Samavat 2063: What's in store for the markets?

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There is a revolution in India- from retail to mobiles. But the mobile business is one which has a 39-40% EBITDA margin and the logistics of setting up mobile operations is relatively very simple, while in the retail side it's very difficult. The whole supply chain has to be created- IT services, IT processes. It's a different game with 4% margin.

In the mobile business one could make a few mistakes; 39% EBITDA margins would bail you out, but it's not quite the same with retail.

But one space I would definitely like to watch out for would be the low cost carriers on the airlines side. Maybe all of us are very skeptical and maybe they could become the mobile equivalent in the future. Right now there is nothing to suggest that they will, but that's the space I would really watch out for.

Q: What's your favourite space now?

Jhunjhunwala: I feel there are a lot of opportunities in the market.  One has to look at the business model, and after seeing income figures I personally feel that the retail or FMCG or any sector concerned with Indian consumption, is going to go through the roof.

Why is Bharti's price where it is today, why is Reliance Communication's price where it is today? - Because the demand for mobiles turned out to be far greater than anybody imagined.

So with this demand for all these consumption items, and with this kind of income levels, the demand will be far greater than what I am hearing people talk of. Also, these companies have highly fixed costs and high contribution margins, so the profits could go through the roof.

Another area that I think is very interesting is media. Media spends in India are far lower, as percentage of GDP, as compared to other nations. All the circumstances required for raising those spends, like consumerism, retailing, real estate, are not present. So we will have some good performers among midcap space.  

Q: Where do you see the market 12 months from now on Diwali?

Damani: I think the markets fine. There will be serious corrections along the way, there always have been in emerging markets, particularly India. India is a very volatile market so corrections will be due.

But I think the story has sunk in that India's GDP is going to grow at 8-9%; the macro factors look okay to me. The problems might be external not internal, so I'm hoping for another robust Diwali.

Q: Do you think we will see 15000, more or less, on the index?

Damani: We should get there. It's about 20% from this level. We should get there.

Q: What do you think?

Jhunjhunwala: I think it will be higher. I think peoples' analysis for '08 earnings is about 780-800, so 15,000 is eminently doable. Ofcourse, any unknown factors of the markets can lead markets anywhere, but I think we are going to have a good gain, a gain which will surely justify continuation of equity investments or retention.

Q: But would you make more money in a midcap basket or in the largecaps this year?

Jhunjhunwala: It is fact that 95% of fund managers don't out perform the Sensex. It is very alluring, I think the midcap is like your mistress and the Sensex is like the wife. It is alluring, but the performance is not there, the performance is only in the Sensex.

So history tells us to stick to the Sensex, it is always better. I have experienced this myself while making investments. Instead of making investments in the largecaps when I was very bullish on certain sectors, I made them in the midcaps and smallcaps. But over a period of time, the largecaps have totally out performed the midcaps and the smallcaps.

So unless you are a very good stock picker, I will stick with the Sensex.

Q: Could you wear the individual investor hat, not the brokerage hat. What's your prognosis and what would fetch you better gains between mid and largecaps and the Index in 12 months time?

Shankar: There is clarity only about one thing, that India is going to be as dominant an economy in the next 50 years as the US was in the last 50 years. I am sure that within 100 years of independence, India will reach the status of a true super power, where the US was the only country having such a status. I think that will be a terrific achievement.

I sure that India will not just dominate the manufacturing and the services end, it will dominate opinion, it will dominate thoughts, unlike the Chinese who dominate stuffed toys and nothing beyond that.

The Sensex will play up once in a while, as it did in May, but by and large one has to make a very bullish case for the country; the Sensex is just one part of it.