Wisdom from India's wealth masters, from Jhunjhunwala to other stock mavens :: FirstBiz

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What happens when some of the country’s biggest Wealth Masters, the men with the magic touch in stocks, gather for a birthday bash? The net result is usually an outpouring of commonsense wisdom.

Yesterday (2 December), as CNBC TV-18 celebrated its 15^th year as a business broadcaster by holding an Investor Summit in Mumbai, there was a wealth of good advice coming from the likes of Rakesh Jhunjhunwala (who needs no introduction), Ramesh Damani (stockbroker and market expert), Manish Chokhani (investment banker), Raamdeo Agrawal (Joint MD of Motilal Oswal), Madhusudan Kela (Reliance Capital), and Ridham Desai (MD of Morgan Stanley India), among others.

A more bullish crowd is difficult to imagine. That’s not surprising, for when stocks are rising continuously, everyone is a bull. The rare bear who wanders into view is usually booed away - or will slink away on his own.

Here’s what they had to say.

Rakesh Jhunjhunwala on the macro scene: Jhunjhunwala was the most bullish of the lot, based largely on India’s reviving macro fundamentals. He said the impact of the sharp drop in oil prices is being underestimated as many industries – from petrochemicals to plastics to paints – will see their costs fall.

Jhunjhunwala said India’s uptick is both cyclical and structural, with favourable demography being backed up by low exposure to the markets – both debt and equity. The rest of the world had a problem, with ageing demography, high public and private debt, and a weak fiscal position.

Not only that, Jhunjhunwala predicted that inflation will trend down and stay down for the foreseeable future, and RBI Governor Raghuram Rajan might find a year from now that, maybe, he should have cut rates in his 2 December policy.

He expected corporate earnings to rise to 18-20 percent annually, and if this happened, the Nifty (now around 8,500) will rise 10-15 fold. This means a Nifty level of over 1,00,000 – and possibly 1,25,000.

Jhunjhunwala was cold to real estate, saying these investments did not have a proper market discovery of price, and the sector anyway won’t revive for 24-36 months.

His core advice: stay invested for the long-term, the longer the better.

Ridham Desai on corporate earnings and market: The Morgan Stanley India Managing Director said that inflation might surprise India on the downside, and corporate earnings on the upside. Though his own economics team has projected a December 2015 Sensex target of 32,500, he felt this may need revision upwards as the situation has changed with the end of the global commodity supercycle and India’s improving fundamentals.

In the short-term, a global growth weakness and commodity price fall is positive for India, unless it leads to a collapse of some economies (like Russia, which depends on oil and gas exports) or countries in Latin America (like Venezuela).

Desai’s prognosis for corporate earnings is a positive surprise on the upside. According to him, current market prices are 11 times 2016-17 forward earnings estimates. In short, the market as a whole may not be overvalued.

His big earnings expectations would be in financial services and consumer discretionary.

Ramesh Damani on why equity is best: The best thing to do when you buy a good stock is to sit on it and let it compound in value. Damani’s advice to stock investors is to find good stocks and then let them steadily gain value.

But for those who are still wary about the risks in equity, Damani points out that no other investment avenue gets such favourable tax treatment. Once you buy equity and hold it for a year, it is tax-free. Even the dividends are tax-free.

Manish Chokhani on infrastructure: Even though infrastructure will be the story of the future – India simply cannot grow without infrastructure – Chokhani was not sure investors should dabble in such stocks. Reason: they were vulnerable to policy changes and need lots of capital over long periods of time.

It is best to leave infrastructure investment to the government or very big investors. He would not touch infrastructure stocks, he seemed to imply.

Another insight: Chokhani said he found that good companies with good CEOs in their forties tended to outperform in the markets as they bring the right blend of experience and energy to the job.

Raamdeo Agrawal on value migration: In the 1990s, when Bajaj Auto was king of two-wheelers (scooters), Hero Honda was the new kid on the block, but gaining traction in mobikes. Nobody suspected that over the decade, the market would shift from being overwhelmingly scooter-oriented to motorcycles. Value was migrating from scooters to motorbikes, but very few saw the shift till it was quite late to benefit from it. Agrawal made some of his biggest capital gains from investing in Hero Honda, which became market leader and left Bajaj behind at a distant No 2.

As for future value migration, Agrawal sees continued potential in IT software stocks, where India was becoming a huge global player, with a 10 percent market share, and in global drug generics, where again India had huge skill, cost and scale advantages. Generic pharma could be the outperformer in the coming years as the world is looking for cheaper drugs.

His note of caution: don’t depend on insider tips to buy or sell shares. He learnt that to his cost with HDFC Bank which he sold prematurely.

Madhu Kela on debt and equity: In the current bull market, it is easy to lose sight of the fact that debt investments will also produce significant returns as interest rates trend downwards. Kela believes that high returns are possible in debt as well as equity.

In equity, Kela’s key insight is that promoters with passion for their products deliver better stockholder returns than the rest. His big pick was Divi’s Labs, a Hyderabad-based pharma company, which turned out to be a multi-bagger for him. It came from his belief in the promoter.

His advice on selling: don’t try to sell blue chips in the expectation that they can be bought later at a lower price. Some blue chips – HDFC Bank, Axis Bank, etc – have never seen too much downside in a long while.

The bottomline of all the wealth masters’ wisdom is this: stay invested in India for the long term; stay invested in good stocks for the long-term. As long as you are on the right side of 50, this is very good advice, for in a 15-year market cycle, you can’t go wrong with the right stocks.