Samvat 2066 - CNBC TV 18

It is the homecoming of the victorious, and this is truly the story of the victory the market has struck out from last Diwali till now. Will the New Year usher in another bull run? Which sectors will shine? Kick start the New Year with strategies from Rakesh Jhunjhunwala, Samir Arora, and Ramesh Damani.

Commenting on the journey from Samvat 2065 to 2066, Udayan Mukherjee, Managing Editor, CNBC-TV18, says it has been an unbelievable one. "Last Diwali, there was a pawl of gloom around markets. At that point, it seemed as if India was in the midst of the most vicious bear markets that we have seen in our history. On October 28, the Nifty was at 2,685 while the Sensex stood at 9,008. Today, we have more or less doubled on the Sensex and Nifty. But this has not been a one year effort. It has actually been a six month effort. On March 6, the index plummeted to 2,500. From there, the Nifty have come to 5,100 today."

Investment Guru Rakesh Jhunjhunwala sees the Nifty trading in a 4,200-4,400 to 5,800-6,200 range next year. "It will be somewhere near its pervious top." However, he was quick to caution that breaking 6,100-6,200 on the Nifty and holding on to it is not going to be an easy task. "If you price in 2011-12 index earnings, which you would do by December 2010, then it could."

Samir Arora, Fund Manager, Helios Capital, says the new highs, if reached, will not be sustained in the next 5-6 months. "If all of us agree that we will not get to new highs, then theory would say that it might!"

Ramesh Damani. Member, BSE, says the bull run in markets is still on. "I would argue that what we saw from October to March or earlier was just a break in a bull market. The theory working in America now is that the falling dollar equals to a higher Dow. At some point it will stop, one cannot debase a currency and expect the market to keep going up."

When are markets likely to correct?

A number of market experts have been saying that the markets are currently overvalued and ripe for a correction. However, Jhunjhunwala sees the markets trending upwards. "They are not going to correct easily. Without that burst of a rise that correction is not going to set in."

How should you trade gold?

Damani advises investors to buy gold as it provides a safe haven if there is a global turmoil. "If there is a global turmoil, it is going to hit the Indian markets. The long-term trend lines are still intact, but it will hit the Indian market. So, gold gives you that insurance. I would keep a very close eye on gold over the next year or so."

Jhunjhunwala too is bullish on gold. He says it is the only asset class which has gone up for the last seven years and is now ready to go up for the eighth year. But he was quick to add that the investments in the stock market would give better returns. "We were in a kind of financial crisis in January and nobody knew when it will end. I don¿t think there is that kind of crisis this year. Where you are going to store and keep the gold you buy. So, I guess it is better invested in equity."

The yellow metal also finds favour with Arora. However, he advises investors to stay away from the yellow metal. "It is like an alternative currency. But it may not be as interesting for Indians as you are already going to be in a strong currency."

Buy midcaps:

Damani sees panic buying in smallcap and midcap stocks: "If you see the first few midcap results, and if it is an indication of what is to come, there would be panic buying in smallcap and midcap stocks. One should by all means do bottoms up stock picking."

On power:

Arora says power is the most ridiculously priced sector now. "There is no question that utility companies are in an absolute bubble."

Here is a verbatim transcript of the exclusive interview with Rakesh Jhunjhunwala, Ramesh Damani, and Sameer Arora on CNBC-TV18. Also see the accompanying video.

Q: Wold you have dreamt that this could have happened last Diwali. Has it taken you completely by surprise?

Jhunjhunwala: If would have given me three slaps and asked me what are my thoughts were in March, I would have said markets will go upwards. But that it would have this kind of a ferrous rise, this kind of a breadth, and this kind of contempt, I wouldn¿t have dreamt at all. It¿s really taken everybody including me by surprise.

Q: Unbelievable performance?

Damani: It is. I was a fierce bear, but I now argue the case that I am a reformed bull. I argue the case that what we saw from October through March or earlier was just a break in a bull market. The intellectual strategy as Jhunjhunwals pointed out in 2003 is actually unfolding now. We are seeing a very severe correction within the bear market. The bull market is continuing. There is no other way to explain it. If that is true, this probably has more legs.

Q: What do you think? The last couple of times we have spoken, you have sounded a bit worried that it is all happening to fast. Are you alarmed at the pace or happy that we are back in a bull market?

Arora: We are back in a bull market but the pace is a bit staggering. We would rather have a longer duration of a bull run rather than have this massive upmoves in a few months but it is good in any case. But if you look at the past two years, actually it is not just last year, it was unbelievable. Even the year before was unbelievable because we never imagined in November 2007 what would happen next year. So, the best thing is to do different from what you think. It¿s better to act bearish today and then have great bull run for the next one year.



Q: Can you extrapolate this because last Diwali things were totally different. This Diwali, the mood is changed. Could it change again by next Diwali or do you think a trend has been rediscovered?

Jhunjhunwala: The mood next Diwali can be bullish or bearish which is difficult to predict. But I think the most important part of what happened in the last 12 months if that India as an economy has responded extremely well to what has happened in the world. In October 2007, I was expecting the markets to correct. In the first leg when the markets went down, I thought all of our wealth has gone. We were going through a stress test.

I think what has happened in the last 12 months is very important as an indicator as what¿s going to happen over the next ten years. What has happened in the last six-nine months gives me lot of confidence that India will grow at 8-10-12%.

Despite Wall Street slowing, India has respond extremely well. Sectors are growing. In the future also, the Western world might slow. I don¿t think we have seen the worst of the Western world position already, I think the worst lies ahead of us. But inspite of that India is going to outperform and India is going to distinguish because if commodity prices remain reasonable and if software export holds and interest rates worldwide will remain low, I see no reason why India cannot grow 9-10%. Now

, there is a growing recognition that there is a lot of local money which is flowing into the stock markets of India. It is been led by a set of certain circumstances which cannot change, the vast savings, demographic factors etc. The rise in the last six months gives me great confidence as a long-term investment and that is extremely important for me as an investor.

Q: This Diwali, would local investors be jubilant at the fact that we are at more than 5,000 Nifty or would there still be a big lingering or left out feeling. Do you think a lot of people still haven¿t caught it?

Damani: There probably is but there is no excuse. Markets are the way they are. To give credit to Jhunjhunwala, he is the first guy to make an intellectual hypothesis that India is emerging under the sun. We are actually seeing that. We are going to go to the middleclass or what do we have now to maybe a billion people over the next 30 years or so. There are staggering implications in terms of investing in terms of consumer durables, autos, and cement. I think we are seeing that unfold before our eyes. Occasionally, when we go through this kind of burst, we all lose our faith. It still looks that the story is not necessarily of what¿s happening in the stock market but what¿s happening to India, and this is a country in transformation.

Jhunjhunwala: We must distinguish between the man who apparently invests in the stock market and the local money that we are talking of. I am talking of the local money for the person who puts it in insurance, who is going to put it in his provident fund. Just because people who essentially are not long-term investors but traders are not happy because they have not participated doesn¿t make any difference to the long-term flow of money into the market. Let¿s make a clear distinguish between the long-term investor and the person who comes to trade and make fast buck.

Q: What¿s sense prevails this Diwali from the global money because we have seen quite a bit of if, but you still get the feeling that a lot of people are under investor or uninvested. Do you think we are headed for a buying panic or we have seen that in part already?

Arora: I think there will be a buying panic this quarter itself because fund managers both foreign and domestic, but basically foreign, have not positioned themselves for 2010. I think fund managers, fund of funds, and other investors have made two mistakes. One is to sell too late in 2008 and then to climb back quickly in 2009. Effectively, they have written off two years of life. I think they cannot take this risk any more.

Fund managers will want to position themselves and say we are now committed to India, Asia, emerging markets. That positioning is going to happen this quarter. I think domestic investors have completely missed this rally completely. Mutual fund collections are zero for this year, not positive. I think USD 50 million. In August-September, there have been net redemptions from mutual funds. Some of them have put money in insurance, but I don¿t think it¿s the same scale as we had before. So, even domestic investors have missed the rally completely.



Q: The test for a lot of people that it is actually a bull market is when you take the previous high out, or 20% away from that. Do you think we have a reasonable chance that in the next four-five months we get there?

Damani: We will test with it, we will flirt it. I seriously doubt whether we will take it out because of the composition of the index. But all stocks may not make it back to their highs. I think there will be massive supply of paper coming into the market. There are significant changes going on into the tax code which could have implications in the market one year from now in terms of the new tax code coming in. So, I think those prevent us from saying that the market will significantly be higher than 21,000. But it is great, wonderful world if you trade in a range of 16,000-21,000 on the Sensex.

I am re-rating the basics: Get back to picking stocks, don¿t try to decide the direction of the market as the undertone is buoyant.

Q: Do you see a new high or a rangebound market but a lot of stock specific performance?

Jhunjhunwala: My personal opinion is that the new high is not easy. But if you look at selectively the auto index, it is already 20% higher, which is a life-time high. The fast moving consumer goods (FMCG) index is 10% higher, the healthcare index is on the verge of breaking it. Although I personally feel that breaking 6,100-6,200 on the Nifty and holding it is not going to be an easy task.

Q: By when?

Jhunjhunwala: If we do very well, if you price in 2011-2012 index earnings, which you would do by December 2010, then it could. But for this run to go from 2,500 to 6,200 and make a new high, we are going to see such values on the Nifty and the Sensex which are beyond comprehension. I think it is a tall order. I agree with Damani. I say why 16,000. If the Nifty goes back to 4,200-4,400 and holds 4,400 to 5,800 for the next one year or next fifteen months, long-term investors should be happy. But I feel that despite whatever the movement in the indices, which are difficult to predict, our hypothesis about India and about Indian markets has now got a solid foundation. The stress test is over. I think we have passed it with good colours. I see no reason why foreigners also will not pour money into the country.

On all counts, we don¿t know what can happen in the next six-nine months or one year to the index. In the long-term, we are going to see the index at levels which sometimes we only dreamt of.

Q: You have been also pointing out the point that Damani was making that many largecaps make you a bit uncomfortable. Do you think that is the hurdle which the Nifty will have to deal with if it has to go to 6,200? Will it struggle a bit as our two speakers are saying?

Arora: Even I agree with both of them. The new highs, if we reach, will not be sustained at least in the next five-six months. If all three of us agree that we will not get to new highs, then theory would say that it might. But I also don¿t believe that it will happen and also that it should happen. I believe that next quarter, i.e. January quarter, you might actually have a correction, whatever minimum correction may happen ¿ 10-15% or less. But a correction will happen because this buying panic which will happen this quarter will suddenly make everybody tired. Everybody would be in the market and then maybe it will be some guys here or there who completely missed the boat. There will be some issues in Q1. You could relate it to the reduction in excise, these concessions that have been given, it could be inflation.

In the longer run, I don¿t mean five years but even one year or nine months or fifteen months, India has been firmly discovered and will definitely get serious amounts of money in the next few years. All we have to do is be presentable and not create new problems for ourselves. I think India has been seriously discovered in the world. We can see it everywhere. wherever I go, whoever I meet. They maybe a feeling in the short-term whether they should invest right now or not, but no longer will they ignore it, no longer will they talk about wanting to invest in an international fund but not a single country fund. All that has changed this year.



Q: You must be enjoying the ride in the rupee?

Arora: I am enjoying all the rides except that it is always more fun to have serious amount of money before the rally happens. These days the rally is happening as sharp as the money is coming in. The big question is how will we give returns to the new guys. This is a bit of a tough situation. But in general it is a sweet spot for India. As Jhunjhunwala was saying, we have been firmly discovered and have come out with flying colours and generally with good credibility. So, unless some major macro shock happens over the world, the trend of moving towards emerging markets, Asia, and India - whether it is because you want to move away from US or you want to diversify from dollar - is firmly in place for a long-time. But still you should have some corrections in between just because the pace is quite strong and you want new investors to feel that they are buying a relative bargain. So, a little bit correction here and there is good.

Q: Do you think the rupee is going to 42-43 per dollar?

Jhunjhunwala: I am not a rupee expert but I personally feel that in the longer-term the dollar has to go down against the emerging market. At the value of Rs 42, Infosys¿ margins are 31%. How the Americans are going to compete? What is going to happen to the current account deficit? Therefore, there is no question that the only way you can correct the imbalance in America is to let the currencies appreciate. I think the rupee is going to gain against the dollar. I cannot predict whether it will be 42-43 or 38-39, how soon, how fast etc.

Q: What do you do now? Is your call that it is a bull market again and I need to be buying whenever I see value on every small dip?

Damani: Absolutely. You look actively for opportunities. The first set of results that has come in the two weeks of October in the smallcap and midcap space are breathtaking. Some of them are stunning results. The market is going to re-price smallcap and midcap stocks. They were all beaten down. Maybe the A group has run ahead of itself, but my eyes find it hard to believe the results posted by B group stocks.

But to make another point that Jhunjhunwala made and keeping in mind that the rupee is appreciating, the flip side of the play is to go long on gold. Diwali-to-Diwali, I am extraordinarily bullish on gold because it is broken into a lifetime high. It is at a thirty year high and it is at a lifetime high which suggests that there is some basic buying going on there. The intellectual hypothesis is that the dollar is going to go down. So, the flip side is gold is going to go up. I would definitely suggest an exposure to gold.

Jhunjhunwala: Analysts have not been able to predict the gains of a restructured India. A lot of corporates have restructured, they have got efficient. I am a shareholder in Rallis and I am interested party. Based on their results, people were predicting that because of drought their sales and margins will be down, but sales and margins are up. So the kind of restructuring the kind of efforts corporate India has made, I think may surprise people on the upside.

Lot of American companies have come out with good results, toplines are not going up, bottomlines are going up. In India, the toplines and bottomlines are also going up also because of the restructuring. So, it could be far better than expected. As far as gold is concerned, I think this is the only asset class which has gone up for the last seven years and is now ready to go up for the eighth year.

Q: You are bullish from here?

Jhunjhunwala: Yes, I am bullish on gold.

Q: Last year, you did say that you were quite bullish on gold, are you that optimistic?

Jhunjhunwala: At that time, we were in a kind of financial crisis. Technically, what Damani has said is right. We were in a kind of financial crisis in January and nobody knew when it will end. I don¿t think there is that kind of crisis this year. So, what amount of money can we put in gold and where you are going to store and keep it. So, it is better invested in equity.



Q: Gold it is not something that you tend to like very much?

Arora: I like it very much. I personally own a lot of gold and have owned it since 2004. I buy it every year. The only thing is Indian investors are buying gold in rupees which is not the same as buying it in dollars. I do not think it is now a safety trade. It is now a diversification, it is a currency. Suppose gold corrects USD 50 per ounce do you think governments in China, Russia, Singapore, and West Asia will forget about the dollar weakening and say now everything is stable. I think gold is going to become an alternative. The fun part is exactly different from what Rakesh is saying. The fact is that you cannot buy billions of dollars of gold. All the smartest hedge funds have bought it. In India, it may not be so interesting because you are already going to be in a strong currency in that sense.

Damani: Arora says there is a rupee risk in that trade, but India as a country owns 10% of the world¿s gold reserves. It is worth about USD 500 billion. If you can see a serious bull market in gold, our market cap in stocks is about a trillion dollars and 3% of India owns that equity of stocks.

Jhunjhunwala: Most Indian will feel richer.

Damani: There will be a huge wealth effect coming in. Gold is something that I would keep a very close eye over the next year or so.

Q: I was just looking at midcap performance between last Diwali and this Diwali. While a few stocks, including a couple of stocks that you own like Aptech and HOEC, have done staggeringly well, many stocks are very far away from their old highs. When will midcaps really start really firing?

Jhunjhunwala: If you are looking at midcaps means you have to look at it with big lenses because a lot of activity goes on in the midcap stocks. There is always a history attached. The debt level in midcap stocks is also very high. If the company is genuine and performance is right, I do not see any reason why they will not perform. They have to and they will. But just because you are in midcap stocks does not necessarily mean that you were good. It depends on performance. If your company performs, then surely the price will go up.

Q: Did HOEC do enough in the last six months to be a six bagger?

Jhunjhunwala: I do not know.

Q: In terms of performance why is it a six bagger? You are saying that midcaps go up because of performance?

Jhunjhunwala: I do not know for sure if they have a gas field and whether the gas field has gone into production and going to give them substantial revenues. There are all kinds of rumours about some gas finds, some oil finds. I would like to make a disclosure that I am an interested party in Hindustan Oil, Aptech, and Rallis India.

Q: Do you think this is the kind of market where you pick the right stock and it goes up or is it still a market where 100-120 stocks are doing well. It is not like you pick a gem of a midcap and that becomes a four-bagger in some period of time?

Damani: Arora was talking about a buying panic. I do not know whether it will happen in A Group or the index. If you see the first few midcap results, and if it is an indication of what is to come, there would be a buying panic in smallcap and midcap stocks. I am getting companies with PEs of 5-6 paying dividends. I am just looking at the numbers and saying this is not possible. I know these companies have no vested interest. They have not raised capital; they have not done any QIP, they have a strong history. I think you should by all means do bottoms up stock picking. This is the time to do it.

Jhunjhunwala: My largest investment is Titan. It made a high of Rs 1,650. In 2007-2008, it came down to Rs 850, today it is at Rs 1,450. In 2007-2008 bull market, Lupin touched a high of Rs 650-700. It traded at Rs 1,300 yesterday or the day before. I cannot say that Lupin is performing and Titan is not performing. You have to look at the history prior to the last three-five years. I think it is an extremely broadbase rise. I am an interested party in Titan and Lupin. So, it is an extremely broadbase rise. All sectoral indices are gaining. It¿s a perfect rise. I don¿t think it is narrow or manipulated or there is any extraordinary factor which is driving them.



Q: I spoke to you a few months back and at that time the market had not recovered this much. You said you are probably making your portfolio a bit narrower, maybe throwing out a few stocks, and making it a slightly more concentrated. Are you moving away from that and now saying that I need to look outside the few 20-25 stocks that you might have been concentrating on?

Arora: I was giving up on largercap names for various reasons whether it was the Reliance group, telecom, or even IT. In that sense, there is definitely been more midcap buyers in the last four-five months in general. Over the next three months, I may either short some other stocks or index or reduce some of these midcap high beta names. But the number of stocks has gone up in the last three-four months definitely.

Q: The revelation from largecap space has been autos. It was the first to come out of the intensive care unit (ICU). Some of them are actually hitting new lifetime highs. Has that been a revelation of the last one year if you have to pick something?

Jhunjhunwala: Fast moving consumer goods (FMCG).

Q: On autos?

Damani: China has become the largest car market in the world, India is booming. I have heard that there is a two weeks or 30 days waiting for cars in India. It¿s a huge sector which has the potential to drive up the economy. The kind of value addition that gets created by an automobile sale in terms of steel, labour, advertising is huge. It is clearly showing that there is strong demand across consumer durables in India. This Diwali has been extraordinarily good from all the reports I have heard.

Jhunjhunwala: In the midst of all this doom and gloom, it was ENAM who made the report and predicted an index of 16,000 to 17,000 by Diwali 2009. That report was made by Nandan Chakraborty. Among all the doom and gloom they had made that report that the index will be around 16,000-17,000 by 2009 Diwali.

Q: Were you surprised by the way autos moved in the last six months?

Jhunjhunwala: None of us expected it. At least, I did not expect the Nifty to break 3,800-4,000 on the downside. When we met for the election programme in Delhi, I had said the index will trade around 3,800-4,000. The rise above 4,000 has caught me by surprise. Having seen this rise, I can say the rise is not going to stop. There is no participation, stocks are going up perfectly, and are correcting. I don¿t think that without a burst of a rise there can be any meaningful correction. Just as somebody said that there has to be panic buying and only then can be go into some meaningful correction.

Q: Do you expect that burst of buying phase to come soon?

Jhunjhunwala: Is the dinner complete without dessert? I believe the panic buying will have to come sooner or later. I disagree with Arora. I think local people have been buying a lot. Insurance companies are forced to buy. The mutual fund industry may not have got flows. Now, we have seen that the market has doubled. If you go to a cocktail party, no one talks of the market. Everybody is nervous and most people are suspicious. The first thing anybody asks in an interview is when will there be a correction?

Q: Are you expecting this huge burst to happen sometime in the next two-three months, this complete momentum where everybody throws in the kitchen sink at the market?

Arora: The amount of money that will be invested will be larger than normal. In any case, September was a very big month. It was more than USD 4 billion from foreign investors, which has happened only four-five times since 1993. So, it is not that USD 4 billion ultimately meant the market going up 8-9%. You may not get another USD 4 billion a month, but USD 2-3 billion a month for the next two-three months can easily happen. This is a big number but because there are so many QIPs, IPOs etc, the market may not go up. But the amount of money thrown at it will be quite large. But before that, from an investor point of view, it does not matter whether the market goes up 10% this quarter or 20% because your behaviour will be exactly the same, unless you thought it is going down 10%. So, investors should be positioned for a rally or for a strong market and then leave it to God to see how far it goes. But today the investors are not even positioned for that. They are actually positioned as if this whole recent rally was unsustainable, unreasonable, and too risky to come in. I think the markets will be up.



Q: A number of very worthy speakers, they maybe wrong about the market, are still contending that 2010 will be a difficult year and that it is premature to celebrate? Do you think the Western economies or Western markets are overheated and then another big fall is coming? When that happens, will collateral damage happen in emerging markets as well?

Damani: The theory working in America now is that a falling dollar equals to a higher Dow. At some point it will be up, you cannot debase a currency and expect the market to keep going up.

Will a crisis hit the West? You have a country where unemployment is still 10% and the actual U6 number is more like 14-16%. There is a huge current account deficit, healthcare and housing problems. The hard decisions that they have to be made are not being taken so far. Can the Dow fall, yes. Can the dollar fall, yes. If there is a global turmoil, it is going to hit the Indian markets. The long-term trendlines are still in tact, but it will hit the Indian markets. So, gold gives you that insurance.

Q: In case that happens, are you saying that people in the world have seen enough of India to say that the dip in India is a buying opportunity. This time, the markets will not get hammered down like it did last year with the rest of the world?

Jhunjhunwala: I cannot say all that. There has to be a transition both in consumption and power from the Western world to the developing world. It is inevitable. But whether this transition takes place in orderly manner or it creates problems and geopolitical tensions we don¿t know. I think that is the biggest risk we face as an equity investor. Let the Dow go down to 4,000, ultimately as an investor in Asia, particularly in India, I will gain. After October, Asian markets never retested the lows in March. The Dow retested its lows. Also, the gains in the Asian and developing markets are far higher than the gains in developed markets. So, we are decoupling. We may not decouple on a day-to-day basis. But on a broader basis, we are decoupling.

If there is basic question to the equilibrium of financial systems in the world, then all bets are off.

Q: In 2010, how much probability would you set for a big US accident again which drags us down?

Arora: If the US market corrects even 10% without an accident, we will surely be down. We feel confident that it will not go down twice the pace at which the US falls. Historically, India has on the downside been beta of 2 or 1.5 relative to US. There is recognition that India need not be beaten down at twice the pace at which the developed world is correcting. In any month if the US market corrects 8-10% - that won¿t be called a panic or a real second crisis ¿ India will fall. But my expectation is we will not fall at the same multiple as we did in 2008.

Q: The problem is not the 10% US fall, it is the 25-30% US fall. If that happens, do you think that possibility lurks in 2010 and will we be able to skirt it?

Arora: No, you will not be able to skirt it. The ideal situation would be if the US market or economy goes down slowly and smoothly. In that case, the rest of the world would not get panicky. But if the US market fell 25% in a two-three months period, there is no way that we will not be down 15-20%. We should not be down 40% because that is our history till today. We go down in bad days at 1.5 times the world. What is the probability of a 25% fall in US? I don¿t think it is very high.

Jhunjhunwala: I don¿t agree with Arora at all because when the Dow is 10,000 today, the Sensex is 17,000. One day the Dow was 10,000, the Sensex was 3,000. Over a period of time, we have vastly outperformed. think it will take time but we are slowly going to pick up.

Arora: Only in short periods of time if the Dow corrects, we will correct. We have corrected more than that, but over time we are definitely outperforming. There is no question of that. For the last one-three-five-ten-fifteen-twenty years, India has outperformed the US. It has outperformed Asia, excluding-Japan. It has outperformed emerging markets in dollar terms. This is when we didn¿t have a new government.

If the US corrects a lot, we cannot escape it. This year, the US market is up some 15% and we are up 80%. If the US is stable to slightly up, it is the best situation for us or if it deflates slowly.



Q: One of the big triggers of this 90% gain that we saw from March to now was the electoral result? You made the point about the tax changes, do you think what the government does is going to be a significant driver of markets or we are just globally linked and this is a peripheral issue?

Damani: If capital gains will be taxed at 10% instead of 0% and 15% that we are at now and if they don¿t allow the price as of March 2011 to be taken, everything now is taxed, that will lead to selling. The tax code is still unclear on exactly how to do that. There is some evidence that they will take the prices on March 31, 2011 for the new year or let you invest that money into another capital gains account which will recover free as long as you keep investing it. So, it is too early to make the call, but if it goes there, unbelievably some selling may come before March 2011.

Q: From a market perspective, do you think policy-making reforms is a big issue for India over the next one-two years?

Damani: It clearly is. The commanding heights are no longer made by public sector undertakings (PSUs). But by doing a disinvestment properly or orchestrating an economic effect that may take place. As Jhunjhunwala famously said, ¿India will grow despite the politicians not because of the politicians.¿

Q: The one reason why a lot of people believe that new highs will not come in the index among other reasons is telecom, a segment that you have not loved. In the last two weeks, that love certainly not have intensified. Do you think it will continue to drag?

Arora: I think all these two-three stocks comprise only about 6% of the index. I don¿t think that alone is the reason. The other reason is the fact that IT guys have already gone up a lot. Consumer staples do not go up at the same space if markets are strong, the only outperform in bad markets. Although the Reliance group has been up recently, it still has to resolve its issues. It might take three-four months maybe, and after that everybody will be a winner. But today, these entire things are keeping the index in check, which I think is healthy.

Q: Is it because of large names like Reliance, Bharti that you believe that the index may not make it to a new high?

Jhunjhunwala: If the trend is upward, the pace may slow a little, but money will go into stocks which are performing. They will gain far more than they should or would in a normal circumstances. We are seeing that Bharti has gone down from Rs 440. They lost nearly 25% in 10-12 trading days but the market is higher. I will not say that the Nifty is not going to go up just because certain sectors went up, a lot of sectors will go up. The trend is upward markets, the index will go up.

Q: Most often, skeptics say the reason why the markets are not move higher from here is becauseby valuations capture a lot of the upsides. What would you say to that? You obviously don¿t buy that?

Jhunjhunwala: As a trader, I don¿t look at valuations in terms of absolutes. I look at it in terms of the leverage positions of the market, the participation. In the shorter-term, that is what is going to determine the movement of the market. I tend to disagree with most people. I think markets are going to go up, they are not going to correct easily. They will correct at some point. We don¿t know when. But without that burst, a correction is not going to set in.

Q: Whenever it corrects, do you think it will be difficult to go below 4,000-4,400 kind of levels?

Jhunjhunwala: I would say be a Chinese wall where all bets are off. We can expect that. But I personally feel that correction may not even be that deep.

Q: Not even 4,400 or 4,000?

Jhunjhunwala: I mean the correction could be very minor, it would be more prolonged timewise. Forget that this is a drought here. We are recovering from a downward trend where next year¿s expectation is that growth will be far better. Hopefully, there won¿t be a drought next year. So, economic performance next year should be far better than what it would be in this year.



Q: What do you think?

Damani: I have lost my confidence. I have no base for saying it won¿t be 3,900, it could happen. But you have to have conviction to make money in the stock market. You have to dream that this is not going to be a country of 4% Hindu growth rate or self-sufficient mantra. We are building a new economy and are in a different economic growth phase. We are going to grow at 8-9%, our middleclass are expanding, so we should hold it. One thing it has taught you that long-term investing isn¿t dead. All those people who came and threw out all the books on long-term investing, is all over. I think they probably have to re-buy those books. You buy with a margin of safety.

Q: Are you skeptical about the whole power story because most of the new money is being raised in that sector?

Damani: It¿s an ultimate commodity business. I don¿t follow it anymore.

Jhunjhunwala: I am skeptical of valuations, not skeptical of the sector.

Q: You have not participated in any of the new initial public offerings (IPO) from power?

Jhunjhunwala: Let us not discuss what I have done. I am skeptical of the valuation at what people are buying because it¿s a cost plus industry. Even if it is merchant, those kinds of rates are not going to last. There is need for large capital infusion. You have a value for Nestle stock because Nestle doesn¿t keep issuing equity. Here they keep needing money and that to at 300-400% premium. Plants are not put up. Someone has invested Rs 600 crore, yet no plant is up. The value of the stake is Rs 15,000 crore, the market capitalization is Rs 32,000 crore. This is the greatest magic way of creating wealth in the world.

Q: What do you think about power because this is the one big talking point in the market?

Arora: I think it is the most ridiculously priced sector now. If somebody has merchant power and therefore is making obscene amounts of money and on the obscene amount of money you are giving obscene multiple. Somebody today is making very high profits because there is a certain gap before everybody starts producing the same power and therefore those numbers are unsustainable. On those unsustainable profits, they gave unsustainable valuations for commodity or utility companies. Over time there is no question that utility companies are in an absolute bubble, it is like internet companies at 1999 end, not just in 1998.

Q: Any predictions for the next year. The last two years have been unpredictable. Do you think it will be a good year? I am not asking you for index levels.

Jhunjhunwala: I think India should perform far better. 2010-2011 should economically be a far better year for India than 2009.

Q: Do you think wealth will be created in the stock market?

Jhunjhunwala: I think the range next year will be 4,200-4,400 to 5,800-6,000-6,200 for the Nifty.

Q: 5,800 to 6,200 is the higher end?

Jhunjhunwala: Yes, somewhere near the previous top.

Q: But not quite beyond it?

Jhunjhunwala: It could be in the later part of the year. Until maybe the first half of the year, 4,200-4,400 on the downside and maybe 5,800-6,000 on the upside.

Q: What do you think?

Damani: We are at Samvat 2066. If the bulls are right, we will add a zero to that. The index will at least go around those levels.

Q: 20,660 that's a catchy one?

Damani: It's a great time to be alive in India. Remain invested in stocks, do bottoms up stock picking, but keep a slice of gold.

Q: Your views?

Arora: I think that Indian investors do not have enough faith in their
own market and economy. Therefore, all this fun and games have been had
by foreign investors and foreign fund managers and people like Rakesh
and Ramesh who are not considered normal retail investors by any stretch
of the imagination. I believe that Indians should believe that they will
make serious money. They have to have faith and commitment to the market
and not trade it. Invest for the long-term. But serious money will be
made over the next many years.

via CNBC TV18