Rakesh Jhunjhunwala and Shankar Sharma Debate

Last time when we met on this forum, both our gladiators had different opinions. Rakesh Jhunjhunwala was of the view that global economic recovery has started and that corporate India will surprise us. Shankar Sharma kept on insisting you cannot ignore China and that if China goes under, commodity prices will crash. This week, the focus will be different.

So far we are focussed on China but what about the US consumer? The US consumer is now saving more and is certainly spending less.


Rakesh Jhunjhunwala: I mean there is no question of replacing, it is going to be a gradual replacement. China and India, Brazil and Indonesia will replace them. Over a period of time, this is going to be Asia’s century; I have no doubt about it.


But Rakesh, history always repeats itself. Look at the 100-year chart of Dow. The excess of any bull market do not get cleaned up in less than one year.


Rakesh Jhunjhunwala: It is their excesses, so they are, as Chris Wood says and which I agree and which I believe that the Western world is structurally in a bear market. Asia in the emerging world is structurally in a bull market.



Can we ignore the global micro?


Rakesh Jhunjhunwala: We can, we have to look at the global micro to the extent to which it affects India. In fact, the country which will outperform, and out-performance will be known in the next 24 months, will have tremendous advantage because if the world does not do well, interest rates worldwide will remain extremely low.

So, therefore capital will flow and second is capital will flow where there is performance as it always does and then it will overflow. America was not doing well from 64 to 82, Japan had an absolute bull market. So, there have been so many instances in history where certain markets have gone into bull markets. In fact, the Zimbabwean stock market I think was in a bull market in October when the entire world was crashing


Shankar Sharma: No, that is a different market.

Read Full Here

Shankar Sharma gives hope :-)

We have been quite optimistic in the last three months, ever since the sub prime problem happened and that was at around 14,000. Our take was that it was probably going to see numbers north of 20,000 and it just kind of kissed that number a while back.

But we changed our stance about 7-8 days back. Now our stance is that we think markets are headed substantially lower globally. I mean for us, India is just another market in a larger global equity bull market and for whatever it is worth, I don’t think India will just simply sit aside if global equities sell-off sharply. We will participate, we’ll participate to a lesser extent on the way down and more on the way up, but we will not remain immune to that. So lets not forget, there has been a 4-5 year global equity bull market, we are squarely in the middle of it.


The global context that right now we are extremely negative on, we think you’re going to look at pretty much across the world sort of economic numbers, the macro number and the micro numbers look very weak. In that environment, we think equity prices are headed lower, we think India will also head lower. However, having said that, we think India will suffer a lot less largely because subterranean India, in terms of the stock market, is looking in very good shape.



Unfortunately, the large end of the market, the largecap end of the market is looking terrible. I have never ever seen a market that has been sort of run along on the basis of 4-5 stocks in the fashion that it has. If you look at pure fundamentals, I don’t see where the earnings numbers are going to come from. You look at the auto pack, pharmaceuticals, IT, cement, you look at some parts of the midcap sectors like even the banks have had NIM pressures, I don’t see how you are getting a situation wherein 9% GDP growth is not delivering any kind of sustainable earnings numbers, at least visible for the next couple of quarters, for any of the core industry that we are talking about. Even the construction company numbers have been disappointing by and large save for the odd Larsen and Toubro.



I am saying that there is a big divergence between the economic growth numbers and on the ground reality of businesses, I think it’s the time that something’s got to give. I think the markets will correct, they will reach levels of sanity and I think the markets will give you another terrific chance to buy in probably 15-20% lower than that.

Now you can say that’s short-term view and so what’s the long-term view. Frankly I have no idea what the long-term view is. I think India is largely a secular bull market. But having said that, I have seen consensus go wrong too many times to just stick out my neck and say five years from now will be substantially higher, the world can change a lot of things can change.


Immediately I do see significant downside and limited upside. A year out, I would still do hazard a guess that we’ll be higher than where we are. But what is causing me concern are those basic big divergences in economic numbers, macro numbers and the micro numbers of companies and their growth numbers. That’s really causing us a lot of discomfort.