Rakesh Jhunjhunwala Interview 2012 - with ET Now

In an interview with ET Now, Rakesh Jhunjhunwala, Partner, RARE Enterprises, says he is extremely bullish on India in the long term and that Greece will not exit Euro in the next 2 months. Excerpts: ET Now: Many a times in your long market career, you have been the low bull in the market. Today when the investor sentiment is down and out, are you still bullish? Rakesh Jhunjhunwala: Let us look at the factors which can drive markets lower or higher. Investors' interest in India from the international community and from the local investors is at an all time low and confidence is at all time low. Secondly, we have to see what could change government policy, inflation, commodity prices and consequently interest rates. Commodity prices have seen a good correction in the last two months and especially in the last 15 days. Considering the economic conditions in America, China and the western world, I see no reason where commodity prices can go up. If we look at the BRIC nations, India is the only net importer of commodities and both Russia and Brazil are very big exporters. So, the biggest beneficiary of a correction in commodity price in the world has to be India. Growth has slowed in India and demand is extremely low. In inflation, 60% of inflation is due to manufacturing. The government made an across board hike of 2% in excise duties despite that in April, there was a 1.5% month to month increase in manufacturing inflation. So, when demand is low, commodity prices are coming off and therefore manufacturers can't build adequate capacity at the moment. I am not an economist, every economist talks of an inflation of 6% to 7% in India. The RBI is talking of 7%. I personally feel that inflation in India will come to between 5% and 5.5%-6%. I think this will allow the RBI to aggressively reduce interest rates which will give a big fillip to our economiy. People are overtly and extremely bearish on the rupee. There are talks of 70 and 80 which I think is all bunk. Any cocktail party I go to, the talk is if rupee at 70, India is doomed. The push the market has seen in the last two-three days, the investor sentiment is low and we are going to have Greece elections. The European history has been that they always act on the brink. My judgment is that Greece is not going to leave Euro. It will ultimately leave in my opinion but not in this month or in the next two-three months. So, from those three to six-month period I am extremely bullish. We could see Nifty between 5400 and 5700 in the next few months. Beyond that, it will depend on what happens internationally and on government action. However, as a long term player, I am always extremely bullish on India. So, for near term I am bullish, and for long term I am extremely bullish. ET Now: So, in the near term of three to six months, Nifty could touch about 5700 levels? Rakesh Jhunjhunwala: Yes, it could. ET Now: 2011 was the worst year as far as trading is concerned. For 2012 going forward, are you are bullish? Rakesh Jhunjhunwala: Markets have been in a narrow range. So, I cannot make money when markets are in narrow range. I have not done much of trading. Let us see what happens, the year is still young and has started well. ET Now: According to you, inflation will come down and that will give a lot of headroom for the RBI to cut rates. Is rate cut expected in the next credit policy and is that extremely crucial for the markets? Rakesh Jhunjhunwala: I feel that they would cut rates in the meeting especially if commodity prices do not recover. Interest rate cuts are extremely important to Indian economy. Moreover, if the inflation falls to 5.5%-6%, I see no reason why 80% of rise in interest rates would get corrected or reversed. I am no economist. This is my personal judgement and I deserve the right to be wrong. ET Now: You have always maintained that capital is the passport from growth. Right now the liquidity situation is quite tight which is stifling the growth overall? Rakesh Jhunjhunwala: I do not think the liquidity position is so bad. In the last 15 days, there has been an easing of liquidity as I heard in the debt market. However, the interest rates are a killer. The RBI can curb demand in areas like cars, televisions, housing. Demand has fallen off and I am told the retail sales in May have fallen down the drain. So, the curb in consumption has taken place. If there is no increase in commodity prices and in costs, no one would raise rates. ET Now: So, now you are also saying that the whole consumption story of India that we were betting on so much is also questionable to a large extent? Read more here