Raamdeo Agrawal Is Not Following This Warren Buffett Strategy

Agrawal, in conversation with BloombergQuint in a webinar organised by PMS AIF World, which analyses performance of portfolio managers, spoke about liquidity, possible winners, asset allocation and more.

Here are the key highlights from the interaction with the managing director of Motilal Oswal Financial Services Ltd.:

Liquidity

Buffett is certain that liquidity will be a key asset during this period of extreme volatility and unknowns, according to Agrawal. One reason he is so cautious could also be because of his age, he said, stressing that a 25-year-old investor would behave differently than a 50-year-old and a 90-year-old.

Unlike Buffett, Agrawal said he is fully invested because his mandate is to be fully invested in markets.

Cash Vs Investments

Given a choice, Agrawal said he would not mind sitting on 5% of cash. But for him, cash calls haven’t worked in the past. An investor sitting on cash will miss out on the first 30-40 percent of the bounce when the market bottoms out, according to Agrawal, and that could be detrimental to returns.

“We become fearful when the whole world is fearful, and not ahead of time. I have seen that being on cash doesn’t work.”

Biggest Learning

For Agrawal, the biggest learning is that strong businesses can turn worse than you thought. While good businesses do turn bad, he said citing Buffett’s change in stance on airlines, Agrawal said the law of averages suggests that the chances of losing money by betting on good businesses is lesser. The bottom line is to do the research, pick the right businesses, and leave the rest to market forces.

What Will Work And What Won’t

A lot of businesses—including airlines, hotels and capital goods—have changed for the worse for no fault of theirs, according to Agrawal. For capital goods in particular, additional capex won’t be required for few years because capacity utilisation will come down, and the government will not invest in a big way on infrastructure due to constraints, he said. Project execution will also slow down, which may also impact capital goods, he said.

Banks are at the centre of the storm because as the Covid-19 crisis is prolonged, probability of not-so-good businesses surviving will become less, impacting the lenders, Agrawal said. And while financials will fall the most, they will also be the biggest gainers after finding the bottom, he said.

The veteran investor is ‘overweight’ on telecom, citing the rising data consumption. Agrawal, who is in Amby Valley, said the biggest difference between the luxury township and Mumbai is the quality of the internet in India’s financial capital. “I did one conference call where 31,000 people logged in for 2.5 hours,” he said. “Imagine the data consumption. I think we’re in for a freaking data boom.”

He said the focus of investments has shifted from avoiding not-so good companies to what can be considered good companies. “When bad companies are going down, the intrinsic of good companies is going up,” he said, as people will latch on to them in these times.

Asset Allocation

Agrawal stressed on being diversified in both equity and debt. And while he is surprised by the performance of gold, he doesn’t recommend it. “Fundamentally, gold doesn’t produce anything. Companies that I invest in are giving 20-25% ROCE (return on capital employed). Why should one not buy such names?”

Another asset class for an Indian investor, according to him, is buying global equities. One option, he said, is buying global technology companies through Nasdaq ETFs available in India.