The tug-of-war between the BJP and the Congress over the GST (Goods and Services Tax) contin ues, 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 it might take at least two years for it to show results, says Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services. In an interview with Kshitij Anand, he said there was a 65-70% possibility that the legislation will go through in monsoon session. Edited excerpts:
How important is the GST Bill for the market? What kind of impact do you expect on the economy and on specific sectors?
The probability may be significantly higher than the 50% right now. There is 6570% 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. Also, 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 single freight throughout the country, which means you could produce anywhere, sell anywhere -this is big. You could sell online, or offline, any state, any Union Territory. It will bring a lot of productivity gain.GST is also deflationary to some extent. It will give impetus to the growth. GST is going to give a new design to the logistics sector. Logistics will be completely revamped. There are far-reaching effects like when mobile came, nobody knew it will be used for the smart phone. When these kind of far-reaching reforms come, nobody is aware of 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 this will surely be positive.
Are you also building an estimate that the GST would add another 1-2% to the GDP?
Yes, that is one part of it. Second is that the country can move forward. The whole world (FII) thinks this is a country with paralysis and what is good for the country does not happen.If that kind of thinking is there, then the country which is in the process of development will face the obstructions -some are man-made while some will be legislative or global in nature. In the process of development, 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.
Does the selling by DIIs and the inflows from FIIs signal anything significant about the future trend? What will be the fund flow situation for the rest of year?
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 Nifty. A lot of technical guys keep advising investors to sell and there is enough selling and when the market keeps climbing, there are a lot of worries. The guys trying to time the market get hurt. It is very difficult to figure out anything that is happening in stock market in the short term. It is completely irrational in the short run.
S&P, Sensex, as well as Nifty, rose over 20% from their respective 52-week lows quickly.How comfortable are you with the `Udta Sensex' phenomena?
I am 100% 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%, there will be stocks that might go up by 10% 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. Whenever the market goes down in the short term, and if it does not go down then it is 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 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.
What are the five things that you evaluate before putting money in a stock?
Our framework is very clear: A) Whether we understand the business and within that, whether there is a good long-term potential for a business, how are the longterm economic risks. B) Look for quality management; whether management has competence, integrity and passion to run the business.Great businesses are run by great managements, that itself is 90%. C) Look at growth potential; what and how much is your growth potential?Apart from the next quarter, we also look at the next to next quarter as well as the quarter after that and then the next 5 years, 10 years and 20 years. We look at growth in a very detailed fashion. D) Longevity of quality and the goodness of franchise are the next key factors.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. It is important 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 the company is going to make Rs.10,000 crore and the price, valuation is Rs.5,000 crore, I must go and buy it. So that is how the process works.
The Economic Times, New Delhi, 20 July 2016
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