India story unparalleled, but markets well-priced; may rally 15-20% if 2024 elections see full majority government: Raamdeo Agrawal

Indian equity markets are witnessing a healthy correction and while the India story is unparalleled globally, the market is also well priced, says Raamdeo Agrawal, Chairman of Motilal Oswal Financial Services. Ahead of the company’s global investor conference, Agrawal in an interview with ET delved into a range of subjects encompassing market dynamics, political implications, and investment trends.
Speaking on the current market scenario, Agrawal said that the ongoing market correction is healthy. Presently, market shifts are notably linked to Foreign Institutional Investor (FII) conduct, he said. The Nifty’s surge to nearly 20,000 was fuelled by continuous FII purchases spanning 15-20 days last month.
This trend has since reversed as FIIs divest, demonstrating the cyclic nature of the market’s evolution, he explained. Corporate earnings have surprised and valuations are not cheap, necessitating a market consolidation. As the second quarter unfolds, a resurgence in the market is anticipated, he said.

Regarding foreign fund clients’ perspective on Indian equities, Agrawal said there is a consensus around the unmatched India narrative. While established economies like the US and China grapple with challenges, India’s projected growth of 6-7% commands attention as an exceptional market.
“But the markets are not cheap either at the current (price-to-earnings or PE) multiple of 20-22 (times). All the optimism is there in the price. FIIs want to enter with big buckets of cash but the real challenge for them is what to buy. Fund managers are worried that they will deploy at the current high PE and then the market corrects to 15-16 PE or the currency collapses,” Agarwal told ET.
He is of the view that the question pertains to the absence of safety margins if large quantities are acquired at prevailing levels. “The story is good, but the market is also well-priced,” he noted.
Asked what can help ease the upward pressure on market valuations, Agarwal was of the view that market multiples persist at 20-22 times due to supply scarcity. While Sebi facilitates IPO clearances, an augmented supply of papers, including from public sector undertakings (PSUs) and other enterprises, is essential. “Sebi should bring in more changes in terms of the time taken and efforts to tap the market or even how intermediaries should act. There is a need to look at how underwriting in IPOs should happen,” he said.

Agrawal proposed increased participation from retail investors’ representatives, such as brokers, underscoring the current surge in retail investor engagement. “There is clearly a retail investor boom and so, the question is why should the majority of the IPOs be underwritten only by institutional investors? Why can’t 50-60% of an IPO be underwritten by brokers representing retail investors?,” he asked.
Agrawal offered insights into market behavior as state and national elections approach. “The picture is so perfect that there is a chance of something going wrong. One of the important things about the Indian story is that after a long time, we have a majority and a stable government. It is a government which wants to deliver and is working very hard. There is a lot of optimism about the current dispensation coming back to office but a lot of it is already built into the market price.” Agarwal said.
As the state election results come, market expectations will evolve accordingly. According to Agarwal, a key market driver lies in the prospect of the present government achieving a full majority upon re-election. This scenario, not yet factored into the market, could trigger a notable 15-20% market surge.