Rakesh Jhunjunwala - Interview with CNBC

In a candid interview with CNBC-TV18’s Udayan Mukherjee, Rakesh Jhunjhunwala, one of India’s most respected equity investors, said the Sensex could go up to 20,000 and then slip into a trading range between 15,000 and 16,000. The benchmark index won’t hit 21,000 in a straight run though, the Big Bull said.

“If the Nifty breaks 4650 decisively and holds for a week or so, it could hit 5900-6000,” Jhunjhunwala said. The markets would consolidate between 4,000-5,000 for three-four years, he added.

The correction seen in the latter part of 2008, he said, was a part of a major bull run that continues and which started in September 2001. “The bull market started in September 2001. We had the first leg up to September 2002 after which there was a correction. Then it started from April 2003, that leg lasted till 21,000,” the ace investor said. “That gets corrected back now to 7,500-8,000 and now we have resumed that bull market. So we can go to 20,000 and again come back to 16,000-15,000, make a range and then make a move which goes above 21,000.”

Q: We spoke on the day after the election results. I do not think even we imagined the market would be here. What is the screen telling you now?

A: The screen is telling me that the bear correction of the larger bull market in India is over. If the markets do not break below 4,000 levels in the next six-nine months — and the screen is telling us they won’t — then surely the fall from 6,000 to 2,500 for the Nifty and from 21,000 to 7,500-8,000 for the index was just a correction in the longer-term bull market in India. Actually, in my opinion, the correction started in September 2001 because the real bottom the market made was post-September 11, 2001 and then the market went up to 3,500 and had a historic correction back from April 2003.

Despite people’s apprehension and doubts about the economic scenario worldwide, it could be that the fall [in 2008] was just a correction. I also feel so because of the way the [subsequent] rise took place with its tremendous breadth, tremendous pace with good volumes — but with a lot of cynicism and lack of participation among the larger people.

Q: You do not agree with the consensus feeling right now that we should be scared by the pace of the rise. That we are now approaching a mini bubble kind of a situation?

A: You first asked what the screen was saying, you never asked me what my opinion was.

Just like others, there is a fair amount of doubt in my mind too. Internationally, things are not clear at all and I do not think that the downturn in the western economies — even if there is some kind of an improvement in the next 12-24 months — has really peaked. So with that knowledge about the world economy, it clouds the judgement of what can happen in India.

However, If you look at the other side of the story, I see no reason why — if Indian software exports grow by 10-15%, commodity prices hold at reasonable levels and we have good government policies — India cannot grow at double digits. We have large internal savings. If we do well, the world capital will be at our doorsteps, there will be no lack of capital if the government is able to facilitate investments. So those are the two sides but I am more tilted towards the second side because in the initial stages, they say, bull markets always go up on a wall of worry and bear markets always go down on a ray of hope.

The fact is that market is just going up in an unexpected pace and everybody is worrying. Surely I am also apprehensive about the valuation and the pace but markets are markets.

Q: When you look at the screen, what worries you? Does it worry you that valuations are far ahead of fundamentals or do you see the kind of participation or mania that you saw in 2007 or that is not visible just yet?

A: Not at all, not even 5%. I don’t go to any cocktail party where stock markets are even talked because everybody is totally left out. And the futures positions are indicative, the number of calls you get, the apprehension that people have in the buy stocks — I don’t know where the buyers are coming from but I don’t think there is even 20% of the participation of that what was in 2007.

Q: Will they all get sucked in you think before this rally tops out, people who have been sitting out?

A: It is very difficult to leave a burning cigarette in a rising market. Everybody will ultimately join. I don’t know how many calls I got when we made a 52-week high. Normally, a lot of channels call me, no channel called me to get an opinion when the market was at a 52-week high. I don’t even know how many people know we were at a 52-week high.

So I think crowd psychology-wise or sentiment-wise, I don’t think at all we are anywhere near any kind of a top.

Q: Are you trading yourself with a bit more caution because you were saying you are also in two minds right now or are you trading the kind of volumes you were trading in the big momentum of 2007?

A: I don’t think I am trading the way II was in 2007. After all, I am a human too and I am also affected by what my thoughts are. However, I am far surer about the [country’s] longer-term growth prospects and the strength than most people.

Q: Why did you pick out the level 4,000? Any significance or do you think below that…

A: Instead of 4,000, I would say 3,800 or maybe even 3,600 — no level is sacrosanct — but I would say the level where this market made a gap, that should not be violated on the downside. If it breaks 4,650 decisively, that’s what my technical analyst tells me, that market will make or at least challenge the previous high of 6,100.

Q: Do you think 6,100 is possible in 2009?

A: Did you think 4,500 was possible?

Q: I am asking you.

A: Ok. What the technical analyst says — and I also think — if it breaks 4,650 decisively on a weekly basis and holds it for a week or two, then surely we can go to 5,800-5,900-6,000 levels. We could go there, then come back to 5,000-5,200 or maybe 4,800-4,500, make a range and consolidate for a year or so and then make a new high. Another scenario: we break 4,650, we are going to go to 5,850-5,900-6,000, come back to somewhere around 3,300-3,400 and maybe spend three-four years there.

Q: Do you think that’s also possible — that the market goes there, halves from there and then spends a big…

A: It happened in 1991. So at this moment, I won’t rule out any of the scenarios but I am more inclined towards the first that we will reach 5,800-5900-6000 and then we consolidate — maybe in the 4,500-5,000 or 4,600-5,200 or even 4,000-5,000 range for the next 12-18 months. Then we go into a new high — 6,100 — and go upwards or we go back to 3,000 to 4,000 where we spend two-three years to resume higher.

Q: What is your best guess for the rest of 2009? Do you think we will actually go to 5,800-5,900 in 2009?

A: I have put a lot of caveats there — that the index should cross 4,650 decisively on a weekly basis, hold for a week or two, then I think it should. I don’t know where and what range the markets go into, but they will go into a range, spend time and only then are we going to see a big move. We have already seen a big move, we don’t know whether this move will end at: 4,800, 5,800, 5,900, 6,000? I think it will surely end before 6,000.

I do not think the Sensex will cross 21,000 in a straight line. We have to correct and we have to make a range and only then we can have the next move.

Q: Range in terms of price or time?

A: Price.

Q: And that range according to you is?

A: Who knows where it will be.

Q: What is your best case?

A: I think it will be anywhere between 3,800 and 5,000.

Q: That big a range?

A: The range could be narrower but 3,800 would be the bottom and 5,000 would be the top in that range. The range could be 4,000 to 4,500, it could be 4,500 to 5,000.

Q: After that you think a bigger bull market will commence, which goes to a new high?

A: The bull market, which has started in September 2001. We had a bull market up to 2008, we had the first leg up to September 2002 after which there was a correction. Then it started from April 2003, that leg lasted till 21,000.

That gets corrected back now to 7,500-8,000 and now we have resumed that bull market. So we can go to 20,000 and again come back to 16,000-15,000, make a range and then make a move which goes above 21,000.

Q: Right now what sums up your state of mind: wildly optimistic, terribly and totally bullish or cautiously bullish?

A: All three.

Q: With an accent on what, the caution or the bullishness?

A: I am cautious.

Q: Why? You said yourself that nobody is participated; the gaon is not into stocks.

A: I am also part of the gaon.

Q: You are a sophisticated member of the gaon.

A: Even the sophisticated ones are caught.

Q: What is making you cautious? You said valuations are not crazy and who are we to say valuations are excessive? Is it global cues which you think may turn?

A: Yes, it is the sheer psychology of the fact that the global economy is in a terrible downturn. That is put into our brains.

Q: It is not the experience of the horrific 2008?

A: No, not all that. We have had more horrific experiences.

Q: Have you? 60% down in one year?

A: Yes, why not? ‘92, though I made a lot of money back then by shorting but we also 2000, which was the worst year when from 6,000, you came back to 2,900.

Q: So the fear is global, nothing else?

A: Yes, the fear is global.

via CNBC-TV18/Moneycontrol.com

Sandeep Sabharwal - ‘Markets can fall by 10-20% from peak’

Usually a diehard optimist, Mr Sandip Sabharwal, CEO - PMS, Prabhudas Lilladher Markets, sounds a note of caution about the stock markets after their breathless rally over the past three months. Markets have not been so overbought technically for a very long time and such a state will not last too long, he says. Even while expecting a 10-20 per cent correction from the peak, he feels that India’s valuations will continue to remain at elevated levels, given the improved growth prospects for the economy.

Excerpts from the interview:

Have the Indian markets run up way ahead of companies’ fundamentals, especially in sectors such as realty, cement and infrastructure? The pace and ferocity of the recent rally in the stock markets is unprecedented. If one looks at a market like India, the key indices have all nearly doubled in a period of just around 13 weeks.

This run-up has come on the back of beaten down valuations, extreme pessimism and short positions in the markets, huge cash on the sidelines, improving liquidity, reducing interest rates and a bottoming of economic performance globally. The weakness in the US Dollar combined with low short-term interest rates has made the “Dollar Carry Trade” gain momentum.

If we go back to the year 2003 when the last rally started, it took the markets nearly one year to double from the bottom. The same thing has happened in just three months this time. However as a counterpoint, markets also never sold off the way they did in the year 2008. Since the fall was so sudden and sharp, the initial rally had to be sudden and sharp.

The key is that the speed of the rally has made everyone too complacent and has led to a phenomenon of panic buying in the markets.

Lot of the stocks in the above mentioned sectors have clearly run ahead of fundamentals although the prospects for cement still look positive. Valuations have moved up due to improving growth prospects and growth in the economy is likely to be strong at least for the next five years. Under the circumstances valuations will continue to remain at elevated levels over the next few quarters.

Should investors wait for a correction now to start buying?

Markets look overbought in the short run and should see some correction. I believe it is important today to stick to fundamentals and not to be carried away with the market momentum.

As we sit to evaluate what should be the course of action going forward it is important to recollect a number of data points that have come out over the last few days:

- Global trade continues to be in doldrums and both exports and imports of most countries are still in a severe downturn.

- Most large economies continue to contract and there are no signs of economic revival anywhere in the West. It is just that the pace of fall has slowed down.

- The valuations of most markets have clearly run ahead of fundamentals with most emerging markets now trading in the range of 15-17 times 2010 earnings, up from 7-10 times in the beginning of March 2009.

- The fiscal deficit projections of most governments worldwide are continuously moving up with slowing tax collections and higher spending.

- Cash on the sidelines has come down very sharply over the last two to three weeks as most institutions, especially mutual funds and FIIs whose portfolios are declared at the end of every month rushed to deploy a large part of their cash holdings so that their month end portfolio does not show huge cash throughout the rally .

- Inflows into emerging market funds which were running at over a billion dollars a week have now slowed down drastically over the last two weeks. As such a combination of low cash and low inflows should be a near-term negative.

- Markets have not been so overbought technically for a very long time and such overbought conditions will not last too long and will ultimately lead to a big sell off. The overbought nature of the markets at this point in time is similar to the markets prior to the fall in May 2006 when the markets fell off sharply before recovering in the latter part of the year. It is also similar to February 2008 when emerging markets were most oversold than ever in history.

- Government bond yields have firmed up globally over the last few weeks, driven by fears of huge borrowings and high fiscal deficits. The rise in these bond yields will make interest rate declines more difficult and may lead to interest rates stabilising at levels higher than what they should have given the global economic outlook and low inflation prevailing currently. Reducing Libor and corporate bond spreads have hidden this phenomenon in the near term, however this is something that need to be watched out

- If one includes the QIP issuances announced till date combined with the IPO pipeline, nearly $10 billion is proposed to be raised from the markets over the next one year. This is a huge supply of paper which can not only reduce the pace of market up move but also stop it at its heel.

Markets, as they start their correction, can fall by 10-20 per cent from the peak.

Mid-caps have once again caught the fancy of investors. Have the concerns about the companies abated?

The fear of insolvency or defaults in mid-cap companies has significantly reduced today. Moreover prior to the elections, most investors were unwilling to invest into mid-caps as they were not sure whether they could move out if things turned adverse. Subsequently, as investors became convinced over the long term direction of the markets, mid-caps have come back into the investment radar. Improved liquidity and reducing interest rates will now benefit mid-caps more than large caps. A vast majority of mid-caps fell by nearly 70-80 per cent in the bear market and have now bounced back to 30-50 per cent of their peak values on a broad basis. I believe that given the growth prospects of the Indian economy there are lot of quality mid-cap companies which will not only go back to their earlier highs but also move higher up. As such, any corrective moves in the market will provide a good opportunity to build up positions in high quality mid-cap companies.

Growth-oriented stocks will continue to get a greater premium over the next few weeks and months as investors become more convinced that the economy is clearly on the path of recovery. As such, long-term investors should prefer growth over value.

There have been contradicting signals on the commodity recovery story. What is your view on commodities?

More than 50 per cent of the global economy is unlikely to see much growth over the next five years and as such demand pressures will be low. This will result in commodity prices remaining suppressed (not withstanding the current rally backed by dollar weakness and expectations of economic recovery). Moreover the capacity expansion over the last few years have led to an overcapacity in lot of commodity industries which is unlikely to correct in the near term. Under the circumstances, I do not expect commodity prices to rally significantly over the next two to three years and would be more or less range bound.

via BL

P-Notes will go when economy opens up

The issue of money from stock markets being used for terrorist activities is being hugely exaggerated, says M Damodaran, chairman, Securities and Exchange Board of India (Sebi). In an exclusive interview with ET, Mr Damodaran said that the know-your-client norms being enforced by various regulators were effective in checking money laundering and round tripping of tax evaded money through stock exchanges. Here are some excerpts from the interview.

Private equity interest in the Indian market is on the rise. Globally, questions have been raised about the manner in which PE funds act at times. Is Sebi planning to regulate PE funds in India?

Private equity investors have become very important for the Indian market. The fact is, today we do not regulate private equity participants. We need to understand what increased private equity interest means for different markets. Clearly, there are positives. We have seen private equity investors get into small companies, build them into large companies and bring in better practices, better understanding of markets, and good governance.

At the same time, LBOs (leveraged buyouts) are taking place. Is that a concern in an emerging market? So far LBOs have been largely a developed market phenomenon. But India is now a large market, we have many large companies. These are issues that need to be addressed. There are no hard and ready answers at this stage. The IOSCO task force (of which India is a member) is looking into what we (regulators) need to do if at all there is anything to be done. The question is ‘do we need to do anything at all?’.

There are investors whose money goes into private equity funds. The securities market regulators’ task is to protect investors and if there is a category of investors who do not need protection, clearly our priority will be to guard those who need it. Few months down the line, there will be greater clarity on this issue (of regulating PE funds).

You have spoken about allowing hedge funds to invest in the Indian market directly. How do you plan to go about it?

Some funds have approached us saying, “We are hedge funds and we have very credible investors and there is a lock-in period for those investors.” Why are hedge funds feared? The traditional concern is that while hedge funds will bring in liquidity, they will also bring volatility as they have to perform better than everybody else. Their entry and exit are very quick compared with other funds, thus causing volatility. But some of these funds have told us that hedge funds are not one homogeneous category. There are some with a lock-in period for their investors.

Therefore, sudden investor redemption-led selling putting downward pressure on the market is unlikely in their case. These investors say the charge of volatility does not apply to them. “Look at who we are rather than grouping us in one large category called hedge funds,” they say. “In any event if we find India attractive, we are coming in through participatory notes,” they say.

Lock-in period for investors would reduce volatility to the extent that it is triggered only by unforeseen redemption pressures. But nothing rules out volatility. Today a retail investor can induce volatility by acting as a day trader. So, we thought of those category of funds that have a credible track record — with their top 10 investors being good, and are already present in the Indian market through P-Notes. Why not bring them in through a registration of their own. That is a possibility we are looking at.

Is there a conscious effort on the part of Sebi to phase out participatory notes?

I don’t think participatory notes will go away. It is not a tap that can be turned off one morning. What is the nature of the animal (P-Notes)? These are issued overseas to investors who are overseas. You are getting information on the basis of certification. There are no trades done in the market.

There is no STT (securities transaction tax). All these transactions are done outside the Indian exchanges. The intention of all markets over a period is that exchanges become the place where all trades take place. So if an entity is directly registered with us, all trades will take place through the exchange.

Our objective is to facilitate entry, except where there are concerns, and make participatory notes comparatively less attractive. You cannot wish them (P-Notes) away. They will disappear when the economy opens up completely and nobody needs to register anymore. But as long as there is restrictive access, those who do not find it attractive to invest directly, or are not eligible to do so, will invest through P-Notes. But over a period of time the proportion of investments through P-Notes will reduce.

Does not multi-layering of funds make it difficult for the regulator to curb instances of round tripping and money laundering? How is Sebi tackling these twin problems?

There are two sets of questions. One is can Sebi do it? Current regulations make it mandatory for the FII (issuing the P-Notes) to give a certfication to Sebi that he has the details of the entities to whom the P-Notes are issued. He provides the details to Sebi periodically. This should allay fears about the identity of the investors who are putting money into our stock market. If an FII gives the wrong certification, he may find himself out of the Indian market and that would be too high a price to pay.

If the concern is about round tripping — the tax escaped money from the country trying to find its way back — is it the securities market regulator that should look at it or is it some other regulator? We have other regulators within whose jurisdiction this falls (round tripping). Clearly, regulatory co-ordination is important to address this issue and that already exists in a large measure. The regulators in the financial services space regularly talk to each other, there is no issue at all on that front.

How serious is the issue of the Indian stock market being used as a conduit for financing terrorist activities?

All of this has its origin in a speech made by the National Security Advisor. The speech was not specific to India, it merely identified capital markets as one of the many sources for funding terrorist activities around the globe. We have KYC (know-your-client) norms in place. All the money that enters the securities market comes in through banking channels. There are no cash transactions. Now, banks have KYC norms. So they know which money is coming into the market.

Market intermediaries that bring people to the market, whether it is the broker or the DP, they also have KYC norms, they are supposed to know their clients. So whose is the money that comes into the market is supposed to be known. Now what seems to have been stated is that some people float companies, raise money in the market and use that money for terrorist activities.

Now, the application of the money made in the securities market is something that the securities market regulator cannot regulate and has not been asked to regulate. So money raised from the market being used for terrorism, or any other purpose, is beyond my regulatory turf and I cannot regulate it. That said, the issue of money from stock markets being used for terrorist activities is being hugely exaggerated. If it exists, it must be so minuscule as not to frighten us. And there are multiple regulatory bodies looking at it. I don’t think this is something that is to be unduly worried about.

So far Sebi has not passed any orders relating to insider trading? What has been the reason?

Insider trading exists in every market, it is not something that can be wished away. I am not saying it with any sense of satisfaction, but merely with a sense of realism. Markets operate on the asymmetry of information. If somebody takes advantage of information that is not in the public domain, we have to identify these, build iron clad cases and then take action against the entities involved.

We have a few cases in hand and I would not like to go into the specifics. Even if you look at a mature market like the US, recently the SEC has taken action against more than a dozen people from some of the very large intermediaries in a case that has been going on for years. It takes a lot of time to build up a solid case.

One way of reducing insider trading would be to reduce the asymmetry of information. Put as much information as is possible in the public domain, so that everybody who needs to know has access to that information. That is really the preventive side. On the punitive side, the task is to identify and punish, and I must confess that this is not an area where we have done extraordinary work, and this is clearly work in progress.

Companies often get away by making inadequate disclosures, especially denying developments though they eventually turn out to be true. Then there are also cases where the companies follow the disclosure norms in letter, but not in spirit. How do you plan to address this issue?

We have a regime of continuous disclosure, and companies have to disclose all material information to the stock exchange. Now who takes the call on what is material. Sometimes the company management may think that something is not material. It may turn out to be material. It is therefore for vigilant shareholders, for media, for stock exchanges and for Sebi to ensure that corrective action is taken. The other problem is the denials that come from the company. We don’t have a prescribed timeline as yet that says if a company denies something and that turns out to be true within x days..... we don’t have that yet. We are working on that.

The third problem, as much as I hate to say it, is the media. If you have two people from the same industry sitting together and having a cup of tea, you immediately sense that some day there could be a tie-up between those companies.... not tomorrow, not day after, maybe 1 or 2 years later.... you write a story with a few question marks, with sufficient hedges built in, so that should it happen a year or two years later, you can say that you were the first to spot it. That also puts pressure, and the companies come in to deny.

The key is really the market rewarding the companies that practice continuous disclosure and punishing those which don’t. If we (Sebi) had our way, we would like to incentivise the companies that practice continuous disclosure. For example when we introduced QIP (qualified institutional placements), we said that those companies which do not have a track record of continuous disclosures will not be allowed to take the QIP route.

Will the Sebi move to tighten disclosure norms for initial public offerings of real estate companies affect the launch of real estate mutual funds?

We have not said don’t come to the market. All we have said is that tell the market what you own and get it valued correctly. As far as real estate mutual funds are concerned, there are a couple of issues that are still being firmed up, we are working on the valuations and the accounting aspects.

Once these are sorted out, the product will be launched. We have been working on this, along with the members of the mutual fund industry and ICAI because there are some accounting issues involved as well. I am told that the valuations part is close to being addressed, it is the accounting part on which discussions are still going on.

Interview- YC Deveshwar, Chairman, ITC

A few weeks from now, ITC will unleash a new ad campaign focusing on how it's saving the environment - it is carbon and water positive and will have zero solid waste in two years. ITC Chairman YC Deveshwar thinks it will revolutionise the way corporates treat the environment since his products deliver better value for money anyway. He spoke to Sunil Jain about this, the company's new growth drivers, including urban retail, and their increasing share in the company's top and bottomlines. Excerpts:

Tobacco's still 70 per cent of your topline, and 83 per cent of bottomline. Most of your new initiatives, the choupal and FMCG are still loss makers, and their expansion is funded through tobacco. So when you talk of Corporate Social Responsibility - carbon and water positive, and so on - it sounds a bit hollow.

It is not my remit to shut down the tobacco business as long as the law allows it - but our presence here also means tobacco is in responsible hands, it would have been smuggled in if we were not in the business! What's important is the new drivers of ITC's sales and profits.

Our CSR effort is unrelated to tobacco, it is about creating value through business models that are sustainable, in paper, in our agri business through choupals, in other areas.

Today, except for getting solid waste contribution to zero (where we're 90 per cent there already), we're not a drag on the environment - we replenish more water and reduce more carbon emissions than we create.

We are the only Indian company to produce chlorine free paper - our water discharge is so safe, it is being used for irrigating crops. We did this in 2002 even though the tough emission norms come into effect only in December 2008.

Does CSR pay?

For society, there's no doubt. Many of our competitors use imported pulp to produce paper, we do social forestry since that's where the employment is created - we've greened 63,000 hectares with 254 million saplings, creating employment for 600,000 tribals.

The impact on water, carbon and so on is obvious. From a commercial point of view, there are huge savings in electricity and other costs - making existing paper mills environment friendly will cost Rs 50 crore (Rs 500 million) per lakh tonne capacity, which is a large sum of money but we've already done it.

By the end of the month, we'll do TV ads - they'll bring a lump to your throat - telling customers that they can save the environment while buying our products. Unlike other such programmes in the past, our products don't cost more, so I think this will get consumer power behind CSR�others will have to follow suit.

How fast are your non-tobacco businesses growing?

Our non-tobacco business comprised 38 per cent of net turnover in 2003-04, and this was up to over 51 per cent in the second quarter of this year. While our tobacco business grew 13 per cent last year, non-tobacco grew 53 per cent.

But your FMCG, minus the cigarettes, is cash negative.

We can be cash positive in no time, the day we decide to slow down investments. No one in the world has created 20 new brands, 13 of them big ones such as Aashirwad wheat flour where we're the number one after just three years with a 52 per cent market share; our market share in biscuits is today around 10 per cent. To create new brands, you have to spend like the existing number one, but without the revenue base - we've done precisely that, hence the losses. Our aim is to be the number one player in each segment.

In Q2 this year, our hotel net revenues were Rs 185 crore (Rs 1.85 billion) versus Rs 267 crore (Rs 2.67 billion) for the top competitor, but our PBDIT was Rs 73 crore (Rs 730 million) versus their Rs 84 crore (Rs 840 million) - so we're getting there (our PBDIT to sales is already higher).

For paperboards, paper and packaging, we were below the market leader in the September quarter (Rs 522 crore versus Rs 577 crore) but our PBDIT was higher (Rs 142 crore versus 134 crore).

Your board doesn't look at the losses?

It does, but you have to look at the balance and at the value created. On an annualised basis, my FMCG business will be worth around Rs 2,000 crore (Rs 20 billion) by the end of the year.

If you go to buy this business, you'll spend at least Rs 2,000 crore to do this. So, I've created value of Rs 2,000 crore by spending a few hundred crore rupees.

Five years from now, the turnover will be Rs 5,000 crore (Rs 50 billion). I'm happy to spend up to 10 per cent of my PBDIT on creating new businesses at any point in time, today this is around 5 per cent.

Has e-choupal's progress slowed?

We've changed the model from simply having e-choupals to having a Choupal Sagar for 25-30 e-choupals, this is a 100,000-150,000 square feet space with a trading area, weighing facilities, telemedicine kiosks, shops for various products, specialists to give farmers guidance on crops � we have radio feeds all the time in each area (we have 6,500 e-choupals in 38,000 villages in nine states) giving information tailored for that area only � I don't derive profits from choupals, I derive value.

We source 70 per cent of all our raw materials through e-choupals. Choupals allow me to buy 18 grades of wheat and blend them differently for each market. It is because of my e-choupal initiative in Uttar Pradesh that I got into the wheat brand, I had no way of selling all of this otherwise.

The choupals are empowering farmers and, in turn, helping create new businesses for us. We don't brag, but we've got pilot Choupal Fresh that sells fresh vegetables in Hyderabad, Pune and Chandigarh � once we study the results, we'll ramp up, by how much and when I can't say. Choupals are our supply chain, moving up the value chain is the next logical step.

Are you going to set up big retail formats like Reliance and Bharti are planning?
We don't announce our plans in advance. What I can say is that we're bringing in organised retail in rural areas through Choupal Sagars. We're in the premium-to-mid-range clothing and accessories range already in urban areas with Wills Lifestyle, John Players and so on. Then there's Choupal Fresh for urban retail.


This is our 2000th Post :)

Gateway To Growth

Patrick Mange is a doctorate in Economics from Germany. During his Ph.D days he floated a company with a few university friends. Years later he sold his shares in the company and joined Deutsche Bank in Frankfurt before moving to Paris. In the beginning, he was in bond research. Afterwards, he worked for Merrill Lynch and subsequently moved to BNP Paribas as head of strategy and research. He was recently in India after BNP Paribas took a 49.9 per cent stake in Sundaram AMC. Excerpts from an interview:

What is your view on global markets? The markets across the board have fallen and now there are worries like the middle-east crisis. So where do you see the global markets heading?
That is a hundred million dollar question! We are again in a transition phase in terms of monetary policies, economic growth and profit growth, at least in the US, which remains the benchmark and thus in focus as regards global equities. Such phases are characterised by low visibility and thus high volatility, which generally last for some time. We believe that markets, equities as well as bonds, are going to be quite choppy through the summer months if not a bit longer. But we are also convinced that equities will do well in the medium run, once investors recognise that we are not facing a hard landing and that profits growth is unlikely to collapse. We are still positive on equities but have progressively reduced the risk of our portfolio since the start of the year to take on jittery times ahead. We have also come back to close to neutral on government bonds. They are still expensive, but we think that yields are not likely to increase much from here.

There are certain exogenous factors — things related to geo-political events for example — that also have to be taken into account. If the middle-east crisis spreads, then we will have some more worries in the markets, as the likelihood of a faster downturn would meaningfully increase. But we don’t expect this to happen. I believe that geo-political risk premium will remain in the markets for the next few years. But its importance in the eyes of investors will be variable as in the past. Among the global markets, we are overweight on the US after a long time. This means that we are automatically a bit more defensive since the US has a lower beta to the MSCI World. We are tactically underweight on Japan, a bet which was difficult to take because we are still positive on Japan in economic terms. But we are more positive on some other countries as regards cyclical positioning of the economy.

Among the emerging markets, we are currently underweight on India. But here again it is an alpha story not a beta story. We believe that there are some other markets in the rest of the emerging world, which are likely to outperform now.

We are tactically underweight on China too, despite strong economic growth. Growth is not everything. You make profits with volume, or you make profits with margins. And I believe that making profits with margins is better. And therefore, we would not bet upon China yet. But we would now start to bet upon South Korea, a market that has been strongly sold lately, and to some extent Taiwan. The tech news is getting in such a negative territory that it’s difficult to believe it can get bad further. The rest of Asia is more or less neutral or underweight. We are overweight on the high beta Latin American markets. Markets like Chile, Brazil and Mexico are the ones we are looking at more closely. These markets also play the role of a commodity proxy or hedge. Thanks to commodity revenues, they have built up huge financial reserves and hence, look sheltered against any deep financial crisis. Generally we remain strategically bullish on emerging markets, which undoubtedly are in a much better shape from a structural point of view. They are the markets of today, not yesterday.