In May, four days before the election results were announced, super bull Rakesh Jhunjhunwala announced that India is witnessing the mother of all bull runs. Four months later, with a majority Modi government & falling crude prices, he is double bullish. ‘This is just the trailer he says…picture abhi baaki hai…promises the big bull.
Jhunjhunwala is a partner in his asset management firm, Rare Enterprises. A recent newspaper article said that over the last year or so, he had made close to Rs 35 lakh every hour. That is how successful he has been in this market over the last 12 months or so.
In an exclusive interview to CNBC-TV18, he ponders over things, global and domestic, that is transformational for Indian market and economy.
Q: I am going to ask you about two things I think that have changed dramatically between the time we last met which was May 12 and today. One is that we met a few days before counting since then of course the Bharatiya Janata Party (BJP) won, Mr Modi has become Prime Minister (PM) and that in itself has been a fairly transformational thing for the Indian economy. The second one is what has gone on with crude prices, which again has several layered impact on the Indian economy. First up how would you assess what you have seen the Modi government do so far?
A: First of all it is too short a period to assess. Second thing is my comment is that India has to undergo a change. We live in a democracy and change has to be slow. For everything that has to be changed, every decision has to be considered. So to think that Mr Modi and his government could show some miracle in six months would be childish. But I have no doubts that there will be miracles over a period of time and I will at least give a further period of 18-24 months; that’s when you will see the burst of all these actions taking place.
Also I would like to add that as far as crude prices go, in crude or commodities, what has happened, you have had one of the largest bull markets in commodities in the last 15-20 years. Now, I think it is not — people are saying that commodity prices have come down only because the consumption has gone down. I think consumption reduction is very marginal. What has happened is that there was so much super profits in commodities that investment was attracted. I think the super cycle on the commodities boom is over. Now we are going to go through a deep correction and maybe a bear market in commodities. I personally think oil prices will settle somewhere between USD 70 per barrel and USD 80 per barrel and will stay there for a long time maybe bottom at USD 75 per barrel or top at USD 85 per barrel that is what my expectation is.
Q: How does an investor play something like this?
A: I have not done a detailed analysis.
Q: One sector group of stocks or companies that will invest the most are oil sector, public sector companies because they have been strangled virtually by the lack of any kind of freedom in pricing?
A: There is a very big misnotion that Hindustan Petroleum Corporation Ltd ( HPCL ), Bharat Petroleum Corporation Ltd ( BPCL ) and Indian Oil Corporation ( IOC ) were not bearing any part of the subsidy and they were having market related prices including margins and profit.
The only thing was that government was paying them late. So they are biggest beneficiaries in terms of interest cost in normal terms of profit.
Q: But someone like an Oil and Natural Gas Corporation (ONGC) would benefit because the subsidy burden that ONGC had to bear as an upstream company hopefully will come down dramatically or reduce to zero technically if the diesel price deregulation persists?
A: Let me first of all say that I am long ONGC, I am very bullish. Please take advise from a financial adviser, I am extremely interested, I am long ONGC. I feel the biggest beneficiary of this will be ONGC and Oil India .
Last year ONGC’s realisation was USD 41 and my personal opinion maybe in 2016 or in the Budget after that, the government is going to abolish all this and the entire subsidy is going to be borne by government of India. That is what my judgement is, I deserve the right to be wrong. So the real beneficiary of this oil fall – it is a big dilemma that ONGC — if the government of India abolishes the subsidy — is the largest beneficiary in the world of falling oil prices.
Q: So there is a multifaceted set of benefits that India draws from that kind of price region for crude?
A: I think that is one of the small — that is a big benefit –but there are bigger benefit. In a meal, that is like a chutney, it is not the main vegetable and the main roti.
If you look at the world today, countries are facing two kinds of challenges. Some are facing structural problems which include the entire western world, Japan and China. Then there are countries which are facing cyclical problems where I include the developing world and there are countries which is on upturn both cyclically and structurally and India would fall in that category.
Q: I am saying what we expected on May 12. A Modi government is what you anticipated at that point in time. Yes of course this majority was unanticipated but we have got that and that bolsters your expectations. Did you expect crude prices to be at USD 80/barrel?
A: It bolsters the reality.
Q: But there is a double good whammy here because we have also had crude prices come down. Does this double whammy of good factors make you a double of a bull than you were in May is the question I was trying to get?
A: If you talk to me about India’s bullishness I cannot express how bullish I am. When I came to the market in 1985 the index was 150. I feel India as a country is at 150. People may call me anything, mad bull, big bull but these are my feelings. And when I think about the factors involved it is the thought I get. Because we are underestimating, we have a cyclical upturn, we have the best structural upturn in the world.
I envisage that post 2017-18 India will grow double digit I don’t know for how many years.
Q: I want to connect what you have said about the Modi majority if I may call it that, the bear market in commodities and what is going on in the rest of the world with regards to central bank policy because it has been most confusing in the last month, right?
A: Structurally the richest countries of the world have never faced the problem they are facing today. With commodity prices going down, inflation — people are talking of deflation— why should interest rates go up and even if they do, then by what measure? I am told deposit rates in Singapore are 20 bps. Suppose those deposit rates become 1 percent, what difference is it going to make? Are you coming to India to earn 1 percent? So all this is overhyped.
So I am of an opinion that what happens in the world could affect us may be for a week, 10-15 days or one month. But I don’t think interest rates will go up aggressively. I think they wont go up. Even if they go up, the quantum of rise will be one which is not going to affect sentiment towards India.
Second, India is going to be the best performing economy, I am not saying market, amongst the developed and developing world for a long period of time. Also there are a lot of investments waiting to come into India, which needed change in policy which is happening.
Q: All bull runs go through corrections at various points in time. We did see a lot of volatility in October. We also saw our markets come off their peaks by about 3 percent or so which was probably the mildest of corrections relative to how other markets did. Are we therefore in imminent danger of an impending correction over the next few months given how much we have run up?
A: We had a nonstop rise from 5200. In August 2013 the market bottomed. In August 2013 I said the mother of all bull markets is ahead of us. In December 2013 I said I believe the bull market has already started, in May 2014 I said this is the mother of all bull markets. This is just a trailer, you just watch the action movie. We had a rise from 5200 to 8200, a 3000 point rise. Correction can come anytime but I don’t think especially the last two days the screen is indicating any correction. And it is my feeling and opinion and I deserve the right to be wrong that if any serious correction will come, either it will come post December and finish before the Budget or it will come post Budget.
Q: When you say a very serious correction what would the depth of that correction be roughly?
A: It could be 33 percent of the rise. You go from 5200 to 9200, you always lose some points. I am not sure when it will start but corrections are part of market.
Q: So would it be fair for me to assume that you are still long on your trading portfolio?
A: I am bullish.
Q: Have you changed your trading strategy over the last month or so?
A: I do not make a strategy. I watch the screen, buy-sell, so there is no detailed planning, analysis.
Q: That is very self-effacing. I do not believe?
A: Want can I do if you don’t want to believe me. I have no conference with my people at 8:30. I come to the office at 11:00. I give orders at 9:15. I do not consult anybody.
Q: But your orders would be based on some analysis?
A: It is based on my intuition and my understanding which is not preplanned.
Q: I am curious to know because I know a lot of your followers would be keen to know how is it that Rakesh Jhunjhunwala pick stocks, does he do hours of financial analysis, does he talk to managements ahead of time before he puts his money into the stock to find out what the integrity of the management is, whether he agrees with their vision, their expectation. How do you pick stocks?
A: I am more a big picture investor rather than analysis and there are so many factors. Investing in a sense requires intuition of so many senses but I look at the big picture and when I am convinced I do not listen to anybody and I have been wrong, wrong, wrong many a time. I am luckier than I am smart, let me tell you that.
Q: Do you talk to managements of the companies before you invest in them to get a sense of what their vision is?
A: Sometime there is a value that when you invest don’t investigate later. I met the promoter of DHFL on the airport by chance. He told me I should look at his stock. It was at ridiculous valuation. When I saw it was at Rs 110. I told him that I will look at the stock and talk to you. I first bought those shares then I called him. Therefore, at certain valuation it’s now invest and not investigate later.
Q: But that is a chance meeting with the promoter of a company. Do you otherwise consciously try and call if a company looks interesting to you from financials or valuation point of view do you call the management?
A: I do not have much money to invest, whatever you think. I do not have trading income every year and that’s the only thing I can invest and I do not want to take debt beyond a point and I do not want to rotate my portfolio constantly. I want very little turnover in my portfolio. Therefore, I am not looking very minute eye and nowadays I do not want to invest in small companies.
Q: Why? Small companys means smallcaps, midcaps companies like what we traditionally know as smallcap, midcap?
A: It is difficult to buy, difficult to sell.
Q: Aren’t these what market call multibaggers?
A: Rather than a hunt for the multibaggers now if I get 21 percent return on my stock I will be a king. If I will get 24 percent, I will be an emperor.
Q: Why is it this that you moved away from aspiring to want to identify the next 10 baby multibaggers?
A: When I bought Titan first time, I thought the price will be Rs 200. I bought up to Rs 120. The price is Rs 8,000. So it’s not easy. Lot of people ask me give us the next Titan. If I will know it I will tell you.
Q: On May 12, you told me you were long software and pharmaceutical but that you have also started building big positions in cyclical. Do cyclical still look very appealing to you?
A: Depends on which one because there are lot of cyclical.
Q: You had mentioned a few stocks then I am taking the liberty to mention those stocks. You had said Dewan Housing Finance Corporation (DHFL) at that point, Escorts at that point – those were some of the stocks you spoke of.
A: With a time horizon of five-ten years, any Indian company with good corporate governance, good allocation of capital, good return on equity, unutilised capacity I am bullish on.
Q: Financials, industrials. A: Everything but these are – going to a sector also you look at the criteria of companies; what is the profile, what is the problem but one thing is there in cyclical the rewards are going to be very good but you have to have patience. Q: Have you been adding financial stocks to your portfolio?
A: I am adding financials.
Q: What is it within financials that appeals to you, are you looking at some of the more non banking financial companies (NBFCs) kind of companies or are you looking at private sector banks or public sector undertaking (PSU) banks. I am not asking you for specific names. I am asking you for larger areas that might interest you?
A: I am not looking at PSU banks and from investment angel I am not buying any PSU banks. According to me the public sector banks profitability will go up, there will be upturn but the problem is they need so much of equity. I keep selling every year, keep selling every year. Actually my request is for Government of India to decide for five years what is a disinvestment for three years and do not disinvest a company every year. If you sell Oil and Natural Gas Corporation ( ONGC ) today then make a pledge that for 24 to 36 months we will not sell ONGC. If you respect the equity, the market will respect your equity. So, India to get better valuation of public sector stocks whether banks or otherwise need to have a planned disinvestment programme for the next three years.
Q: In industrials are the specific areas that look interesting to you, more interesting or more promising because the last set of earnings that we went through last quarter, not this time, there were quite a few expectations that took a hard reality check or knock if I could say so on industrials.
A: For trading I sold all my cyclical, most of them and not all and my economy related immediate economy related stocks just one or two months into the rally in June-July because there are lot of expectation built in which is going to take time. If you want to buy, buy with a three-five year horizon.
Q: You sold and you rotated your money into what?
A: I am talking of trading positions. Q: I am talking of trading positions only? A: I won’t tell you what I bought.
Q: Not stocks but sectors?
A: I don’t want to talk companies; I do not want to talk sectors.
Q: In May, you had told me that Infosys was still some time away from a turnaround. Now with a change in leadership, do you believe that that company and therefore the stock by extension look more interesting?
A: This is the first quarter – I do not know, I am hopeful and it could be a very good turnaround. They have underperformed TCS and there is no doubt about it by leaps and bounds. So let us see what happens and I think they could and they could not, I do not know.
Q: We have seen USL go through a fairly rough patch over the last few quarters, a delay in announcing its earnings. There is a cleanup going on there. How confident do you feel about the USL story?
A: Over the next 15 years.
Q: Hopefully two-five years? Who has seen 15 years?
A: I have bought USL and at this moment I think that if I have 50-53 percent of India’s liquor market and I have Diageo’s skills and corporate governance; the short-term maybe a little cloudy but the long-term is – you cannot imagine. You have 50-53 percent India’s liquor market, you have the world’s largest company owning it, you have the highest corporate governance, you have the highest skills in running spirits business, I think it’s a lethal combination.
Q: What about e-commerce valuations? Is there some way you are looking at playing what is going on the e-commerce space?
A: I think it is crazy.
Q: I asked Ramesh the same question and he said I am approaching the proxy for me because most of these companies are unlisted are logistic players, supply chain players.
A: Do I have to participate in every party in the world. I want to ask you one thing, JustDial has got Rs 700 crore cash in the balance sheet.
Q: JustDial was one of your big investments
. A: I sold it. He is going to raise Rs 1,000 crore for what? What is he going to do with Rs 1700 crore cash in his balance sheet, how is he going to use? We will have inorganic opportunities, okay. So there is no respect for equity. Anyway, in the short-term, the price could be Rs 10,000 but I know entrepreneurs who give respect to equity, give returns to its investors.
Q: Do you think some of these start-ups like Flipkart etc have diluted way too much, way too quickly?
A: They could grow but how much the investors will earn, I have a doubt.
Q: I want to ask you one stock specific question. There are two – Your interest in MCX and your interest in GSFC .
A: I have a position in GSFC, it is a trade, it is not an investment.
Q: And MCX?
A: I made an investment in MCX and I am very bullish.
Q: On the exchange business?
A: No, the exchange business – because I think it is like in 1999 when I bought CRISIL , everybody wanted a play on the financials in the Indian market. I thought CRISIL is the best proxy for financials. It is unique. If I want to have an investment in India’s financials, MCX is best because unique. It is a play on the trading and the hedging and the liquidity and the growth of Indian markets. To establish a near monopoly with 85-90 percent market share in commodities, I think it is unassailable position.Q:
Q If your expectation is that we are set at the beginning of a bear market in commodities, do you expect that to play out in any fashion on trading volumes for an exchange like MCX?
A: Consumption is not going to go down and once all this trading, once you are habituated – in India, where is the hedging? Where is the development of the financial markets in the attitude?
Q: Is this five-year investment for you, ten-year investment for you?
A: Who knows.
Q: But it is an investment, it is not your trading portfolio? A: It is an investment. Q: GSFC?
A: I am bullish.
Q: Let me ask you what would your message to fellow investors in the Indian equity markets be on this auspicious occasion of Diwali?
A: I will say be bullish, ride for longer-term, there is a lot of money to be made in the stock markets but invest what you can afford or invest with an idea that there could be risk also. So invest what you can afford easily, don’t be cynical about India. It is going to be the greatest opportunity we ever had and the next – India is going to be a bull market, which will surprise you even five years later, ten years later, fifteen years later and twenty years later. I deserve the right to be wrong, believe in India, happy investing.