Raamdeo Agrawal advocates for bold reforms in India amid US tariff challenges

Motilal Oswal Financial Services' chairman Raamdeo Agrawal is batting for bigger reforms across sectors by the government in the wake of the US tariffs. In an interview with Nishanth Vasudevan on the sidelines of the firm's investor conference, the seasoned investor spoke about various topics, including equity returns expectations and the private market, among others. Edited excerpts:

What are your expectations from the government in the face of the US tariffs?
It's time the government takes bigger risks in terms of bold reforms. If the government does a clean job on GST rationalisation, it could sacrifice around ₹1 lakh crore of revenue, but it can be made up in six months' time. It's not just financial reforms but non-financial reforms, too. India should use this opportunity to open up the tourism and education sectors, which have huge employment opportunities.

A significant recent trend is that promoters and big shareholders are selling while retail investors are buying. Now, who's right and who's wrong?
Both are right. It's a zero-sum equation. The promoter block and FIIs are selling because they see that prices are higher than value. But retail investors are saying: "I have great faith in India's future. Let it be a little expensive. I'm buying." That's how the game is.

So, why don't the big global long-only funds share domestic investors' optimism?
They have a lot of opportunities. They can go to China, Brazil, South Africa or Canada. I don't have any opportunities. My capital is stuck here.

Given the talk about rich valuations in India, where are the opportunities today?
Clearly, markets are a little pricey. It's like buying a flat in Mumbai. So, when I bought my first flat, I could buy in Worli for ₹1,000 per square foot. Now, the same flats are about ₹40,000 per square foot. And you still end up buying. The interesting part is that the highest number of flats are being sold at the highest prices. Even the markets are like that. The Indian economy is maturing and stocks will no longer be cheap. My recommendation is you better buy, take a little bit of pain and move on because this is a multi-decade growth market.

Why are rich investors finding private markets more exciting than public markets?
It all started with NSE, which gave a bumper return to everybody. People are thinking let me buy before the company goes public. But investing in unlisted companies is far riskier. The risk level disproportionately goes up when the company is younger. The mortality rate of the youngest companies is as high as 99%. Investing in unlisted equity is mostly for the big guys, the billionaires, who can have a nice talk over cocktails. People ask me about Zepto. But, please understand the purchase is just a fraction of my overall networth and I have a battery of advisors. When we study a company, we sit with the management for 2-3 days and dissect their P&L. How can a retail investor do that?

You seem to be very bullish on quick commerce like Zomato and Zepto.
Right now, I see 50-70% growth in the quick commerce space. These companies could potentially make as much profit as modern retail businesses. If quick commerce achieves even 5% Ebitda on such a massive multi-lakh-crore revenue opportunity, we're looking at a gigantic story. It's like what happened to private sector banks. I started buying HDFC Bank from 1996 itself but the regret is that I didn't hold it. So, the real thing is that if you own it, sit through and wait for it to mature.

Laggards like Ola and Paytm have also started moving of late. Is it the lack of opportunities in the market or is there anything more to it?
I don't know what's happening inside these companies. But, they're under pressure, especially from large PE investors who are giving them a tough time. These companies now have to set their house in order-cut costs, tighten expenses, and focus on profitability. They can't chase growth at any cost anymore. In the market, nothing works without earnings. If there's no earnings growth, there's nothing to talk about.

Will you be a buyer of Indian IT stocks after the recent fall?
After 25-30 years of a one-way tailwind, now Indian IT is facing some headwinds. What AI will do, nobody knows. It will definitely impact the headcount-driven expansion, but I don't think corporates can run without them. They are inevitable. Probably the way they make money from corporates will change. Whoever gives AI-based solutions faster, better, in a more innovative way-they are the ones who will win. For companies like TCS and Infosys, retraining the workforce will be crucial. The headcount-driven model is under pressure. This is an evolving phase.

What is your advice to the hordes of retail investors in the market?
Everyone will get about 12-15% over 15-20-25 years. It will be 12% from the index, plus a little more from small-caps and mid-caps, but not more than 20%. If you are an active manager and get some lucky strikes in small-caps, you can build 18%. I will whip my guys if they don't give me 10%.

Do you agree with the view that individuals have forgotten the concept of risk and become complacent in equities?People have become greedy. Nobody wants 15% return. Everyone wants 50% returns. Everyone wants doublers and multibaggers. When the dust settles, you will realise where the garbage is. At least in the listed market, you can get in, get out. But you don't have the luxury of getting out in the unlisted market.

For investors sitting on lumpsum, what would you recommend?
Don't worry so much. Do SIP (systematic investment plan) for 12 months. If you have ₹12 crore, put ₹1 crore into the market every month. You will be able to average it out and have peace of mind irrespective of what Trump says or does. But, if your vision is 5-6 months, don't come to this market.