In Bull Market Journey From Mumbai To Delhi, India’s Only Reached Borivali: Rakesh Jhunjhunwala
India’s bull market journey has just begun, said veteran investor Rakesh Jhunjhunwala, adding that “if the journey is from Mumbai to Delhi, we have only reached Borivali”.
There is no dearth of domestic capital in India, he told BloombergQuint as rating agency Moody’s upgraded India’s sovereign rating to Baa2 from Baa3 earlier. As long as there is demand and ease of doing business in the economy, capital will be available, the veteran investor said. In fact, the gush of investments into mutual funds arising from the shift to savings to financial assets from physical assets after demonetisation, has only just begun, he added.
India saw close to Rs 1 lakh crore investments in domestic mutual funds in Oct. alone. However, “the flood is still to come and tsunami will come after,” Jhunjhunwala said.
He remains unperturbed about the impact rising oil prices could have on India’s trade deficit. “Russia is saying that as long as oil is above 60, it would not further curb production and shale production has already come back. Shale production has just started. Mexico has made a discovery that they could be one of the largest onshore fields in the world,” noted Jhunhunwala. He expects oil prices to remain in the $50-60 per barrel range.
Watch the full interview here.
Here are edited excerpts from the interview.
Your thoughts on the Moody’s upgrade?
My thoughts are it’s an endorsement of the policies that the government has followed in the last three years and a recognition of the great change that India is going through and they are looking at it positively. It is a fitting answer to Modi government’s critics.
Are you surprised by the timing?
No, I am not surprised.
Rating agencies tend to follow delivery and print but this time Moody’s has given a forward view, does that surprise you?
I am not so conversant with what rating agencies do. They are making a call that economic growth in India will accentuate. These reforms are in the right direction. I think it is a big thing that they are taking some call on the future of the fiscal position. Although, there will be some overshooting of the 3.2 [fiscal deficit] target, it is going to be under control. They are also calling on the political stability in India to say that further reform is on its way.
Vulnerability to oil shocks has not been taken into consideration by Moody’s. That’s music to your ears?
Yes. The music to my ears is also that some international agency is recognising it and we are on the same wicket. Russia is saying that as long as oil is above 60, it would not further curb production and the shale production has already come back. And shale production has just started. Mexico has made a discovery that they could be one of the largest onshore fields in the world. So, there is plenty of oil to come. So, I don’t think oil is going above $60-65 levels. According to me, the range will be between $50-60 per barrel.
What are your thoughts on earnings and the investment cycle?
I hope earnings will improve quarter-on-quarter. The investment cycle is very difficult to predict. But the start of the pickup in investments has started. It’s a process or a journey and not a destination. Slowly, with time, it will pick up. I am not an economist. I can only predict the direction and not at what speed or depth. It was 27 percent of GDP invested in 2003 and in 2008 it was 35 percent. China’s is 45-46 percent. So, in next three to four years it will go back to 35 percent.
Is that a timeline that you could be happy with?
It is not a question of my happiness, we have to see the reality.
Do you think the markets will be happy with the time horizon of 24-36 months, if that’s how long the investment cycle takes to pick up?
One is the time horizon and other is the pace. And as time passes, the pace with pick up. If it revives in four years, it will be the slowest in first year and much faster in the second and third year.
Do you think the public sector bank recapitalisation is one factor which will lead to an investment cycle pick-up?
I don’t think the PSU bank recap is important for the capex cycle. Demand and ease of business is important for the capex cycle. If you have demand and ease of business, then capex is always available. If these two are prevalent then capital will come. There is no shortage of capital in this country.
One factor where foreign institutional investors have got it completely wrong compared to domestic investors is the market mood and change in the earnings cycle. Do you think that is here to stay?
In 1999, Marc Faber said the locals always know it better in any country. The locals are better investors and anticipators of growth than the foreigners. In my opinion, the flow of Rs 1 lakh crore into mutual funds in the last one month is just the beginning and the flood is still to come and tsunami will come after. So, I don’t care about the foreign investors. Let them do what they want. I am more concerned about the local investor. What is this phobia of foreign investors? We also have capital here. If they sold, will the markets go down? To my mind, I don’t look at foreign investors. I think for local investors there is no choice but equity. I am not looking at 30-40 percent returns but a 15 percent return.
What will be the mood of the market in the next 12-odd months as we head towards the election season?
The election season is important, but these reforms are not important for 3-5 years but for the next 50 years. In 1991, when the change took place, people were shell shocked but that lead to the biggest growth in India. For the next 12 months, the mood is bullish.
We should not forget that we have come from 6,800 to 10,500 without any meaningful correction. So, the market can correct but the bull market is not going to go away for a long, long time.
Do you think the 20-30 basis point miss will be taken into account?
It doesn’t worry me. I think it is already being discounted. Mr. Modi has a track record of being a fiscally responsible person. He is not one who will spend himself to inflation. Going by this government’s track record, they are not going to let fiscal deficit go up beyond a point.
What could the currency do over the near or medium term?
I am not so bullish on the rupee, I think it will go down. I see levels of 66-67 to the dollar.
We are at the starting stages of the bull market and there is long way to go.
I think it is a long way. I think we have to go from Bombay to Delhi and we have just reached Dahanu here. We have not even reach Surat. We are at Borivali, I would say.