculation. What happens is whenever the market goes down in the short term, and it does because it is the nature of the market, and if it does not go down then it is a debt, this is not a bond market either.

When the market goes down, It does not go down in terms of value, it goes down in terms of price. That is the fundamental thing. If value keeps increasing, price will come back and come back to the last level and then beyond that.

If you are an investor, you are seeing that the value of the company is increasing. When you are buying, you are getting a margin of safety on your side.

ET Now: Coming to the value part, I think you emphasised a lot on this particular topic of value investing in your recent interview. I will pick from there. What according to you are the five things that you evaluate before putting money in a stock?

Raamdeo Agrawal: Our framework is very clear what we see:

A) the first thing to see is whether we understand the business and within that, whether there is a good long-term potential for a business, how are the long-term economic risks.

B) The other thing to look for is quality management; whether the management has competence, integrity and passion to run the business. Great businesses are run by great managements, that itself is 90 per cent.

C) The next thing we look at is growth potential; what and how much is your growth potential? Apart from the next quarter, we are also looking at the next to next quarter as well as well the quarter after that and then the next five years, 10 years and 20 years . We look at growth in a very detailed fashion.

D) Longevity of quality and the goodness of franchise is the next factor we asses. Companies are built up of franchise value and growth value. You have to look at them, evaluate them in terms of high quality and high growth and how long can it go up. What is important is to see the longevity of the franchise and build it today. It is always approximate when you talk about the future. It is going to be in approximation.

E) Undervalued or overvalued? Once we have assessed the longevity, we try to figure out how much money is this company going to make over the next five to 10 years or 15 years. And then look at the price.

If I say the company is going to make Rs 10,000 crore and the price and the valuations is Rs 5,000 crore, I must go and buy it. So that is how the process works.