Focus on the future of companies and not central bank when investing: Raamdeo Agrawal

During a exclusive interview with Economic Times, Raamdeo Agrawal, co-founder of Motilal Oswal Financial Services was asked a question if there was a right way to approach the market and if as of now the market is in a phase wherein a conversation regarding it starts with inflation and ends with Fed. To that, he replied by saying that the macroeconomic status of the country is extraordinary and complex as of now and that neither the press nor the authorities would be able to figure it out. He also mentioned that when the matter of investing comes into the picture then the only thing that matters is what the companies are doing and how they plan to shape up. The idea is to focus on the future outcome of the companies in the coming 2-5 years instead of trying to understand what the central banks will do soon.

The next question that he was asked was if he had to take a framework of quality, growth, longevity, and price, where is the framework fitting in nicely as of now. To this, he replied by saying that demand in various segments had diminished if not destroyed due to COVID 19. He explained by giving an example of the demand for liquor or cars. He said that even though the demand for goods has decreased it will not be constant and soon the demand will come back to normal if not increase. He also mentioned that the prices at which companies are at right now may soon be in the past within the next 6 months to 1 year.

Lastly, he was asked how he chooses to buy a company that is at an inflection point in terms of market share as the deciding factor as to when he will buy a company for 1-3 years and when he would buy a company for 5 or more years. He said that once a company is bought and starts to give returns, the research that goes behind it is what determines whether it is a 3-year idea or a 30-year idea. If the returns and performance of a company seem to be good then he tends to keep the company for longer. As for the 3-year ideas, he said that they are typically cyclical as when you buy it they are at the bottom, and soon the cycle is back in your favor. You increase your profits to the maximum in 3 years and then move on to the next idea, he mentioned.

 

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