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Billionaire investor Rakesh Jhunjhunwala, who's often referred to as India's Warren Buffett, says, the financial year 2012 has been, so far, the worst trading year of his life.
However, he is not giving up hope. He still believes that the market is in a corrective phase of a long-term bull run.
In an interview to CNBC-TV18’s Udayan Mukherjee, the big bull of Dalal Street says, although the market is showing strength, he has had the worst trading financial year of his life starting from April. And that’s what makes him cautious or confused. “I still don’t think that there is a clear picture. I think we will still have to wait for events to unfold.”
Below is the edited transcript of his interview.
Q: We have approached 5,200 with some strength, do you think things could turnaround now or you are not that optimistic in the near-term?
A: I have never been so confused in my life. My personal perception is that there are three important factors for the market. One is what happens in the western world. Second is inflation. Third is government action. The most important factor is inflation.
The fact that government does nothing disturbs me. In 1999 or 2000, when Musharraf had visited India, at that time, there was big talk of a rift between Mr Vajpayee and Mr Advani. The political feeling then was very much similar to what it is today. But that came to passé very fast.
Elections are still two-and-a-half to three years away. So, whatever thoughts we have on the government may come to passé in the next three-six months.
As far as the Western world is concerned, I think nothing negative is going to happen. Nothing negative beyond what the market is expecting is going to happen in the next six-nine months.
I don’t think any bank or any government is going to easily default. Defaults take place, when people are unaware of things. At the moment, we are very alert. Markets, to an extent, have also discounted the worst.
As far as inflation is concerned, the Reserve Bank is acting very sensibly. They are expecting that inflation will moderate after December. So, atleast until December there are no hikes.
I don’t see any reason why inflation will not moderate just because of the base effect. If prices were to be kept at September levels, if there was to be no price increase whatsoever in the level, the inflation will be 2.3% by March. So, I don’t think we are going to have more than 3-4% price increases upto March.
Q: You seem to have a bullish kind of disposition on all the three factors. Then why are you confused?
A: Markets are showing strength. They are reacting positively to negative news. But I don’t know, maybe I have had the worst trading year of my life, financial year starting from April. And that makes me cautious or confused.
I still don’t think there is a clear picture; I think we will still have to wait for events to unfold.
Q: In the near-term, do you think we could breakout of this 5,200 range or extend it significantly, surprise people?
A: I am quite circumspect. Nothing is going to happen in the Western world till March-June.
Q: Nothing bad or nothing good?
A: Nothing bad, which is beyond what the market has already discounted, will happen. I am quite sure Greece is not going to default.
In America also nothing negative beyond what is known is going to come. I don’t think Italy and Spain have a case for easy default at all and Ireland is doing well.
As far as inflation is concerned, I am still concerned; I am not so sure that inflation will come down. The Reserve Bank is not only looking at the inflation, it is also looking at the heavy commodity prices.
When Musharraf came to India, I was in Bangalore. I had gone to meet a company there. We were all discussing that our government is good for nothing. There is no governance. But things slowly perked up.
Q: Will you concede that it has been very bad from the government point of view over the last 9-12 months?
A: The problem is everybody is aware of what needs to be done, but there is no unanimity. There is no reason why you can’t have the Goods and Service Tax (GST), there is no reason for a discussion there. The DTC Bill is also before the standing committee, and considering the state of flux we are in it will pass as well.
Q: How long will it take though because a lot of people say even 2012 calendar year or 2013 fiscal year might be a difficult growth wise?
A: I do not think so; one thing which is very reassuring for us is that our exports are growing well despite the world slowing down.
Q: You believe the export numbers?
A: Absolutely, I think it is all hogwash that money is coming back through the guy who is doing all this today you can get it by paying 15% tax by getting dividend from Dubai, right so why will anybody create a false export? Export income is taxable today, so why will you create false exports in order to get money?
Exports are absolutely genuine. And I believe and respect government of India that their figures are not going to be hogwashed month upon month and also the Reserve Bank goes through those figures. So, it is the question of confidence, and if the government acts and inflation slows down, the confidence will come back soon.
Q: You think the investment cycle can be restored because from the CEOs we speak, they seem to be having their chins down about how long this investment drag might continue?
A: The investment drag is also an effect of the moderation in demand. If interest rates peak and moderation in demand corrects, then investment cycle will come through.
We are building 11 kilometer highways everywhere. It is not that everything has slowed down. Of course, it is very disturbing with coal and power shortages, especially on Diwali, but the employees in Telangana have called off their strike and hence, if the Singareni Collieries is back to work, it will really help matters.
Q: You said it’s been the worst trading year or your life. Did you get the bullish calls wrong or the bearish calls wrong?
A: I got all the calls right despite that. I remember when the index was at 5,700, we had a meeting in April, I was the only guy who very circumspect. I got all my calls right and all my tradings wrong. It happens, it is life. You have to take it, accept it with a smile.
Q: Right now, do you think 4,700 might still work out to be the base or you don’t have that confidence yet?
A: It will take a lot to break 4,700.
Q: If it has to break, do you think it breaks in the next three months or you are more circumspect about what happens later in 2012, after the next six months?
A: If the earnings are Rs 1,150-1,200 on the Sensex this year and if you project 10-15% growth, atleast 10 % growth next year, I don’t think then breaking 4,700 is very possible.
2008 was an end of a 20-year old bull market in all asset classes and the end of a six-year bull market in India. Commitment was wide, and people had lost a lot of money. I think there was a lot of commitment.
Today, I think Indian public has not participated aggressively. So, for markets to really take a deep dip, you will have to have a big rise and a plethora of commitments. So, I think 4,700, in all probability, will be protected.
Q: Do you think that kind of participation may come, if the Nifty say surprises by rallying to 5,700-5,800 and everybody gets the feeling a new bull market has started and then gets sucked in? Do you think that’s possible?
A: That’s possible. But if earnings growth continues then even if people commit, to come back to 4,700 after 18 months, 19 months means things will have to really crack. In December next year, you will be looking at 2013 earnings, 2014 earnings maybe the year after that. So, I think 4,700 could be protected for long time to come.
Q: But you are clear that we will get some earnings growth. In 2008-09, we didn’t see any earnings growth.
A: But we had very big earnings growth prior to that, which we have not had now. The software sector is holding on well. Also, if inflation is to peak and the interest rates are to peak, the interest rate sensitives—automobiles, banks— would be at the bottom of their earning cycle.
I essentially feel that if the interest rate rises were to stop and we have some kind of decline in interest rates next year, we will see some come back of demand for all interest rate sensitives —infra and auto.
Q: When is the earliest do you think we can have a bull market again?
A: I personally believe the bull market, which started in 2001 September, is still very much alive. It’s a correction within a bull market.
I feel the Indian gross domestic product (GDP) growth in the next decade will be atleast 15% nominal, maybe 5-6% inflation, 9-10% growth.
Look at the underexposure position on equity. In India, everybody thinks that jewellery and real estate is wealth, stocks are paper. Unfortunately, all my wealth is in paper.
Q: Akash Prakash (fund manager and chief executive officer of Amansa Capital Pte. Ltd) seems quite sceptical. The kind of damage we have done with policy, we may have reverted to a 6% kind of growth for the next couple of years. Could those projections be true?
A: Well, they could be true, I don’t rule them out. But I think if policy could only change things then policy will come. If there are deeper structural problems that would be difficult to correct then 6% could be right. But if mere change in government policy could get us to 8-9%, I think that change in policy will come regardless of government.
Q: And you don’t see anything major structurally which has changed like inflation. Once this base effect plays out, could we still have a structural inflation issue?
A: If investment falls, it could be a cause for inflation. Until now, India has gone through short six months, one-year periods of doubts, circumspection, slowdowns. But it has always been able to come back. I don’t see any reason why we should not be able to do.
Whenever we have slowed down, we have slowed down because of government inaction. The next step of policy was always more aggressive and better.
I think the revelation of all these scams is good for the country because it will lead to modification of policies. It will lead to more agility, and alertness.
I don’t know why I can’t get negative on India. The factors that drive India are not man made, whether it is democracy, whether it is demographics, whether it is entrepreneurship, whether it is skills. These are three-four primary reasons, they are irreversible. So, there can be delay, but there cannot be denial.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Billionaire investor Rakesh Jhunjhunwala, who's often referred to as India's Warren Buffett, says, the financial year 2012 has been, so far, the worst trading year of his life.
However, he is not giving up hope. He still believes that the market is in a corrective phase of a long-term bull run.
In an interview to CNBC-TV18’s Udayan Mukherjee, the big bull of Dalal Street says, although the market is showing strength, he has had the worst trading financial year of his life starting from April. And that’s what makes him cautious or confused. “I still don’t think that there is a clear picture. I think we will still have to wait for events to unfold.”
Below is the edited transcript of his interview.
Q: We have approached 5,200 with some strength, do you think things could turnaround now or you are not that optimistic in the near-term?
A: I have never been so confused in my life. My personal perception is that there are three important factors for the market. One is what happens in the western world. Second is inflation. Third is government action. The most important factor is inflation.
The fact that government does nothing disturbs me. In 1999 or 2000, when Musharraf had visited India, at that time, there was big talk of a rift between Mr Vajpayee and Mr Advani. The political feeling then was very much similar to what it is today. But that came to passé very fast.
Elections are still two-and-a-half to three years away. So, whatever thoughts we have on the government may come to passé in the next three-six months.
As far as the Western world is concerned, I think nothing negative is going to happen. Nothing negative beyond what the market is expecting is going to happen in the next six-nine months.
I don’t think any bank or any government is going to easily default. Defaults take place, when people are unaware of things. At the moment, we are very alert. Markets, to an extent, have also discounted the worst.
As far as inflation is concerned, the Reserve Bank is acting very sensibly. They are expecting that inflation will moderate after December. So, atleast until December there are no hikes.
I don’t see any reason why inflation will not moderate just because of the base effect. If prices were to be kept at September levels, if there was to be no price increase whatsoever in the level, the inflation will be 2.3% by March. So, I don’t think we are going to have more than 3-4% price increases upto March.
Q: You seem to have a bullish kind of disposition on all the three factors. Then why are you confused?
A: Markets are showing strength. They are reacting positively to negative news. But I don’t know, maybe I have had the worst trading year of my life, financial year starting from April. And that makes me cautious or confused.
I still don’t think there is a clear picture; I think we will still have to wait for events to unfold.
Q: In the near-term, do you think we could breakout of this 5,200 range or extend it significantly, surprise people?
A: I am quite circumspect. Nothing is going to happen in the Western world till March-June.
Q: Nothing bad or nothing good?
A: Nothing bad, which is beyond what the market has already discounted, will happen. I am quite sure Greece is not going to default.
In America also nothing negative beyond what is known is going to come. I don’t think Italy and Spain have a case for easy default at all and Ireland is doing well.
As far as inflation is concerned, I am still concerned; I am not so sure that inflation will come down. The Reserve Bank is not only looking at the inflation, it is also looking at the heavy commodity prices.
When Musharraf came to India, I was in Bangalore. I had gone to meet a company there. We were all discussing that our government is good for nothing. There is no governance. But things slowly perked up.
Q: Will you concede that it has been very bad from the government point of view over the last 9-12 months?
A: The problem is everybody is aware of what needs to be done, but there is no unanimity. There is no reason why you can’t have the Goods and Service Tax (GST), there is no reason for a discussion there. The DTC Bill is also before the standing committee, and considering the state of flux we are in it will pass as well.
Q: How long will it take though because a lot of people say even 2012 calendar year or 2013 fiscal year might be a difficult growth wise?
A: I do not think so; one thing which is very reassuring for us is that our exports are growing well despite the world slowing down.
Q: You believe the export numbers?
A: Absolutely, I think it is all hogwash that money is coming back through the guy who is doing all this today you can get it by paying 15% tax by getting dividend from Dubai, right so why will anybody create a false export? Export income is taxable today, so why will you create false exports in order to get money?
Exports are absolutely genuine. And I believe and respect government of India that their figures are not going to be hogwashed month upon month and also the Reserve Bank goes through those figures. So, it is the question of confidence, and if the government acts and inflation slows down, the confidence will come back soon.
Q: You think the investment cycle can be restored because from the CEOs we speak, they seem to be having their chins down about how long this investment drag might continue?
A: The investment drag is also an effect of the moderation in demand. If interest rates peak and moderation in demand corrects, then investment cycle will come through.
We are building 11 kilometer highways everywhere. It is not that everything has slowed down. Of course, it is very disturbing with coal and power shortages, especially on Diwali, but the employees in Telangana have called off their strike and hence, if the Singareni Collieries is back to work, it will really help matters.
Q: You said it’s been the worst trading year or your life. Did you get the bullish calls wrong or the bearish calls wrong?
A: I got all the calls right despite that. I remember when the index was at 5,700, we had a meeting in April, I was the only guy who very circumspect. I got all my calls right and all my tradings wrong. It happens, it is life. You have to take it, accept it with a smile.
Q: Right now, do you think 4,700 might still work out to be the base or you don’t have that confidence yet?
A: It will take a lot to break 4,700.
Q: If it has to break, do you think it breaks in the next three months or you are more circumspect about what happens later in 2012, after the next six months?
A: If the earnings are Rs 1,150-1,200 on the Sensex this year and if you project 10-15% growth, atleast 10 % growth next year, I don’t think then breaking 4,700 is very possible.
2008 was an end of a 20-year old bull market in all asset classes and the end of a six-year bull market in India. Commitment was wide, and people had lost a lot of money. I think there was a lot of commitment.
Today, I think Indian public has not participated aggressively. So, for markets to really take a deep dip, you will have to have a big rise and a plethora of commitments. So, I think 4,700, in all probability, will be protected.
Q: Do you think that kind of participation may come, if the Nifty say surprises by rallying to 5,700-5,800 and everybody gets the feeling a new bull market has started and then gets sucked in? Do you think that’s possible?
A: That’s possible. But if earnings growth continues then even if people commit, to come back to 4,700 after 18 months, 19 months means things will have to really crack. In December next year, you will be looking at 2013 earnings, 2014 earnings maybe the year after that. So, I think 4,700 could be protected for long time to come.
Q: But you are clear that we will get some earnings growth. In 2008-09, we didn’t see any earnings growth.
A: But we had very big earnings growth prior to that, which we have not had now. The software sector is holding on well. Also, if inflation is to peak and the interest rates are to peak, the interest rate sensitives—automobiles, banks— would be at the bottom of their earning cycle.
I essentially feel that if the interest rate rises were to stop and we have some kind of decline in interest rates next year, we will see some come back of demand for all interest rate sensitives —infra and auto.
Q: When is the earliest do you think we can have a bull market again?
A: I personally believe the bull market, which started in 2001 September, is still very much alive. It’s a correction within a bull market.
I feel the Indian gross domestic product (GDP) growth in the next decade will be atleast 15% nominal, maybe 5-6% inflation, 9-10% growth.
Look at the underexposure position on equity. In India, everybody thinks that jewellery and real estate is wealth, stocks are paper. Unfortunately, all my wealth is in paper.
Q: Akash Prakash (fund manager and chief executive officer of Amansa Capital Pte. Ltd) seems quite sceptical. The kind of damage we have done with policy, we may have reverted to a 6% kind of growth for the next couple of years. Could those projections be true?
A: Well, they could be true, I don’t rule them out. But I think if policy could only change things then policy will come. If there are deeper structural problems that would be difficult to correct then 6% could be right. But if mere change in government policy could get us to 8-9%, I think that change in policy will come regardless of government.
Q: And you don’t see anything major structurally which has changed like inflation. Once this base effect plays out, could we still have a structural inflation issue?
A: If investment falls, it could be a cause for inflation. Until now, India has gone through short six months, one-year periods of doubts, circumspection, slowdowns. But it has always been able to come back. I don’t see any reason why we should not be able to do.
Whenever we have slowed down, we have slowed down because of government inaction. The next step of policy was always more aggressive and better.
I think the revelation of all these scams is good for the country because it will lead to modification of policies. It will lead to more agility, and alertness.
I don’t know why I can’t get negative on India. The factors that drive India are not man made, whether it is democracy, whether it is demographics, whether it is entrepreneurship, whether it is skills. These are three-four primary reasons, they are irreversible. So, there can be delay, but there cannot be denial.
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