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Samavat 2063: What's in store for the markets?

Via Moneycontrol.com

Last Diwali, the Sensex was at 7,944 and today, we are standing at the brink of 13,000. That's a 62% rise on the Index from last Diwali to this Diwali. There was jolt in between, and the markets went down to 8,800 briefly. But the markets reclaimed all the lost ground and came back to strike a new high just a few days before this Diwali.

Investor and trader, Rakesh Jhunjhunwala, Member of BSE, Ramesh Damani and Shankar Sharma of First Global share their perspective on what is in store for the markets in the future.


Q: Markets are at all time highs, it's New Year, where do we go from here?

Jhunjhunwala: Although we have news highs and all the festivities, I find a lot of doubt and skepticism all around. But to my mind, I think the trajectory is upward and the pace is debatable. I feel that the Indian economy is constantly surprising on the upside and I think that surprise will continue, as there is vast under exposure to equity. Of course, we could have corrections anytime. But broadly, we are in the midst of a long bull market.

Q: Although there will be a feeling that its good to see the Index at a high, generally do you think people might have missed out?

Jhunjhunwala: Many people are not confident at all. If you see the exposure of equity in Indian households, it is increasing at a slow pace and that is surely the final indicator of the fact that the belief and faith in this market is still in an infancy stage.

So I think there is still lot of more domestic money to come. So just as a rising tide raises all boats, ultimately in a rising market everybody will buy and participate. But surely, there is a lot of 'missed out' feeling.

Q: What is your sense when you look back at the last 12 months, what sense do you have of where we could go from here having reached these levels?

Sharma: If one takes a perspective of 5 years clearly, one can’t really go wrong by going long in this market. The trouble is that most householders, mutual fund managers as well as most hedge funds don’t have the same luxuries of buying and holding for 5 years. That’s what really creates the skepticism that Rakesh is talking about.

If all of them were told that "money is locked up for 5 years, do what you want to do", I think the perspective would be very different but nobody’s money is locked in for 5 years, there is daily redemption, daily NAVs, performance benchmark are very stiff. Most people waited themselves in favour of midcaps in the last 12 months. If you look at the big performance divergence between the midcaps and the largecaps and even within the largecaps, there is a further performance disparity.

So whilst the Index is showing us a very pretty picture, as market strategists, we would be ignoring very clear signals that there is something in this market, which is hurting really badly. Even in the last two days when the market did make its highs, I think 10 out of the BSE 30 stocks from the BSE Sensex were negative. That’s not a good sign and the last time that kind of thing happened was in April 2004, when there was a very poor advance-decline ratio.

So the fact is that we live in a real world; all of us have daily bills to pay, mutual funds have daily NAVs to report, they have to be aware of this kind of performance. Yes, maybe the Index will again take us to a new high next Diwali. What happens to the broad majority of the market is what is of real interest to me more than just 20 stocks in a 30 stock market.

The point is that one has to still understand that in largecaps, there are not just 10 stocks that anybody can own. But most people have to diversify out into larger baskets, therein you are not up 62%, maybe you are up only 30%, which is still very good gains. So there is no disagreement on the gains the market is delivering, there is no debate whatsoever. But the fact is, one should be aware of the fact that this time one may see certain signs, which are not signaling anything drastic. But it could be another May, which is very drastic.

Q: You were a bit shaken in the middle of the year and you had become quite a bit bearish. Are you surprised that they reclaimed their highs so soon?

Damani: The body growth of the market received in May that it can recover in 6 months without even pausing for breath suggest that the market is going higher. The other point that always strikes me, as I’ve been traveling a lot since last October, is that we are in global bull markets across the world. The Dow is at a high, the Nikkei is at some high, the Footsie (FTSE) is at a 6 year high. So there was a synchronized fall in the global markets and synchronized rise in global markets. So clearly, one should keep watching the global indices as well as the Indian indices.

The technical evidence now suggests that we are further going to make new highs because I think any market that can recover from such a sharp fall in 6 months, can make a high without almost pausing for breath suggest much high times ahead.

Q: Are you saying that this narrowness is indicating that we are somewhere close to the top or it could change because to be fair, it has not cracked at all?

Sharma: The top is, clearly we are in a bull market. Five years from now, we will be in a higher top than where we are right now. The key issue here is from the perspective of most people that we do business with, and that is people who have daily P&Ls to talk about. Clearly, there has to be a strategy, which reduces their risk. And in that risk reduction, it doesn’t mean that one should let go of one's best stocks, it just simply means that one should buy some protection.

When the market was 8,800 or 9,000, I said the market would make a high this year before the year was out. So clearly, we are there but the point is the strategy in this kind of market is even more important than what it was at 9,000. The strategic focus in this market has to be that, you have to be in that very narrow list of stocks, if you have a diversified basket of securities, I am afraid you might get hurt more.

So anybody who has midcaps and largecaps, is actually not doing very well. Anybody who has just a handful of stocks in the high end of the market is doing very fine because he has participated.

There is a big undercurrent of people, who are still nursing losses of May. The only advice I can give them is that one has to stick to the stocks that are right at the top in the market. The market that had come out clearly suggest that the strategy has to be a very narrow strategy.

Q: Some midcaps have reclaimed and got back all their lost ground but some are still 15-20-25% below their peaks, do you think they will catch up?

Jhunjhunwala: We must emphasize that 90% of the wealth is in the largecaps. When the largecaps go up, 90% of the market is going up. If you have Rs 40 lakh crore of market cap, Rs 36 lakh crore is in the largecaps. So the largecap gains means those Rs 36 lakh crore is gaining.

This means people who are holding Rs 36 lakh crore worth of wealth are gaining wealth, and also what happened because the midcap and the smallcaps had very large gains from the period of November to May.So I don’t say that because midcaps are not gaining therefore markets are in a suspense. Fundamentally, at the moment, I don’t see oil prices going up. According to me, the Indian economy is surprising. It is refreshing to read in the Business Standard that the Planning Commission and the Prime Minister are thinking of 10% growth.

The Wall Street Journal states that for a change in India, one could go to Delhi to get a licence to import computers and Indian companies are bringing in a bid so that it will be cleared in 24 hours flat . To my mind, whenever technology shift takes place, it is very difficult for human mind to reconcile and find confidence. I feel a technology shift is taking place in India and most Indians can’t reconcile their minds to the fact that India can have constant economic progress coupled with vast underexposure to Indian equity. That is why from 3,000 to 12,000, I have seen very little expression of confidence that we are in a long term bull market.

Q: Do you think this whole run has been marked with a lot of skepticism?

Damani: Absolutely and I agree with him. Rakesh is one of the guys who has absolutely seen it correctly from 3000 onwards to 12,000. There are some signs of the market topping out, but the way the market has recovered, it means it is going higher. I won’t worry too much if you buy an individual stock; that is good in midcaps, as it will tend to outperform.

So 90% of the wealth is represented by the largecaps and these play a relay game, or the cat and mouse game. In 2004- 05, the midcaps were charging up, while now, the smallcaps are charging up. The mistake people always make is looking at the rearview mirror rather than the front view mirror while driving.

Also India , in the next 10-15 years may be member of the G-5 as the BRIC’s report suggests. So I think we’ve to start factoring those in there. Takeovers are taking place, mergers are happening. Corus has been acquired so, there is a new found confidence in the Indian business landscape that we never saw in the 60s, 70s, 80s.

I think as market players, we must understand that these are fundamental, one-time, once in five generations re-rating of the country that is going on and we are actually very privileged to be a part of it.


Jhunjhunwala: Take a look at the kind of consumption boom this country is going to get into. Now the middleclass’ income is more than USD 3000. As per the Economic intelligence unit, as per Accenture and as per Hindustan Lever, there were about 50 million households in India in 2005, whose income was more than USD 3000. These houses are going to be 125 million by 2010.

I do not think you are going to add 150 to your existing middle class in five years. What I have diagnosed is that people are uncomfortable or do not recognize the market for two reasons; I think they lack confidence in India ’s ability to grow constantly economically or they are unsure about the gains they have made.

Sharma: I have not seen any insecurity at all. For example, at the margins, somebody might come up and say that 30 times earnings on a stock might be expensive. I will wait till it reaches 25 times.

Look at the quantum of foreign capital, the quantum of even retail capital that has come in. While it may have not reached anywhere close to where it should reach, a reasonable amount of retail capital has come in. So I don’t think there is any skepticism. You might have not seen enough of it, but that’s fine.

Jhunjhunwala: My markets’ experience tells me that good stocks and good markets always remain expensive because market intelligence is better than the participants’ intelligence.

Sharma: I think Indians are very clear in their minds that they are going to dominate this world. I was at a function of Harvard Business School a couple of days back. 20% of Harvard faculty is of Indian origin and I think that number is going to become 70% in the next 10 years time.

Everybody recognises that India is headed one way, which is up. So there is no skepticism or being negative about this country. I think every Indian realizes that this country is in the cusp of a very major change.

Jhunjhunwala: The only advise I get from everybody to sell equity and buy real estate, buy jewellery.

Shankar: Real estate is a very good investment because it’s a safest way to make money in my opinion. You don’t have to watch interest rates, look at Greenspan or a Bernanke or YV Reddy. You just buy something in a wayout location, let the population grow there and make sure that becomes the center of the town 20 years from now.

Q: How should one approach the market right now? If they are over-invested or under-invested at 13000, on Diwali day what do you tell yourself about the next 12 months?

Damani: I think you firstly remain invested in the market and I have been saying this before you had Japan , which is one of the first countries to get out of an emerging market to an emerged market status. The Nikkei was at 1000 in 1964 and it went to 40,000 in the next 25 years. The currency also appreciated, so it was almost a 120 fold gain in Nikkei.

So we are in 3x or 4x from the bottom of the Index and it can go a lot higher, as I’ve been saying this is a once in five generation thing happening. So it could be a much larger blow out.

So there will be steep corrections like the May correction, which even shook me, who is a stock market animal. There was a 35% fall in the index and a 45-50% fall in the midcaps. These things will happen, as unfortunately, it’s a part of the financial market.

So remain invested, keep an eye on global cues because we are very well-linked to the DOW or the Nikkei or Hans Seng now. If you want to get nervous over the market, take your cues from external factors, as the Indian economy is going to keep surprising us at 8% plus economic growth. An economy that grows at 8% -10% GDP growth, is not going to have a very prolonged correction.

Q: You cannot call these corrections, but looking at the set of circumstances around in May and looking at it today, is it less likely you can never rule it out. Is it likely that we could have a magnitude of correction?

Damani: The nature of the business; the way we regulate F&O, the cash trading margin, it all boils down to the possibility of another correction in 18 months or two years down the road. You have had one in 2004, one in 2006 and we might have one again in 2008. But right now, the market doesn’t seem technically suspect at all. It’s a freely traded market and you can buy quantity, sell quantity, open positions, which are not extraordinarily large. All this seems on a good footing to me.

The advanced decline ratio as Shankar has pointed out is a suspect out there, so always keep an eye on it. But markets are just to that, it’s not devastatingly bad that I would start worrying about it.

Q: Do you disagree with that, you think we might have a technically sticky position that we have headed into?

Sharma: That is why we are in the business of recommending strategy, though not so much recommending which stock you go and buy. It is really the big macro top down, what you should be long on and what you should be buying as protections.

Clearly, the strategy has been to be long in the sectors like IT services, oil refining companies, marketing companies and a few others, while at the same time, not being over-exposed to the PSU banks, which have had a very good run in the last two-two and half months. That is because it’s our take that interest rates are headed up, as we are looking at 30% plus growth in credit and deposits are growing 17% and government borrowing and corporate borrowing are coinciding.

So you will see interest rates head up, there is no doubt about it. So keep an eye on all the interest rate sensitive sectors to probably underperform rather than outperform.

Q: But banks have done very well over the last over the last few months?

Sharma: That’s my point; they have done very well because of the yields decline. Our take is from hereon, they will actually rise. But it will not affect HDFC Bank. I am confident that private sector banks will weather any interest storm.

PSU banks are different cattle of fish, so that’s the area cognize and top. he midcaps they will always be the exceptional winner than those but I think they are going through the pains adjusting their balance sheet. They have swallowed a lot of capital, no doubt about it and I think you are seeing a wonderful performance. I think they are not done having adjusted there and will do well. There are very good companies in there, but they will take a while to get their act together. In the interim, remain invested where numbers are looking good and strong.

Q: You not only invest for the long term, but also trade from a tactical perspective. How would you look at the markets now at these levels?

Jhunjhunwala: In my long experience of trading, I never had such a clean run from 10,500 to 12, 900 except for one day when the market fell 400 points and then corrected back in two days. There has not been any correction of any nature whatsoever, if you trade by price.

I only look at the commitment in the futures, I don’t look at the options and I don’t look at the Index because for every Index, there is a short sell and there is a long buy which is false sell and buy. The positions are far lower than what they were at 45,000.

Also in May, there were a lot of leveraged positions in the midcaps. I don’t agree because in my portfolio I see Container Coporation, Praj Industries all of them have made new highs. So I don’t see that the midcaps stocks have not gained. The stocks, which have performed, have gained. There are certain stocks in the portfolio, which have not performed.

Q: But you are not in hurry to take profit just yet even after that clean run that you spoke about 10500-13000?

Jhunjhunwala: We trade by price. If I were to take by the fact that the market has gone up, I should sell; then I would have sold at 11500. So the market is certainly not indicating any kind of toppish indicators both by commitment and by price moment as far as trading. I see no profits.

Q: Is there anything which it is signaling - any kind of a dark cloud gather or do you remain pretty confident?

Damani: No, it is fine. In May, there were clear cut signs - the leverage positions, the midcap rally and the gung-ho nature of the market going up in gaps everyday. Right now, the market has smoothened. There is no indication, price wise, that the market is in a zone of trouble. It is going up 200 points and going up another 200 points, falling 50 points.

Any correction, lasts a day or two days and the price recovers. I think we trade by price as most traders should trade by price there is no reason to get alarmed at this point. The market clearly tells you, when it gets into that grey zone. Now tomorrow, if there is another terrorist incident, or if there is a war situation, which I can't predict, then the market will suffer because of that. But as things stand today, the market, technically, is in good shape.

Jhunjhunwala: In America, gas prices have come down to around USD 60. I believe oil prices and gas prices are not going to rise, which is going to be a great source of strength for India and that will help inflation, that will help interest rates.

Q: You have been bullish on infrastructure and the whole construction area. Do you still remain bullish or have you changed your opinion anyway?

Jhunjhunwala: I remain bullish on selective companies. I am not so bullish on BOT and the operation. History tells us the true beneficiaries of all boom are the service providers. I think there will be companies whose turnover about three years ago, was Rs 400-500 crore, I can say that they will be a USD 2 billion company by 2010. So the sheer size is the sheer opportunity and I believe there are a lot of entry barriers in this sector in terms of experience, finance and qualification. I am bullish on it and I think the infrastructure story in India has just scraped the ground, but has done nothing really.

Q: Do you like the construction space?

Sharma: We are in a different business from what Rakesh is. So there will be a difference in what we will say today and what we will say 6 months from now. The fact is that we have love this space for a long time. We turned negative on the space in May, this year ahead of the results because we feared that input cost would dent their margins.

That’s pretty much what happened, in the entire pack, barring a company or two, which had under-performed the Indices. If any of our clients are long on those stocks, which have lacked the indices, they will see outflows. So it is our job to ensure that they are in the stocks or the sector that are outperforming. So our basic recommendation has been to switch out of the laggards, ahead of it when they started lagging and get into the leaders.

It is basically the strategy shift into the stocks, which have delivered better. The issue is that you can keep talking about the 5-10-15 years. But the fact of the matter is that ultimately we have to ensure that the person remains in business every single day of the year. That is the perspective we have.

Q: What’s the best investment decision you took from last Diwali to this Diwali?

Damani: I was very bearish in May, as you are aware. I sold 20-25% of my portfolio, and I owned almost exclusively midcaps. Even today I’m much better off having sold those companies, but poorer for not having reinvested aggressively back in the 9000 levels of the index.

I was actually shaken up, so I think the May call had worked out brilliantly; I protected my portfolio, and was saved from all of angst when the market collapsed. I’m now improving and lowering my cash positions, and improving my stocks. We do find value in midcaps. I buy midcaps almost exclusively, and I’m happy to buy them.

Q: No largecaps at all?

Damani: I generally tend not to buy them. I hope the smallcaps become largecaps, that’s the idea we have. There are stocks like BEML or McDowell, which have moved up 20 times or 40 times.

Q: Are you still holding BEML, or have you sold that out?

Damani: I’ve sold most of BEML; I still hold a good percentage of McDowell. Those are the stocks that we tend to like. We are very patient; we don’t have to report NAVs everyday.

We buy midcaps, as I’m finding values there because they are beaten down and we are happy buying those.

Q: Any decisions that you regret bitterly that have been taken in the last 12 months?

Damani: I wish I had bought aggressively at 9000 levels. I got a 35% fall and individual stocks were down 50-60%. I was actually too shaken to move back into the market because the kind of body blow history, which suggested that the market would not recover for atleast a year or two years.

The fact that the market recovered in 6 months clearly surprised me, and I should have bought more aggressively when the public was selling. I should have been buying. That was definitely a mistake.

Q: What was your best decision in the last oneyear?

Jhunjhunwala: I have developed some kind of investment strategy and despite the fall I was not shaken as far as my investments are concerned. I was absolutely confident. I couldn’t say that market would see a new high so fast.

Even I couldn’t foresee that, but I never was shaken from my basic investment strategy. I kept committing money at all levels of the market.

Q: Didn’t you sell at all in May and June?

Jhunjhunwala: I wouldn’t say that I didn’t sell; of course I sold off my trading positions. But if I sold, I reinvested; so money is basically in the market.

Q: What did you make most money out off? Do any midcaps or Nifty futures trade from 10,500 onwards?

Jhunjhunwala: The biggest money I made is in the futures ofcourse. I don’t consider gain unless I sell, and I haven’t sold most of my investments, but made good money in the futures.

Q: What was the best midcap you bought in the last 12 months. Which really paid off for you?

Jhunjhunwala: I may not have bought in the last 12 months. Some of the stocks which have given good returns are Praj Industries, Nagarjuna, Titan Industries, Crisil, and Container Corpration.

Container Corpration’s profit this year remains to be greater than the market cap at which I bought the stock. Crisil’s performance has been excellent. So some stocks have under performed, Geometrics has under performed.

Q: What was your biggest regret?

Jhunjhunwala: In August 2002, I was leveraged. Markets were down and I sold some stocks. I sold some stocks worth Rs 30-35 crore whose value at the peak was Rs 300 crore but there is nothing to regret.

So things have really turned out as I envisaged them. Over the last 3-4 years, I have learnt how markets move- how you miss opportunities, where is the lesser chance of gain but the surer chance where companies are evolving.

The more I see, the more I am convinced that we are going to go in for double digit economic growth.

Q: What was the best call you took in the last 12 months, one which stands out? Which one worked out- something unusual not- Infosys or Bajaj Auto?

Shankar: I have been very bearish on commodities and crude for the last 12 months. Crude actually entered a bear market last September-October. And the whole atmosphere was to gang up against crude seeing levels of around 50 or in the range of 50.

But if you look at the statistics, everyone said that the world is running out of oil, and world consumption is growing, etc. India’s consumption has been falling in the last two years, Chinese consumption has been falling, US is flat. Europe is going nowhere. So where is the big demand coming in from?

There are several oil discoveries that have happened in the last few years. Yet everybody is building a case for USD 100 plus crude prices.

We have been analyzing the oil marketing companies for a good 12 years now, right from the time their first quarter listed in 1994-95. They had reached crazy levels and people were wondering what would make these companies turn.

I think that the catalyst was crude cracking, and that’s the time we made the call that we did. So it was from a completely different angle; not so much of micro fundamentals of these companies, but from a completely external factor which was crude oil prices.

So that to my mind was something which one ignored India; we ignored HPCL, BPCL, oil bonds etc.

I think everything worked out okay, and I am still very convinced that these companies are in a very long-term bull market.

Q: HP, BP etc?

Shankar: Yes, we think they have just started off. It’s not as if they have gone up 7-8 times. So our take is that it’s just getting started in these companies, and on the other side you are just getting started in the bear market, in commodities and in particularly, in crude oil.

Q: Does that include steel as well? Do you thing that is in a bear market?

Shankar: Just a few weeks back we turned bullish on SAIL and TISCO. TISCO has lagged for reasons other than steel prices which is the Corus bid. But SAIL has done okay. We think that, for a reasonable length of time, one is going to see some outperformer from these companies.

But crude is basically going to weigh down the basket of commodity prices. Nickel and zinc are just going through the roof. But crude is giving an overall aura of bearishness in the commodity market. We think one will see lower levels of crude in the future, definitely.

Q: Are there any pockets that worry you? Just before the bust happened in May a lot of people pointed out that real estate, at those valuations, were unreal. Is there anything about the market valuations that really concern you?

Ramesh: Nothing comes to mind as such. I’ve been on vacation for 3 weeks to be fair with you so I’ve been out of synch with the market. But to come back to the point that you mentioned, clearly the biggest regret for any player in the market is that they didn’t reap big enough.

This is a once-in-a-five-generation bull market, and if you remain invested in equity, the horizon is yours. I think I didn’t reap big enough.

Q: Do you think you are under invested?

Ramesh: Even today as I speak, I’m 15% in cash. I like to find undiscovered stocks; most of the stocks have been discovered. I’m also patient, I wait for my opportunity. But over the last 3 years, the opportunity the Indian stock market has offered is great. We have gone from a 2000-3000 index to 12000.

Given the level of experience I have in the market, I think I didn’t dream big enough. That has been a problem, because the opportunities were unbelievable in the market. We have a basket of midcap stocks up 20 times even today.

Where are we going to get this kind of opportunity again in our lifetime?

It’s a once in a lifetime bull run that we are witnessing. I feel very proud and privileged to be a part of it.

Q: Where do you park your 15% cash now for the next 12 months?

Damani: We keep looking for opportunities, and we find them occasionally in the midcaps. Some stocks which I reckon for many years like Nuclear Software, that I still own my office trades in, is still at 10-11 times this years earnings.

The company should grow at 30% plus. So we are very comfortable with the management; it has a very clean balance sheet.

We keep looking for the infrastructure sector rather than look at the construction companies. We look at the finance companies; I think there are some opportunities there without mentioning any names.

We find opportunities, but these businesses will mature over the period of the next 2-3 years so they are not placed, as Rakesh said, on the next quarter or the next 2-3 years. If the economy sustains the 10% growth rate, I think they all will be 4-5x from these prices.

Q: What would you back from this Diwali to the next Diwali- favourite horses?

Shankar: Clearly the IT pack without any doubt- largecaps and midcaps as well. Due to relative focus on the largecaps, we kind of missed out on the midcaps stories. Polaris has had very good numbers, at some point somebody will wake up and take notice and probably buy it out, or they will just keep growing as they are. So we like that space.

We like the refineries that we spoke about. What we don’t like are the companies which are very interest rate sensitive- the PSU banks definitely top that list. One has to really trade those; you can’t really buy and own those companies, it’s really an inverse call to the bond yield situation.

Other than that, retail as a space has grown very well. But we are kind of skeptical as to whether the numbers will add up eventually. It’s a tough business, let’s make no mistake, to make 4% you have to do a lot of hard work.

There is a revolution in India- from retail to mobiles. But the mobile business is one which has a 39-40% EBITDA margin and the logistics of setting up mobile operations is relatively very simple, while in the retail side it’s very difficult. The whole supply chain has to be created- IT services, IT processes. It’s a different game with 4% margin.

In the mobile business one could make a few mistakes; 39% EBITDA margins would bail you out, but it’s not quite the same with retail.

But one space I would definitely like to watch out for would be the low cost carriers on the airlines side. Maybe all of us are very skeptical and maybe they could become the mobile equivalent in the future. Right now there is nothing to suggest that they will, but that’s the space I would really watch out for.

Q: What’s your favourite space now?

Jhunjhunwala: I feel there are a lot of opportunities in the market. One has to look at the business model, and after seeing income figures I personally feel that the retail or FMCG or any sector concerned with Indian consumption, is going to go through the roof.

Why is Bharti’s price where it is today, why is Reliance Communication’s price where it is today? - Because the demand for mobiles turned out to be far greater than anybody imagined.

So with this demand for all these consumption items, and with this kind of income levels, the demand will be far greater than what I am hearing people talk of. Also, these companies have highly fixed costs and high contribution margins, so the profits could go through the roof.

Another area that I think is very interesting is media. Media spends in India are far lower, as percentage of GDP, as compared to other nations. All the circumstances required for raising those spends, like consumerism, retailing, real estate, are not present. So we will have some good performers among midcap space.

Q: Where do you see the market 12 months from now on Diwali?

Damani: I think the markets fine. There will be serious corrections along the way, there always have been in emerging markets, particularly India. India is a very volatile market so corrections will be due.

But I think the story has sunk in that India’s GDP is going to grow at 8-9%; the macro factors look okay to me. The problems might be external not internal, so I’m hoping for another robust Diwali.

Q: Do you think we will see 15000, more or less, on the index?

Damani: We should get there. It’s about 20% from this level. We should get there.

Q: What do you think?

Jhunjhunwala: I think it will be higher. I think peoples’ analysis for ’08 earnings is about 780-800, so 15,000 is eminently doable. Ofcourse, any unknown factors of the markets can lead markets anywhere, but I think we are going to have a good gain, a gain which will surely justify continuation of equity investments or retention.

Q: But would you make more money in a midcap basket or in the largecaps this year?

Jhunjhunwala: It is fact that 95% of fund managers don’t out perform the Sensex. It is very alluring, I think the midcap is like your mistress and the Sensex is like the wife. It is alluring, but the performance is not there, the performance is only in the Sensex.

So history tells us to stick to the Sensex, it is always better. I have experienced this myself while making investments. Instead of making investments in the largecaps when I was very bullish on certain sectors, I made them in the midcaps and smallcaps. But over a period of time, the largecaps have totally out performed the midcaps and the smallcaps.

So unless you are a very good stock picker, I will stick with the Sensex.

Q: Could you wear the individual investor hat, not the brokerage hat. What’s your prognosis and what would fetch you better gains between mid and largecaps and the Index in 12 months time?

Shankar: There is clarity only about one thing, that India is going to be as dominant an economy in the next 50 years as the US was in the last 50 years. I am sure that within 100 years of independence, India will reach the status of a true super power, where the US was the only country having such a status. I think that will be a terrific achievement.

I sure that India will not just dominate the manufacturing and the services end, it will dominate opinion, it will dominate thoughts, unlike the Chinese who dominate stuffed toys and nothing beyond that.

The Sensex will play up once in a while, as it did in May, but by and large one has to make a very bullish case for the country; the Sensex is just one part of it.

Rakesh Jhunjhunwala - (May 2006 Interview)

Rakesh Jhunjhunwala has made his fame and fortune by calling the markets right. How he has gone with a starting capital of Rs 5,000 to a net worth of a few thousand crore rupees is now the stuff of urban legend.

One of the big bulls of the stock market, Jhunjhunwala is quick to point out that he is bullish first and foremost on India's growth story. For the chartered accountant who bet big with the Madhu Dandavate budget of 1989, Bombay Stock Exchange is where it all started.

Anuradha SenGupta: It's 9 o'clock in the morning and we are outside Bombay Stock Exchange (BSE). Do you feel sentimental, when you pass by this road? This is where you started your career about 20 years ago.

Rakesh Jhunjhunwala: I can tell you Anuradha, I started here in 1985.

Anuradha SenGupta: You have been saying hello to a lot of people here.


Rakesh Jhunjhunwala: I know a lot of people here. I had no office here; I used to come here with a bag. We used to get a ticket to enter the ring. I couldn't get the permission, so I used to stand outside the ring and see trading take place. And that's how I learnt. And I remember how I struggled and how I raised money. It's a moment of great happiness. There was a samosa-wala here, right there in the garden and we used to eat samosas. Lovely samosas he used to make.

There was a bomb blast in the BSE and I was in the ring on the day of the blast. And two of the samosa-walas died here. We had 12 exits from the ring. There was such panic after the bomb-blast. And I was afraid of a stampede and kept shouting, "Don't worry, if we die, we'll die together. Don't try to save only yourself." And I saw a view in the gallery ring. Glass broke off and a person's head got cut in the ring. Very vivid and tragic memories of that day. But this street really reminds me of how I used to come here.



Anuradha SenGupta: Everyone saw how Mumbai, how the stock exchange, was back to its feet so quickly after the blast. Now is there something about making money, about trading and business that is linked with this survival instinct?

Rakesh Jhunjhunwala: You know, trading always keeps you on your feet, it keeps you alert. That's one of the reasons why I like to trade.

Anuradha SenGupta: What are these attitudes in life that you have got from your profession?

Rakesh Jhunjhunwala: First thing I've learnt is that markets work. They are the best mechanism to build societies.

Anuradha SenGupta: You are philosophical about what you do, isn't it?

Rakesh Jhunjhunwala: I am passionate, I don't know whether I am philosophical or not. I am observant surely.

Anuradha SenGupta: The India shining story, are you the face of that story, Rakesh Jhunjhunwala?

Rakesh Jhunjhunwala: Well, that's not for me to say. I entered the market at Index 150. Today, the index is at 12, 000. It's eighty times. And you know, I too could have gone abroad, I am a qualified chartered accountant. I could have practiced. It’s a fact that a person who started in 1985 in India in stock markets, could meet with success. Which speaks for the volume of opportunities available here.



Anuradha SenGupta: Today, every move you make, every investment you make, every stock you put your money on is tracked, there are people who jump into the bandwagon, whether you like it or not. Does that pressurise you?

Rakesh Jhunjhunwala: See Ma'm, I've no clients except my wife because I don't want to be answerable to anybody. But with her, I've no choice.

Anuradha SenGupta: Does it pressurise you, this performance anxiety? Like if I am a cricketer or a soccer player, and if I start performing well, there's always an expectation that every time I go into the batting field, I'll score a 100. Look at what's happening to Sachin Tendulkar?.

Rakesh Jhunjhunwala: But Ma’m, whether anyone's watching or not, I'm always paranoid about all my actions. And the likelihood of my actions being successful, say five years ago, or ten years ago or today, is only better to the extent of what better experiences I've had. I am fearless. I am not concerned about what people think. I am only concerned about my deeds.

Anuradha SenGupta: You are an icon, when it comes to someone who's successful at the stock market. Are there lot of Bunties and Bablis who want to become Rakesh Jhunjhunwala, you think?

Rakesh Jhunjhunwala: I do get mail from a lot of people, who say they want to invest in markets, and follow my career path. What did I do, they want to know.

Anuradha SenGupta: Ordinary investors, retired people. Do you think there's an understanding that they want to be educated or they just want to make a quick buck?

Rakesh Jhunjhunwala: See, markets are about money, but markets are also about knowledge. Markets are also about egos; markets are also about the satisfaction of having been proved right. Especially, when that right is from an original thought and not from a guided source or following somebody. So I feel the anxiety, curiosity and the anxiousness to know about the market; it's quite general. But markets being markets, the ability is quite limited in my opinion.

Anuradha SenGupta: Greed and fear, you said, are the two traits that have to be balanced. How does one balance them? Give us an anecdote, where you had to balance it.

Rakesh Jhunjhunwala: Anuradha, it's like this. Suppose I invest in Titan. I bought 'x' number of shares, I was extremely bullish, right? And you know, I would have been greedy if I had put in more than certain percentage of my wealth into Titan. And I didn't do it out of fear that Titan might not do well. I might lose my principal.



Anuradha SenGupta: What about ACC? You sold ACC at lot less than what it actually went on to be?.

Rakesh Jhunjhunwala: Ma’m, about markets, they say, either don't come to markets or don't regret what you have done. Right? Naya gilli, naya dao. I think the second quarter 1991 result was the best ACC produced for the next 10 years. And after those results came, I sold the shares. I bought them for 300 and within three months, I'd sold them for 3,500. And the price went to 10, 000. I've no regrets.

Anuradha SenGupta: You have no regrets, but what principle drove you at that point, fear or greed?

Rakesh Jhunjhunwala: I think I was neither being greedy nor being fearful, I was just being rational.

Anuradha SenGupta: Celebrating three years of the bull run, the BSE Index has gone from 3000 plus to 12,000 plus in just three years. And this investor says, it's going to continue that way.

Rakesh Jhunjhunwala: You know, Sensex has gone from 3000 to 12,000 in the last three years. You know people are excited, everybody's making money and that's why markets are making headlines. As they say Teji me sab ka bol bala, mandi me sab ka muh kala.

Anuradha SenGupta: Every time the markets run up, people get extremely euphoric and they get very very nervous, isn't it? And you are the guy whom they run to defend the bull run?

Rakesh Jhunjhunwala: There's no question of defending the bull run. See, we forget what markets are. Markets reflect economic truth and fundamentals. And I think India is going into a lot of unprecedented economic growth, I think the markets are only recognising that.

Anuradha SenGupta: Why is it so difficult to believe what you are saying? Why is there this fear psychosis, that if things are good, then they are bound to go bad?.

Rakesh Jhunjhunwala: I think for two reasons - past experiences and the inertia of the mind that India can have continued economic growth. And also because we've had two scams in the stock market, this also made people very suspicious of the markets. I think there is a combination of reasons.



Anuradha SenGupta: Are you saying that we should not be suspicious at all this time round?

Rakesh Jhunjhunwala: Well, I don't think there's a need to be suspicious, although I think you need to be alert. I don't think there's any scam in the market.

Anuradha SenGupta: Now, in the past, in the secondary markets, where we've seen these two scams happen, the primary market has been a safer place for retail investors. Now it looks like the primary markets are also a suspect, isn't it?

Rakesh Jhunjhunwala: Let us understand one thing that misuse of mechanisms is part of every market. All markets have to evolve. So therefore, we've to go to a stage of evolution where people are going to take advantage of the law. But law will catch up, right?

Anuradha SenGupta: You have always defended the regulator very strongly saying that the regulator is in place and that regulator systems and processes are just fine. Do you stand by that?

Anuradha SenGupta: See Ma'm, we may be critical of some mistakes that the regulator might have made, but we should realise that in the Indian stock markets, we have gone from the wild west to being one of the most modern trading system in the world. And in a very short span of time. Every regulator has to evolve. And mistakes are going to be made during evolution. So I think it's a matter of a glass being half full or half empty.

Anuradha SenGupta: Ironically, while Jhunjhunwala has all the trappings of success, he still clings to his middle-class south Mumbai roots. Proud to be a self-made man, he can’t help spouting Jhunjhunwala-isms.



Anuradha SenGupta: What I want to know, how important is it for you that people are always guessing how much you are worth? It's important, isn't it, that people don't really know?

Rakesh Jhunjhunwala: What irritates me, is how does it matter to them. And see, I am not running any relay race, I am not in any rat race with somebody and I want to be richer than somebody or I want to be the richest man. My purpose in life is to do what I enjoy and enjoy what I do, right? And wealth is a bi-product of what I do. Why do people want to know what my wealth is. How is it relevant?

Anuradha SenGupta: Maybe only because your claim to fame is the money you made on your own, the first generation from scratch starting with Rs 5,000?

Rakesh Jhunjhunwala: I think what is more needed to be appreciated is not the wealth I have as such but, how I made it. By God's grace, I am a rich man. How rich I am, how is it important? I can tell you one thing, I am rich enough for my wealth to matter internationally.

Anuradha SenGupta: You just mentioned that you are not in the rat race, how do you react when you see these lists that come out - 100 richest men in the world, 100 richest Indians, 50 most powerful Indians? Because you have figured in some, haven't you?

Rakesh Jhunjhunwala: Well, I have no press agent and I have no press agency, right? And I am not seeking any publicity. But as long as any list is a recognition of human effort and human achievement, then I would be lying if I said I don't like to be in that list. So, I like it to be there, but I am not making any special effort to be on this list. Being on the list is coincidental and not the purpose of my work.

Anuradha SenGupta: Then obviously there's no ambition to be on any other list and on higher number on any list?

Rakesh Jhunjhunwala: Not at all.

Anuradha SenGupta: You have often and emphatically pointed out that there's a lot of research, a lot of data gathering and a lot of knowledge accumulation that goes into this business of yours. What do you read?

Rakesh Jhunjhunwala: See, I read Economist and India Today, which I read cover to cover every week. In the Economist, I read the entire business section and the science and technology section. These are my constant reads. Then I read broker reports and go through balance sheets.

Anuradha SenGupta: There are five screens here, could you quickly tell us which one does what?

Rakesh Jhunjhunwala: Well, these are all of the BSE NSE live screens, where I track the prices. The first one right here is my investments. These are the futures.

Anuradha SenGupta: There are 31 scripts there?

Rakesh Jhunjhunwala: Yeah, except CL, all of them are my investments. These are all my shares in which I have some short-term positions. These are just some companies whose prices I want to follow. And these are the futures that I trade, right? This is the live Reuters screen, from where I get information. And this is the Internet. And there's the television.

Anuradha SenGupta: Can you go through a single day without having, if you want to, conversations with anybody outside.

Rakesh Jhunjhunwala: There are a certain people whose views I value, some friends with whom I discuss matters, so I talk to them. Essentially, the decisions in trading and investment are very lonely decisions. And I, of course, can trade without talking to anybody. But I do tend to talk to people.



Anuradha SenGupta: You know I have spoken to a few people, who say there's a contradiction in Rakesh Jhunjhunwala. There's this long time view he has on some shares and he stays and he stays and he stays. Hangs in there, tight. And here on his trading screen, he can make and lose 20 crores or 50 crores in a blink. As we talk, can you do that?

Rakesh Jhunjhunwala: Well, I don't do that kind of trading. I hold investments for a long time because I read somewhere and time has taught me that we should be greedy, but long term greedy. So, when you have something good, stick to it.

Anuradha SenGupta: What about the other screen?

Rakesh Jhunjhunwala: Ma'm, I had no capital when I came to the markets, and no father gifts and no father-in-law gifts. So I had to earn the capital to invest. How do you invest if you don't have the capital? And I got the capital by doing all this future trading.

Anuradha SenGupta: And you can lose and make up to how much, say as we are talking?

Rakesh Jhunjhunwala: I would not like to quote figures. I only make mistakes, which I can afford, where I can lift to begin again.

Anuradha SenGupta: You get in actually before the trends start, isn't it? For the investment decisions?.

Rakesh Jhunjhunwala: By God's grace, I think from 1985-86 to 2006, I had been able to catch most; say if there are 10 cycles in the market, then I have been able to catch 9 right. So investment wise, the cycles have been good. In trading, we make mistakes everyday. You know one author once said beautifully, that it's important that you are right or wrong in trading; it's important how much you lose when you are wrong and how much you make when you are right.

Anuradha SenGupta: If you lose money, do you feel stressed?

Rakesh Jhunjhunwala: No, never. I feel it for five minutes. Because Ma'm, I am not staking more than two or three percent of my wealth in these. I always remember Churchill's words.

Anuradha SenGupta: You've quoted Churchill. You quote very regularly. Do you read anything else that these people have written? The non-investing legends.

Rakesh Jhunjhunwala: Well, Churchill was not an investing legend at all.

Anuradha SenGupta: Exactly. So, do you read beyond the quotes that have come in the books?

Rakesh Jhunjhunwala: I am very fascinated by the Second World War. I have seen so many movies on the Second World War. I saw 25 CDs on the war and that gives you lot of quotes. Now, my non-market, non-economic reading is much lesser. I was a voracious reader before 35.

Anuradha SenGupta: Even by international standards, your good wealth is what you sell. Does that mean you are ready to trade and to invest in international markets? What's stopping you? Is it legality or is it scale?

Rakesh Jhunjhunwala: There are two to three reasons. First, even if I desire, I cannot do it because all my wealth is in India. By 2010, we will have capital ready. That's my guess. Second, the opportunity in India itself is so huge. And, so nascent. When we are getting good food at home, why think of a restaurant? And third, to invest at international scale, I need to build a bigger and broader organisation. I think I will have all the three by 2010.

Anuradha SenGupta: What in terms of capital you need to invest to be considered of a notable investor?

Rakesh Jhunjhunwala: I don't want to go into any market to be noted, I want to go there to make money.

Anuradha SenGupta: So, capital is not a limitation?

Rakesh Jhunjhunwala: No, capital is never a limitation.

Anuradha SenGupta: You work with money. To put it very simplistically, where do you save your money?

Rakesh Jhunjhunwala: Where do I save my money? Well, whatever I earn, less my expenses is my saving.



Anuradha SenGupta: Away from the stock markets, are there any areas you would save your money - art, real estate?

Rakesh Jhunjhunwala: No art really. I bought one painting last month. I have a house apart from this office, so no real estate either. I've invested in some real estate funds.

Anuradha SenGupta: So what is saving for Jhunjhunwala?

Rakesh Jhunjhunwala: My wealth is a valuable portfolio, that's my saving.

Anuradha SenGupta: Can that be notional also because today depending on the markets, it's x today and goes down tomorrow?

Rakesh Jhunjhunwala: I wouldn't say it's notional, it's fluctuating.

Anuradha SenGupta: Doesn't it bother you sometimes that you are not the guy with the ideas; you are the guy who is backing the guys with the ideas?

Rakesh Jhunjhunwala: I don't think so. There are various parts of creating anything. So when I invest in a company at an initial stage, I am handling with that company. I distinguish between my chairmanship of Aptech and my directorship of other companies. In Aptech, we are under management control of the company. So we are exactly running it.

Anuradha SenGupta: What's the experience like? For you it's a new experience, isn't it?

Rakesh Jhunjhunwala: It's a challenge, Ma'm. I don't know whether I will be successful. I will know in five years. But I love a challenge. Funds worldwide have made billions of dollars by taking over management control of companies. Now I had never taken management control of any company prior to Aptech. I think it will take 4 or 5 years. I still come to the year 2010.

Anuradha SenGupta: Is 2010 a year when a lot of things will happen to Rakesh Jhunjhunwala?

Rakesh Jhunjhunwala: Yes. I will be fifty that year.

Anuradha SenGupta: So you set a lot of milestones for yourself?

Rakesh Jhunjhunwala: I never said that. They are very flexible milestones. In a stock market, people come on CNBC and give targets. I think of targets but they are very flexible. If I succeed in reviving Aptech and we get a very good profitable company then I will get courage to buy management control of larger companies.

Anuradha SenGupta: We talked about how markets are all the time on a bull run. And when Sensex keeps climbing, there is great excitement and fear. Does it bother you that people like you are scrutinised very intently at these times?

Rakesh Jhunjhunwala: Ma'm, I am concerned about one thing. I follow the law in letter and spirit and we live in a democracy. I act in accordance with the laws in government institutions. Now if the government has a right to examine everything, whether we like it or not, we have to accept it. And that's part of life.

Anuradha SenGupta: But this suspicion that comes up every time, especially in this business, does that bother you?

Rakesh Jhunjhunwala: Not at all. Whatever I have done in life, people have looked on with suspicion. Imagine a chartered accountant in 1985 coming from a bureaucratic family, going to this stock market and standing on the streets. My father is a member of the Wellington club from 1973. I am a qualified chartered accountant. I don't think culturally I have done anything wrong. But they don't want to make me a member of Willington club. It's their choice. Initially, I used to react to this with anger. Now I react to it with maturity. People will have any opinion; time will change their opinion.
Anuradha SenGupta: If you have made your money as a trader or investor in the stock market, somehow it is not as respectable as the captains of the industry? Does that bother you? Because you are putting in huge amounts of education and knowledge to make the kind of investments you are making?

Rakesh Jhunjhunwala: Ma'm let me tell you one thing. Let me be very candid. For the kind of recognition I have got, I don't think it's not respected. It's now not respected in antique minds. If capitalism is the only method of government, then the only temples of that form of government are the stock markets. And believe me, I am not doing anything to be recognised by anybody. The recognition is incidental. I am doing what I enjoy to do.

Anuradha SenGupta: But Rakesh, it bothers you enough today to remember the incident of Willington club not giving you membership?

Rakesh Jhunjhunwala: But that maybe was 10-12 years ago when I might have felt a little pinch. Now I don't feel it.

Jhunjhunwala chooses to live in a joint family. Without the economic and emotional support of his parents, he is clear that he would not have managed to throw a conventional career to the winds. His family including his sisters and brothers are the only people who benefit from his stock tips.

Rakesh Jhunjhunwala: My dad is the person who has taught me the most in my life. And I think whatever I am in life, he has a very substantial contribution in it. He's the most democratic father. I had a curiosity and he has nurtured that curiosity.

Anuradha SenGupta: So you are not a mummy's boy; you are a daddy's boy?

Rakesh Jhunjhunwala: No, I am both mummy and daddy's boy. I am the baby of the family at 46. And the youngest tend to be both. I live with my parents and we are a very close-knit family.

Anuradha SenGupta: You have a daughter, Nishtha. I remember hearing you say that you have several challenges in front of you; the first challenge is to be able to look after your health i.e., cut down on drinking, smoking, so that you can spend a minimum of 35 years with your daughter Nishtha. How are you doing on that challenge?

Rakesh Jhunjhunwala: Well, I am just starting to work on it.

Anuradha SenGupta: What I am quoting is what I heard two years ago. And you are still trying to work on it?

Rakesh Jhunjhunwala: I think it's better late than never.

Anuradha SenGupta: You are still trying to work on it?

Rakesh Jhunjhunwala: Yes, and I will eventually.

Anuradha SenGupta: But you are talking about 2010, you are talking about Nishtha, about parents who've supported you in your career choice and with who you live today out of choice. Surely it bothers them that you are not dealing with this challenge upfront and with the kind of effort that's needed? What do you have to say to them?

Rakesh Jhunjhunwala: Well, I have no face to face them. Here I have lost a battle but I have not lost the war.

Anuradha SenGupta: Ok, Rakesh Jhunjhunwala, on one of those stock quotes. I am going to wish you all the very best in this battle. And I hope that the markets continue to rise and nobody pays a price for it.

Rakesh Jhunjhunwala: Well, that's a hope which may not be very legitimate, because in markets, some are going to win, some are going to lose. My hope would be to let India's economy prosper, let all Indians have at least basic needs. Let us build a society, which is egalitarian, where we allow people's skills to flow.