The Indian equities market has been under strong pressure in the recent past, with the Nifty down nearly 16% from its historic highs, while small-cap and mid-cap indices have dropped even more steeply. In this backdrop, long-time investor Ramdeo Agrawal opined on whether it is a normal market correction or a more profound structural change in a recent CNBC TV18 interview.
Market Correction: A Healthy Adjustment
Agrawal stressed that the present slump is a normal correction after years of unabated market rallies. He noted that the EPS of the Nifty has increased from ₹500 to ₹2,000, and the market itself has risen from 8,000 to 24,000-25,000 levels. This growth came on the back of doubling earnings, but the recent deceleration in earnings growth gave rise to a correction.
“Four years of uninterrupted rally, a six-month correction is only natural and healthy,” Agrawal said. He added that even though the correction hurts, it’s essential to balance the market. The price-to-earnings (P/E) ratio, which was at 23-24, has now reduced to below 20, which is below the 10-year average. Agrawal is of the opinion that the market could overshoot on the negative side, but the worst is already behind us.
Mid-Caps and Small-Caps: Divergence and Correction
Agrawal pointed out the sharp divergence between large-cap and mid-cap/small-cap indices. While the Nifty is higher by around 95-96% on a five-year horizon, mid-caps have risen 177-180%. This marginal extra gain in mid-caps has resulted in a correction, with mid-cap and small-cap indices declining by 25-30%. Agrawal opined that either large-caps will catch up, or mid-caps will keep correcting to close this gap.
Quick Commerce: A Sector Holding Strong
One industry that Agrawal is still optimistic about is quick commerce. Even while the overall market has corrected, businesses such as Swiggy and Zomato have remained resilient. Agrawal pointed out that their stock prices may have dropped 20-30% from where they were at their highs, but the intrinsic worth of these businesses is accelerating very strongly. According to him, quick commerce is a category with momentum and low competition, and therefore an attractive investment space.
Capital Markets: A Long-Term Growth Story
Agrawal is bullish on the long-term development of India’s capital markets. He noted that even in the current downturn, the number of Demat accounts keeps rising, with 2.5-3 million new accounts being opened even in a down market. He anticipates this figure to shoot up once the market picks up, fueled by the growing participation of retail investors.
Agrawal also pointed out that the IPO market, which has been locked up of late, will soon open again. He believes promoters will begin buying back shares within the next few months, reflecting faith in the valuations of their companies.
A Cyclical Slowdown, Not a Structural Shift
Agrawal opined that the ongoing market downcycle is a cyclical decline and not a structural change. He is convinced that with government and RBI action, the economy will return to track, and corporate profits will increase at 11-13% a year. He is looking for the market to provide 12-15% expansion over the next four to five years.
To put it in perspective, Ramdeo Agrawal sees the current bear market as a correction after years of robust performance. He is optimistic about the long-term future of the Indian market, especially in areas such as quick commerce and capital markets. Investors need to concentrate on purchasing quality stocks at reasonable prices instead of attempting to catch the market’s bottom.
The opinions and views presented in this article are derived from Ramdeo Agrawal’s recent interview on CNBC TV18. The article is for information purposes only and should not be taken as financial, investment, or professional advice.