It has been 15 long years since CNBC-TV18 took its first steps. Eighteen Budgets and 80 Credit Policies later, the business channel looks back at the way Indian equity market has grown and, with help of experts, analyses what can be expected in the next 15 years. Congratulating the channel at CNBC-TV18 investor summit, Rakesh Jhunjhunwala, partner at asset management firm Rare Enterprises, says Nifty has grown 10 times in last 15 years and can easily grow further 10-12 times in the coming decade. Betting on India's steady earnings growth rate of 16 percent, he says Nifty can hit 1,25,000 by 2030.
Continuing with his optimism, the billionaire — reports suggest he has made close to Rs 35 lakh every hour in the last 12 odd months —says India is sitting on the wings of change, courtesy the perfect instrument called Narendra Modi. The pace of change that Prime Minister Modi is set to bring about will be unprecedented. The Budget, in this context, will not be as important. The important fact is that India's growth will far exceed that of China's.
He says India's economy is prefectly balanced at the moment. He says Modi's Swachh Bharat programme has a far greater impact than we can envisage. Add to the fact are benefits like falling crude prices, which have not been fully passed on to the consumers. Jhunjhunwala is not at all pleased that RBI governor chose not to touch rates despite situation warranting quite the opposite. "Rajan will regret not cutting rates today."
The ace investor rubbishes views that his recent accumulation of SpiceJet stock puts a stamp of credibility on the company. He believes Titan, a stock Jhunjhunwala has spoken several times previously, will continue to grow.
Below is verbatim transcript of his interview with Shereen Bhan on CNBC-TV18:
Q: Every time you are on the channel we manage to get at least one big headline or a couple of big headlines. So, let me start by getting you to tell us about your forecast and your outlook. It has been called the mother of bull runs by you, it has been called the structural bull run, it has been called multi-year bull run. Everyone is confident and optimistic and betting on India at this point in time. Some are saying that India is going to be the biggest beneficiary of the kind of fall that we have seen in crude oil markets. What is your forecast for 2015 and then I will talk to you about the next 5 and 10 years? Let us start with the big headline.
A: I thought you will ask me about the next 15 years and you start with this year? You should have foresight.
Q: We have foresight but let's deal with the present.
A: Fifteen years ago the Nifty was 850 and today it is 8500. So, the Nifty has progressed 10 times in the last 15 years.
If the outlook for India, which is much better for the next 10 years than the growth in the past 10 years, with increasing investor participation don’t you think next 10 years should not be 10 but 15 times Nifty?
If by sheer earnings, whatever earnings growth we had in the last 15 – I personally believe that the growth that we have had in the value of the Nifty in the last 10 years will be far exceeded in the next 10 years.
In the last 15 years Nifty has grown 10 times, I see no reason why Nifty should not grow 10-12 times in the next 10 years.
Q: What gives you this confidence at this point in time? Every one talks about the demographic dividend, the democratic dividend, these are things that we have come to sort of absorb and digest. What gives you the most confidence about India today?
A: A lot of countries are facing both structural and cyclical challenges. India is having an uptick both structurally and cyclically. What gives me confidence about this new government is, suppose there is a stock called Titan.
You believe that Titan is a story which will grow. When I bought the share the company was in trouble. I thought they will be able to come back, restructure and do well. However, what would be the quantum of improvement in performance?
So, the perception that most Indians having seen growth far lesser than what we thought is possible, living a civic life in which they face lot of difficulties, most of us are attune to the thought that this country cannot improve, we cannot grow 10 percent, we can never have a responsive administration, corruption will always remain part of our life, I think that will change. Things have changed in India.
Can you believe when I was doing my CA rate of income tax was 95 percent? If you told me that 30 years later the rate of tax will be 50 percent and I was on the 15th floor and you would have said jump I would have jumped. Nobody would believe that in India individual rates of tax would go below 75 percent.
However, the fact remains that individual rates of tax in India today are 33 percent and our direct taxes have grown at 20 percent compounded. So, we Indians cannot envisage the kind of change and the potentiality this country has.
The question is if you look at societies, we have skill, we have demographic dividend, we have size and we have a perfectly balanced economy. Therefore, I see no reason, we have all the ingredients, we have the vegetables, we have ghee, we have the vessel, we have the masala, we have gas and we only need someone to cook it.
Q: Are you saying Modi is the man who can hold it altogether?
A: Absolutely. What people are not envisaging is that when that change comes, what kind of change and what are the consequences of that change.
The consequences of that change will be unprecedented, India will see growth greater than China, maybe after three years, four years for continuous periods and we, including Rakesh Jhunjhunwala will be surprised at the kind of growth we will have.
Q: On the basis of what you have seen you are clearly betting on the fact that Modi will be able to deliver on the vision of India that he has so far been articulating whether it is Digital India, Make in India, Swachh Bharat. If I were to ask you to pin down the single biggest achievement, reform, highlight of the six months period of this government so far, what would that be? Also, since Budget session is now coming up and we are pretty much in the midst of a winter session, what is the most hopeful you are feeling in terms of legislative action?
A: Modi is an instrument. He is an instrument of change; he is not the change. The most remarkable thing of his first 180 days is that he has decided to do things at a measure and pace which is possible.
He knows how to do it, he knows what to do, the management has to be done and so, the methodology that he has employed is the smartest one.
The pace of change which he is bringing about is the one which the country and the situation and circumstances can absorb. Budget is unimportant because a lot of us are emphasising on the quantitative methods. What about the qualitative methods, what about better working of the bureaucracy, faster permissions, cleaner government?
I think Swachh Bharat is the best investment this country can make. It is five times more dividend than spending on health. So, you have to look at the completeness of the picture.
He is making dots, each dot is important because only then it will become a circle. It is not that this country would not reach anywhere if Modi was not there. He is an instrument but he is the perfect instrument and the country is greater than any individual.
Q: You think that he is the perfect instrument to bring about the kind of change and you believe that the change has to be incremental; it cannot be transformational as was expected?
A: Yes, and apart from the economic matters it gives me great feeling and pride as an Indian to know that I have someone in the government who takes pride of India. Until today, we had a government run basically by a foreigner from Italy.
Today, you have Indians who are running the government, who have a feeling for this country, who feel proud that we have scientist and go to Mars, it means something.
Q: You said the Budget is in that sense irrelevant or inconsequential because it is not just about one particular event. Let me ask you about the headline today which is the Reserve Bank of India’s (RBI) credit policy. We can quibble about it, North Block in Delhi is deeply disappointed with the fact that the RBI governor did not cut rates, what’s your view on that?
A: How does it matter to the RBI governor.
Q: That is my question to you. Does it matter, does it not matter, will it matter if it is not February?
A: Whom does it matter to, the governor, to the market or to the government? The markets have loved the policy. The 10-year bond has come down to 7.95 percent. So, the markets have loved the policy.
The stock market was quite good. Jaitley has clearly said that it is the impeditive of the Reserve Bank of India governor to take and decide on monetary policy and the governor has said that I will reduce rates, but I want to have a look at the fiscal deficit, what is wrong there?
Q: Since we are talking about macros whether or not it is February or it is April, we don’t know. Given the fact that we will be heading towards declining rates of inflation and are going to see the governor move towards loosening the monetary policy, what do you really anticipate that meaning as far as stock market’s performance is concerned?
A: Bull market goes up on rising corporate profits and declining interest rate. Corporate profits in India are set to go up.
Q: What are you factoring in as far as the next year is concerned, 25 basis point, 50 basis point or 75 basis point cut?
A: One year later when Raghuram Rajan will look at his policy of December he will regret having not cut in December. This is because inflation will be 4 percent in India next year. We have had an unprecedented fall in oil prices.
Oil affects vegetables, it affects railways, it affects paint, it affects rubber, it affects polyester fibre, PVC prices have come down. Where is that fall in inflation percolated into the economy? You said oil prices fall will sustain for two months. I was just reading a broker’s report. PVC prices have come down Rs 80 to Rs 66, credit rate will go to Rs 55, all PVC pipes will be lower cost.
Don’t forget one thing, the best period of inflation in India was between 2000 and 2008. At that time, the rupee went down and gained from Rs 48/USD in 2003 to Rs 39/USD in 2008 and anywhere in the world when the currency gains inflation comes down because import costs comes down.
You have had the currency go from Rs 40/USD to Rs 62/USD. So in terms of import costs just because of rupee we have seen the worst.
The worst is behind us and now we are importing 7 percent of gross domestic product (GDP) as commodities. That benefit is yet to percolate down.
I am not an economist, it is my personal prediction. I have tried to search not one plus one is two, I have tried to search one plus one is 11. So, you will see inflation at levels even Ridham will be surprised.
Q: Since you are talking about the currency, you are talking about crude you are clearly very bearish on crude. How much lower do you see crude prices falling?
A: No, I am not bearish. Why I am so sure that oil prices will not go up this time because every time I used to short crude I used to lose money. So, this time I am not as smart as people think. This time when it broke USD 100 I said I will never short and see what happened.
However, if I were to judge whatever knowledge I have, you can look for a crude price, I mean I would plan my budget at USD 75 Indian basket, between USD 70-80 international basket so Indian basket would be USD 70-75.
Q: What about the rupee?
A: I don’t see rupee in 60-63 range, I don’t see any reason why the rupee will lose. The rupee in relation to other emerging market currencies lost much more last year. Therefore, it is not losing and the major currencies that are losing against that dollar this year are primarily the developed currencies including the yen, the pound.
Q: What about the other asset classes like real estate?
A: I don’t know but I am bearish. It will take 24 to 36 months for real estate prices to revive and grow in the metropolitan.
Q: The investment in SpiceJet and also the investment in MCX but first SpiceJet. People think if Rakesh Jhunjhunwala is voting on SpiceJet you have given the company a vote of confidence in a sense. So are you bullish on aviation and are you bullish on SpiceJet, what are you betting on?
A: Generally, I play test matches sometime I play T-20 cricket also. I wanted to buy Jet Airways, Jet Airways was in freeze that day so I bought SpiceJet. I was in Maldives; I placed the order from there.
Q: You are continuing to be the Warren Buffett of India, you are not turning into Wilbur Ross and going after distressed assets?
A: I want to be the Rakesh Jhunjhunwala of India. I don’t want to be a clone of anybody; I really don’t like it. First of all I don’t have 20 percent of the intellect and not even 5 percent of the wealth that he has although I have time on my side.
He has capital; I have no capital, father doesn’t give; father-in-law gives but I will not take. So how do I get the money to trade, to invest; I have to trade and earn.
Q: Given the fact that you are confident and bullish just about everything that India is doing at this point in time the sectors that you are most bullish about, would it be infrastructure, would it be the consumption story, what is that you are most bullish about?
A: It is buffet; there are a lot of dishes. Eat what you want; don’t over eat. I don’t have to tell you what to eat.
Q: I know you are being very careful with your diet. So, what is on your plate today?
A: Nothing much. On my plate dal, one vegetable, jowar roti and curd.
Q: And Spicejet and MCX?
A: Spicejet and I have pleasant life. I will never ever buy Spicejet shares for her.
Q: Autos, financials, infrastructure, given the fact that this government is putting its might behind the infrastructure story specifically within that category and within that niche what is it that you would be watching out for?
A: I think everything will go up. There are certain Indian companies where performance is going to take time. I go to a sector there are going to be three companies in that sector which I would buy and there are few whom I would short.
There has to be a company specific matter. One thing I can tell you is unless you have patience valuations are not easy. If you would have told me one year ago I would have said buy whatever is there.
Q: Where are valuations looking stretched today?
A: Everybody thinks that other fellow’s stock is overvalued but my stock valuation is okay, that is human nature.
I would still think that there are lots of investing opportunities. I never have a bank balance left. If I have the money I can do the shopping in one hour. It doesn’t take much time.
Q: What is it that you are going to be betting on as far as the next 15 years are concerned besides the India story?
A: I will be betting on stocks.
Q: Give us some specifics of what exactly within the stocks portfolio you are going to be betting on?
A: I won't tell you what I bought except Spicejet and MCX which you know. What I will buy tomorrow even I don’t know.
Q: You have spoken about government reforms and how you are very confident that this government will be able to deliver on that. You said insurance whether it happens this session or in next session, doesn’t really matter, it is inconsequential in that sense. Land we know for the fact that the government was trying to move the amendments in this session, it looks unlikely that they are going to be able to push it through. From 15 year horizon in terms of reforms because everybody talks about let the reform agenda get back on track, what is it that you would like to see?
A: First I would like to see faster, more transparent and easier decision making. Let us know the rules, let the rules be common for everybody and let there be faster disposal of government decisions. Second thing Goods and Service Tax (GST) is extremely important. Then everything will open up with time.
The kind of fillip defence purchases can give to local manufacturing is unbelievable and these foreigners will be surprised. Indian pharma industry was born because Glaxo by law had to manufacture in active pharmaceutical ingredient (API) in India. That one API plant came and we have 500 API plant in India today among the best in the world.
So once all these foreigners come with their technology and make their arms after 10 years they won’t know what hits them. So this defence thing is extremely important because we are going to procure so much amount of goods, change in the railways, cleanliness. There are thousands of things and they are all dots and each dot is going to contribute.
Q: What is the biggest downside risk that you would factor in today?
A: One very important downside is that Modi should lead this country for the next 10 years. He is the ideal person, not that there cannot be anybody but him not leading this country will be a set back.
Second thing that I am most afraid is Pakistan’s nuclear bomb, because it is a broken state and I don’t trust a broken state with nuclear arms. That is the one big risk India has right now.
Q: What about the global economy and global factors and global triggers. In the short-term everybody talks about when the Fed starts to normalise so on and so forth. The impacts as far as the emerging market fund flows are concerned but as far as the global triggers in the medium and the long term what is it that you are going to be looking at?
A: There are two-three aspects here. One is our good friend Ruchir Sharma has written in book that the only reason India boomed between 2003 and 2008 was because the world boomed and a lot of foreign capital came to India. Now the world is slowing.
America is doing far lesser than what it did during that period, Japan has slowed, Europe is slowing. Other emerging markets are in crisis, but India is expected to grow, the world is expecting that, right?
You tell me one thing; Japan had the best time between 1965 and 1990. Between 1965 and 1980 US was in a severe recession. So, that doesn’t mean that it is necessary for India to grow if the world grows.
What is important to India is software expense, but there India is grabbing market share. Today, if software spending is growing by 3-4 percent Indian software revenue is growing by 15 percent.
So, I see no reason why India cannot outgrow the world and the dollar, if you make the interest rate from 0.25 percent to 0.1 percent then for one percent or one and half percent what difference is it going to make.
You may have seen the money, if India is 2 percent and the total money put in by the institution is USD 35 billion then there should be USD 700 billion.
So I see no reason why money will not come here, see, if the girl is pretty the suitor will come. I have no doubt, let us concentrate on how India can grow, what is the quality of growth then the investor will come, that is what I feel.
Q: You evaded giving us the target for 2015. I am going to request you to try and at least give us one short-term headline. You have given us many long term headlines?
A: I can give you target for 15 years. I will be disappointed if in 2030 it is less than 125000 – the Nifty. I will give you the basic reasoning. If the earnings grow at 18 percent in 15 years the earnings will grow 15 times.
If there is no expansion in PE the Nifty should be 125000. I think there will be an expansion in PE if this kind of earnings growth takes place. It is mathematics, only the rate of earnings growth is an important matter. So, I will be disappointed if in 2030 the Nifty is below 125000.
Q: Would you like to hazard a guess for the Sensex as well, have you done that math as well?
A: Sensex is test cricket, we don’t follow it.