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Dalal Street veteran Raamdeo Agrawal says the only way to make money in the market is to buy stuff worth Rs 10 for Rs 5. “This can only happen when there is fear and uncertainty,” says the Chairman of Motilal Oswal Financial Services.

According to the famed value investor, there are only two ways to find stocks at dirt cheap valuations – either when everyone is selling due to panic or when the company is new and not many know about its true potential.

It is about the gap between perception and reality and investors need to identify the same, Agrawal said in an interview to ET Now.

As the markets are in a corrective phase, investors are rushing back to value investing. “Growth will remain the core component of value creation and even Buffet realizes it,” he said. “However, the question here is how much are you willing to pay for it.”

Commenting on the proposed merger of HDFC and HDFC Bank, he said the new entity would be able to execute global deals. The new entity is likely to grow at 18-20 per cent.

If the interest increases due to inflation, a lot of HNIs will move to fixed income. He anticipated that the incremental money would move towards fixed income.

Interest rate hike is clearly a headwind for equity markets, but it won’t be the only factor guiding the market, Agarwal said. “India will have about 250 million demat accounts in the next five years,” he added.

In equity markets, speculation and investing go hand in hand. However, the market maven is concerned about rising volumes in derivatives, thanks to technological advancement, which has made trading easy.

Agarwal thinks that there is rampant speculation in global equity markets and India is no exception. Speculators will lose money when the market falls, but it is the nature of the markets.

He advised investors to bet on assets that perform better than inflation. Investors should focus on high growth or less valued stocks to beat inflation with a decent margin, he said.

He is also worried about rich valuations of companies with high cash flows. “When the cost of capital will move higher and excess liquidity would be squeezed out of the system, richly valued companies might see a sharp derating.”

Agarwal said beaten-down large private banks and insurance stocks will make a lot of money in the next five years due to reasonable valuations and robust earning projections.

He is bullish on the IT sector, auto, along with real estate and related sectors such as housing finance, cement, steel, pipes, etc for the next few years.

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