Nov 15, 2012, 10.43 AM | Source: CNBC-TV18
The market is gradually revving up for a bull run that could take off in about 14-15 months time, feels Big Bull Rakesh Jhunjhunwala.
Rakesh Jhunjhunwala (more)
Partner, Rare Enterprises | Capital Expertise: Equity - Fundamental
"We will get a far better government in 2014 or whenever the elections are held, than what people are anticipating," he said in an interview with CNBC-TV18.
"Whichever government comes in, will have to take right decisions even if it is fragmented. I feel we will get BJP-led government and if Mr Modi is made the Prime Minister, I am told he is going to be BJP's prime ministerial candidate, we can have some good work very soon," he said.
On the stocks in his portfolio, Jhunjhunwala is bullish on the long term prospects of Lupin , Praj Industries and Nagarjuna Constructions. And while there have a few disappointments like A2Z and Hindustan Oil Exploration, Jhunjhunwala says he has no regrets since the outperformers have more than made up for the laggards.
Below is an edited transcript of Jhunjhunwala’s exclusive interview on CNBC-TV18.
Q: Are you feeling more relaxed and bullish than you were on Diwali last year?
The uncertainty has not gone away, I do not know why. Looking at the screen, price movements of stocks; they are gaining, correcting and again going up. The kind of pessimism that we have and the way the market is gaining! We are at the peak of the interest rate cycle surely. I am bearish on commodities. We have made some kind of a bottom which will not be violated easily; it could be in the start of early bull market. In 2001 September, the market bottomed, but took off after 2003 March. So the real kicker in the market could come after 14-15 months but we could have bottomed. This is a feeling I get, of course I do not see the kind of rise we saw from 2003 to 2007 immediately, but we could have bottomed. It could be an early start for a good market.
Q: You gave the example of 2001 and 2003. What would convince you that we are in a phase like that and a bottom has been formed? Do you think over the next 12-14 months some of the data points will take off once again from here as in 2003? What would you expect to see over the next 12 months from the screen?
First, fall in commodity prices or a fall in inflation. We can surely call it a peak of interest rate cycle and then can have some aggressive correction of interest rates. Second would be some of the resolution or problems, better growth in America, a resolution to the European problems, Greece problems etc. But, most importantly there is an indication of a strong government in India in 2014. In 2014 we are going to get a good, strong reformist government.
Q: If a lot of people believe that it will come in the way of a progression for this bull market then the election uncertainty will actually become more pronounced after 2013-14 with the formation of a government that is fragmented. Do you think it will actually work out in favour of the market?
Yes, because the Congress and the Bharatiya Janata Party (BJP) constitute majority. There are certain regional reasons why someone like Mayawati will not join a government in which Mulayam is participating; Jayalalitha will not join a government in which ADMK is participating. So we have those reasons where Congress and BJP together have a majority or a near majority. Then there has to be a government supported either by the Congress or by the BJP. Also, the fact today is that people are voting for those who are bringing growth and development; it is one of the most important developments. It amounts to maturing of Indian democracy. So, we will get a far better government in 2014 or whenever the elections are held than what people are anticipating. Whichever government comes in, will have to take right decisions even if it is fragmented. I feel we will get BJP-led government and if Mr Modi is made the Prime Minister, I am told he is going to be BJP’s prime ministerial candidate, we can have some good work very soon.
Q: What about earnings. You gave me the 2003-2007 example but their earnings trajectory was strong. Do you see the combination of circumstances over the next three-four quarters where we can have a launch pad for the next three-four years in terms of earnings acceleration or are you apprehensive on that score?
We won’t have a ferocious bull market, but earnings growth in India can rebound to 20 percent. We had three years of 10-12 percent growth and reduction in interest rates. This in itself will be a big factor both for higher earnings and revival of the investment cycle. People will anticipate that with the revival of the investment cycle and a lot of companies' earnings will go up.
We are not sure about 2001 in terms of the interest rates, inflation or spare capacities with companies. But power companies are unbelievably leveraged. If things turnaround, they can get coal then they can be very profitable and consequently, there will be a big effect of increase in electricity production in India.
Q: How your own portfolio has done since last Diwali? Looking at your set of stocks, Titan and Lupin feature prominently on top of the list once again. Are there some pockets in your portfolio about which you are a bit disappointed at how they have turned out in the last one year?
I do not review my portfolio in that matter on a year to year basis, but within the portfolio Titan Industries and Lupin are very large. They are a large part of my portfolio so, if they do well everything is well. I am disappointed with how Hindustan Oil Exploration Company (HOEC) has performed.
Geometric has performed well. I am extremely disappointed at the way A2Z Maintenance and Engineering Services has performed. So, there have been some hits and misses, but the hits have been in the largest part of my portfolio. So I am happy, I have done quite well.
Q: You have been a long-term holder of Lupin and you have picked up other stocks in the pharmaceutical space. Last year or a year before that had you picked up Orchid. Are you disappointed that other stocks that you have picked from the pharmaceutical sector have not turned out to be the kind of right that Lupin has given you?
I was extremely disappointed with Orchid Chemicals and Pharmaceuticals . I have already sold it. So, Lupin is the only pharma stock, which I have in my portfolio, but I have a large commitment.
Q: Have you been examining other stocks in that space of-late? A clutch of other midcaps like Glenmark Pharma, Divis Laboratories, etc have also been doing very well, almost as well as Lupin has. Is that a place where you have been sniffing around for another good deal?
A: No. I have large investment in Lupin. I have large investment in a pharma company, which is only invested in Ahmedabad and it is doing very well. Therefore, out of choice I have not bought any pharma stocks. I am very confident on the long-term performance of Lupin.
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