Raamdeo Agrawal Optimistic About India Growth Story Despite Market Uncertainty

Indian markets recorded the biggest single-day fall in four years on Tuesday as Lok Sabha election results are set to be announced after witnessing weaker numbers recorded by the ruling party.

"The fall in markets today is merely a reaction to the surge that happened yesterday," Raamdeo Agrawal, co-founder and chairman of Motilal Oswal, said, highlighting that the "lofty expectations" set by the previous day's opinion polls led to disappointment when the actual numbers were revealed.

Agrawal discussed two critical factors influencing the market—the election mandate and the formation of the government.

While the NDA is set to secure over 300 seats, which is significantly above the majority, the results may still leave the BJP in a weaker position compared to its previous strength, he said. This shift necessitates a more participative management style, moving away from the previously centralised approach in New Delhi, according to him.

Despite that, his outlook on the India growth story remains positive, as he expects not only continuity but also further growth in momentum once the uncertainty of forming the ministry gets over in the next week or so, Agrawal said.

A wider set of factors may come into play as markets settle down from this uncertainty. Agrawal mentioned the ongoing concerns from geopolitical triggers, the price of crude oil—which has fallen by about $10 per barrel—ongoing talks of a cut in interest rates, and the expectations of a better monsoon this year as factors.

According to him, the next month is likely to be crucial as he expects some sideways momentum for the time being, given that markets are still uncertain about the implications of the results on policy continuity, while some bouts of buying and selling may also be seen.

Since the majority attained by the ruling party appears thin, the bargaining power will likely lie in the hands of minority players, he said.

Agrawal, however, maintained a positive outlook on markets and highlighted a sizeable opportunity, continued momentum in the economy, and a clear mandate. "The moment government formation happens, a lot more positivity will come back to the markets," he said.

He drew a parallel to the intraday movement observed in the market to support his thesis and said that a return of positive sentiment may be waiting on the sidelines. "As soon as the number of projected seats won stabilised during the day, the markets started to recover from their lows."

While the broader India earnings story is set to retain momentum, no political party is likely to play against it. However, with incumbency maintained, things are likely to be fine, though with weaker sentiment, Agrawal said.

Thus far, it seems too early to look at the prospects of a reconstruction in portfolios, he said, adding that it will take time to observe what sort of policies are introduced in the upcoming budget.

If investors are looking to exit their holdings on the back of concerns about inflated valuations, Agrawal said that now might be a time to consider selling. However, he believes that the country's growth story—based on themes such as defence, infrastructure, and railways—is likely to continue regardless of the mandate.

For those considering new investments, Agrawal supported the systematic investment plan approach. "Whosoever is committed to an SIP, that SIP must be fully honoured," he said.

According to him, now may be a great time to begin such an investment, given that investors ought to be looking at a time frame of 5–6 years, during which they are bound to face both bullish and bearish market phases.

"Right now, if you start with the 'bad times', you're likely to do well as the good times come. Somebody who started during the good times a while ago is facing the bad times right now," Agarwal explained.

"As far as the wealth-creating capacity of the country is concerned, I have not even an iota of doubt about it," Agrawal said, suggesting that while the index could double within the next 5–6 years, the recent correction might extend the timeline by six months to a year more.

"At the very least, within six years, it will double. But the process of wealth creation and even the pace of wealth creation would not be impacted by this judgement," he said.

Agrawal said that some of the biggest bull runs have occurred under minority governments, such as the ones seen around 2000 and during 2003–07, emphasising that corporate earnings and profitability play a more critical role than political scenarios.

While looking for new sectors, the market veteran suggested that one might have to wait for some visibility in potential revisions as the policy structure comes in, while what has continued to grow may continue to do so.

"All the capex companies, all the defence companies, should keep doing well. Valuations apart, the business trends shouldn't change," he said.

"The upcoming budget will reveal all the shifts that have happened politically. We should wait for the update in policy direction to make a decisive churn in the portfolio," Agrawal said.