Sensex to touch 24000 sometime during the year: Raamdeo Agrawal

In an interview with ET Now, Raamdeo Agrawal , Jt. MD, Motilal Oswal Financial Services , talks about contra investing and his contra calls.

Define contra investing for us.

The stock which does not deserve popular opinion is what is called contrarian kind of view. You make money when you buy a stock which is absolutely unpopular, because most of the money is made in this kind of stock when the perception changes. Perception is the driver of PE. If the perception of the stock is negative and from there it changes to positive to a PE multiple of 10 to 100, it makes you a lot of money.

Has contra investing worked for you?

I am not a contra investing type. However, in one or two situations, I bought in the past and was very successful in those ideas. I had bought Calcutta Electric 5-6 years back at about Rs 13. The whole company was available at about Rs 90 crores. There were factors like monopoly into Calcutta, employing transmission and profitability and they were highly leveraged and the interest rates fell from 13-14% to around 6-7%. We did a ratio called interest cost to the market cap and it turned out that interest was 3 times or 4 times more than the total market cap and hence the impact of the interest rate decline would have been most on Calcutta Electric. People around me from Calcutta told me that it looked worse than BMC office and I couldn't even stand there. They told me not to look at it and that was the reason it was at Rs 13.

What prompted you to buy that stock?

I had a very bullish view on change in the value of a stock once the interest rates declined and we saw major decline in the interest rates. I wanted to buy something which was getting hurt due to the high interest rate scenario at that point of time and would be significant beneficiary. Calculated business was very stable and it had a good reputation in Calcutta under RPG management but yet the net profit after tax was low because it was heavily leveraged and West Bengal Government was disputing about what costs were allowed to be passed on. As the interest rate came down, the profits that were marginal or negative shot up by 4-5-6 times because all the interest became benefits to the company. The stock flew from Rs 13-14 to around Rs 150 in 2 years time and then I sold it at about Rs 120. The stock further went up to Rs 400-500.