Rakesh Jhunjhunwala: I have never felt so bullish in my life but I will be cautious next month
- Governments have never made much difference in India.
- This is not the time to be very aggressive in the market.
- I am extremely bullish from a five-to-seven-year horizon.
What is your view on the market and who do you think will form the government?
We welcome every new mutual fund because they bring investors into the market and if you bring more investors and more money into the market, that means our stocks will go up. I still hold that it will be the NDA government at the centre after election. I personally feel the BJP may not win majority on its own but it will be a very dominant player. I do not think it will need government’s support from parties other than the present NDA. So, economically and philosophically, nothing is going to change in India for the next four-five years.
Having said that, I feel that actually governments have not made much difference to India and today is a new high in the market, but all the bars are empty! I do not understand what is new. There are two points of view; a) nobody celebrating a new high means there is no participation. If there is no participation, it will keep on continuing. b)Second point of view is that the high is too narrow, it is in very few shares. So we have a dilemma there.
I personally feel this may not be the time to be very aggressive in the markets but I do not think, I have felt so bullish for India ever in my life! In the next 10 years, India is going to outpace all the growth it has done in the last five years because the NPA problem is behind us, capital investment will revive and we are now going to have growth on a much higher pace.
I am in a dilemma myself. I feel I should not be so aggressive until the election results are out. The markets may go down by 5%, 10% when something unexpected happens but innately I have never felt so bullish in my life. I am a bull. They call me a big bull I said why do you call me big bull? Bulls are always big. I feel a little dilemma today.
For whatever maybe the underlying factor, demonetisation, GST, the IL&FS crisis, we have not seen a linear recovery in earnings. So irrespective of the election verdict who is going to be next prime minister, do you think earnings recovery is coming?
It will be a story of a boy who cried wolf and one boy is crying is Raamdeo because he used to have the most, and I am not making a joke really, Raamdeo is a born bull. In 1985 he used to explain to me, 1990 Sensex, Nikkei 3000 ka 40,000. He was so bullish on the earnings that now he is going to little very very careful. So, it will be a story of a boy who cried wolf and I think one of the reasons why the earnings were not growing was because of some of the banks.
I think those banks will recover. And sometimes these earnings, like JLR earnings are a big influence on the earnings. These earnings have to recover. I do not know when. It is like when I ask my father daddy paisa de do toh bole sab aap ka hi hai (When I asked my daddy for money, he said, it is all yours). So I asked my dad when? I do not think of aggregate earnings, I always look at individual companies. And believe me, I have never felt so bullish and never felt so cautious for the next month. Any dip is an opportunity to buy. I do not have any money at the moment so I cannot buy, maybe that is why I feel very cautious. But I am extremely bullish.
Over the years I have interacted with you when you have said I am bullish but for the first time you are saying I am extremely bullish, the emphasis is on extremely bullish why is that?
I am saying from a five-seven year horizon.
The Indian economy and maturity is picking up pace. I see a big growth in capital expenditure. What is happening in the society today? People who have followed the law fairly or practically are the people who are prospering. Integrity is coming to the fore, governance is coming to the fore in this country. We do not understand the implication of that. Nobody is now going to put up power plant which costs Rs 3,000 crore and 8000 crore -- equity-less projects. There is some change in society which is coming about. Samajhne wale samajh gaye, jo na samjhe wo anadi hai (Those who get it, understand and those who can’t are amateurs). And this change is permanent, there is going to be no reversal.
If we had four-five years of sub potential growth because of NPA and the capital expenditure problems. I see a huge amount of inquiry from foreigners. Today I was talking to the Chairman of one of the world’s largest advertising agencies in India and he says the country where I have chosen to enhance my investments is India.
So, foreign investment is going to come into this country and they are going to grow at a higher base. Look at how underpenetrated we are. r India’s consumer debt to GDP household debt is 10-11%, India’s consumer debt is 125% to GDP and China’s is 300% to GDP. I agree with the RBI governor. Reduce rates, invest and we will see when inflation comes. Let us build the road, let us build the bridges, Let us not worry about the interest rates. Jo paisa laate hai usko bolo lao lagao (Those who bring in money, tell them to come, invest). I feel now like I used to feel in 2002-2003, that we would have a structural and secular bull market. This time, the structural secular stock valuation relation compared to 2002-2003 is much higher. So, I feel there is a structural and secular bull in the economy, in the growth.
Look at the aspirations people have. I personally feel IBC is going to have great effect on credit discipline in this country. What about GST? Mr Kelkar who was the father of GST, estimates that it will account for 1.5-2% of GDP. Right now, we have had all the worst effects of GST. What about the good effects? I cannot complain of fair taxes just because I was evading it and now I am not allowed to evade it. What kind of logic is this? So we are going to see the effects of GST. We are not going to have an event like demonetisation. We are going to see recovery in banking, capital expenditure, foreign investment and we are growing on a higher base. We have reached a situation where discretionary expenditure is going to go through the roof.
I think people believe in stocks but they do not believe in the economy. The kind of negativism we have had that Mr Modi did demonetisation, he got GST, as if in getting GST, he committed some crime. In other countries, they take five to seven years to stabilise. We have stabilised it in a year.
Although the economy has slowed in the current quarter, India is going to have one of the fastest rates of growth and there is under exposure to equity funds here. So more money will come into the market.
In 2014, you said that a Tsunami of flows will come into market and you think this is just the beginning.
That is why I am saying that if a stock goes up from 100 to 200, I may feel the potential is 2,000! Similarly, where are you going to save and at least you do not have to give money to people.
The story this year has been massive FII flows. Why do you think that has changed?
I am myself surprised at the pace at which equity markets worldwide have risen. What has happened is that even in America, we feel at 2-3%, interest rates are very low. In Japan, interest rates are negative. Now after America increased the interest rates and then they announced that they will not, we have to accept that this low interest rates are here to stay.
I do not know Japan is negative even after pumping in how much money. Until now, they all used to feel that rates will go up to 6% and therefore markets are expensive. Lately, that acceptance has led to more money coming into equity. The S&P 500 or the Dow is giving a return of 5% and the 10-year America is giving 2.5%. Until now nobody believed that that 5% yield will stay and this 2.5% will remain. But now people have come to accept that fact that these interest rates will stay and that will naturally lead to higher PEs and higher discounting of earnings. Also, the emerging markets are now today in a much better situation in terms of currency and growth than they were ever in history.
Very few people can do what you do a successful trader and a good investor and I have always admired and secretly wonder that how do you manage this. You are a great trader and a good investor. They do not coexist but in your case you have been successful in both?
As I have said so many times if you have a mistress and a wife and keep them apart. The same way you are going to invest and trade separately because you should be mentally attuned to the fact that investment is a separate activity with separate aims, separate time horizons, separate considerations for buying and selling and trading is a totally different activity. Trading is the mother of all my wealth.
The first day I told my dad I want to be a stock broker, he said Paisa kahan hai tere pass (Do you have money). So I decided to invest. But invest what? There is no money. So I got the money to invest by trading but I want far greater wealth as an investor than as a trader. Trading the ROC is the highest and the excitement is the greatest. It is not all about wealth although I earn far more money as an investor. I personally find trading far more exciting. De fatafat, le fatafat (buy fast, sell faster). As long as you trade fairly with right rules right and fairly, what is wrong in being a trader?
You have always made big trend forecasts. It was buying PSUs in 2000; buying pharma after that. What do you think could be the trend next year?
It is a buffet. Jo pasand hai kha lo, jada mat khana behajmi hogi (Eat what you want but don’t eat too much, you will get indigestion). I feel banks will do well. Pharma will do well, as will infrastructure. I also personally feel that the way PSU valuations have fallen, there could be some opportunity in PSU shares although it is only tactical. I do not want to buy PSUs for long term. Tactically, they carry value and the valuations that they are today giving and yields that they are giving could be a good opportunity to buy selectively.
But now I have no money left to invest. I am fully invested as always. Not only my money, even people’s money. In the next decade, I think, the returns and the performance of India as a country and the economy will be far greater.
Partly the last decade is a lost decade because what happened between 2009 and 2013 has affected our economic performance for the entire term of the NDA government. The banking crisis was not the creation of the NDA, nor was this over capital investment and allotment of coal mines. Also, a part of the valuations are affected by extreme competition. Competition both in telecom and the airlines may level off now that also may help earnings.
You told me the worst of pharma is behind, but has the best started?
Well I am invested and I feel very bullish about pharma.
The price erosion, the worst of that is behind us?
The worst of price erosion is behind us. I also feel that the Indian market will tend to grow faster than how it has grown. They are having 100% return on equity in the Indian markets because they buy everything on credit, they sell everything, they pay the supplier is 60-90 days, It is a great market and pharma is not a market where demand can go down. Are you aware of one thing that 40-45% of all medicines consumed in America are made in India? 90% of the medicines sold in America are generics and in the generic markets 45-50% of the medicines by number of prescriptions is done by Indians. So, it is a sunrise industry. It can never be a sunset industry and the barriers are high and the returns have moderated.
Sun Pharma earned the biggest money in derma and once upon a time, derma had become such a bad market and then there was consolidation. In India, cost advantages are unbelievable. What Mylan makes in 10, Sun can make in 8! I have invested in a company in Ahmadabad. What Sun will make for 8, they will make for 6! I mean, you can employ your BPharma in Ahmadabad for Rs 40,000-50,000 a month. The cost advantages are going to remain, there is going to be consolidation, it is a sunrise industry. Demand is going to go up and healthcare is the biggest thing which people will spend after a certain amount of income.
How should one go about planning asset allocation? What should be the general view in equities for the next five, 10 years and what should one expect from SIP and other basic instruments?
I am not a aam aadmi ka advisor (Not a common man’s advisor). I am not a politician. But I personally feel that equity has given a 16-17% return over the last 30-40 years on an average. Which other asset can give you liquidity, simplicity, get you expert advice at 1-1.5% cost and especially what favours us is the economic growth of India. Corporate profits grow and there is so much of money waiting to come into the markets. We have set up a perfect system of mutual funds, of distributors for that money to come.
My advise to any middle class man is first your allocation should be for house, upper middle class, after that 80% equity, why not? But go in a thing like SIP, do not try to be oversmart, do not try to time the markets, do not try to buy a stock because your father in law said it is his friend’s company and the company is going to do very well.
My advice would be house is very important in India and 80% I would advocate equity. One thing I will tell you also is that the biggest falls in the Indian market came in 1992 and 2002 where governance issues were involved. There was a scam. I do not see any scam on that horizon now and it is not possible to do a scam on that scale in India today. The one reason I feel confident is that where there is governance and integrity involved, the investor suffers the highest.
I do not see those problems occurring in India or even if they occur, it will be at a very miniscule level. I do not have 100%, I have 105% of my wealth in equity. I have one fixed deposit of Rs 50000 in Andhra Bank to get my wife a locker and I have some money in the public provident fund. Otherwise, it is all debt. My liquidity is the overdraft accounts that the banks give me.