'New sectors will have to emerge for another bull run'

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Q: Strong rally we are doing this in 2009, are we in a break in a bull market or has the new bull market begun?

Agrawal: I would think it is a start of new bull market except that usually euphoric times are at the end, this time it is starting with the euphoria.

Q: By definition that cannot be then: would it just be a strong bear market rally?

Agrawal: The depth of pessimism that I saw in 2008 tells me that nothing can be worse than that. So for me that is a bull market, anything better than whatever I have seen recently is bull market. I don't have any specific definition of what is a bull market or bear market.

Q: What is the leadership then in this bull market, in new bull market there must be some leadership? What according to you is the leadership here?

Agrawal: I think strong domestic consumer companies are going to lead the pack. For example, fast moving consumer goods (FMCG), two wheelers, banks dominating consumer credit cycle or catering to even corporate credits domestically, funding infrastructure, cement, domestic steel - we can see the earnings profile even in the current year. They are going to lead the pack in terms of earnings growth.

Q: The market fell from 21,000 to 7,000 that was a bear market or a break?

Desai: It is something I struggle with. I am not so sure. If I look at the statistics, the last 18 weeks have produced a near 80% rise in the market. If you go back to all the previous bull markets and see what they did in their first 18 weeks, the range of return is between 35% and 50%.

The 2003-2008 bull market produced 51% return in first 18 weeks. The market was already in a raging bull run by the time we came to the end of the first four months. Not dissimilar to this, except that this will produce even more returns which could time well with the point that Mr Agrawal makes. The point of pessimism in October was so bad that the swing up is probably going to be bigger than we had ever seen before because the swing down was bigger than we ever got before which is that the previous bear market - if we can call it one - was the steepest and the sharpest fall ever in India's history.

Q: Mother of capitulations?

Desai: Exactly, so you got a mother of bull markets and the mother of bear markets and maybe you are already in another bull market.

Q: Then you would expect the same leadership to go up?

Desai: The struggle I have is that if you apply the simple rules that we have learnt over the years, growing up is that leadership changes. It has not seemingly changed in this new bull environment - which is that the same sectors that did well in 2003-2008 and then poorly in the bear market - are the ones that are leading the charge. So maybe that is a transient phase in this bull market and maybe we go to new leadership over time but until that happen, there will always be a little bit of doubt of whether we are in a new bull market or whether this is just another bear market rally.

Q: There is some evidence of leadership coming in in housing finance companies this time for example or in FMCG sector, would you say it is too early?

Desai: I think it is a tad too early, though I concur with Mr Agrawal and my theme is also the same, which is consumer is king, which is I expect the next bull market to be driven by India's core fundamentals. We have a big demographic change coming through, we have seen that come very well nicely into the electoral results of the last 18 months. I think we will see it in the sector leadership that comes out in the next bull run as well, so domestic consumption things like autos, media, even consumer goods...

Q: Is there abject pessimism over these sectors in India right now?

Desai: It was the case probably in October in some of them but not all of them. So I think that is the struggle that we will always have. So we probably did not get to the low point. But if you take consumer goods - consumer staples - there was pessimism for a long period of five years. So we are coming out of that long bear run in these stocks for a long time, these stocks have gone nowhere.

Q: If you are right, how much money should we make in these stocks, there is an X factor in these stocks? In a bull market leadership: 100X, 50X is that the kind of returns that people should hope for?

Desai: That is quite possible that some of these stocks give you these types of returns.

Q: Do you think bull markets always end badly?

Desai: Yes, because what happens is that at the peak of the bull market, people get so euphoric, the multiples get so rich that inevitably it has a bad ending.

Q: Nature of beast?

Desai: Yes, that is absolutely the nature of the beast.
Q: If there is one enduring lesson from watching this three bull markets, 25 years of watching global bull markets - what would you tell your audience about a bull market?
Agrawal:: Don't bet on the fads, I am the biggest sufferer of fad investing. Actually the leadership of the bull market you are talking about, I would actually call it fad investing. When you ride the fad, even correctly like I have got Infosys and I got Mastek in tech bubble and both of them became 40% of my portfolio, one I could exit quickly and the other by the time I could even decide to put the order, it was gone 90%.

Q: Same question to you?
Desai:: I think bull market or no bull market; it always pays to focus on fundamentals on cash flows and valuations and that is the way you make money in the long run. You can trade and can be a very good trader, although I am not one, if you are very god trader - you can take your chances but ultimately wealth creation is all about focusing on fundamentals.