I am positive on India: Rakesh Jhunjhunwala

The current uncertainty that has hit almost every man on the street, has not shaken Rakesh Jhunjhunwala's faith in India. The ace investor and trader, who is also a qualified Chartered Accountant, remains as optimistic as he was during the bullish days and claims he has not lost confidence in this country's future. Jhunjhunwala, often called pin-up boy of bull run, told Udayan Mukherjee on CNBC-TV18 that the real turnaround will happen after elections with the return of confidence.

Although he reduced his stake in watches-to-jewellery maker Titan Industries early this year, Jhunjhunwala says he will sit on the remaining shares of this cherished company for the long term. Below is an excerpt from Jhunjhunwala's exclusive interview on CNBC-TV18 Q: How have you been approaching this mayhem, particularly in the currency market? Would it be fair to say that you have been surprised and stunned by the way things have moved? A: I think it was more provoked by the panic of the government and the Reserve Bank of India (RBI) more than anything else. If it kept quiet, and not done anything, it might have not gone to this place. But everyday the rupee is in the news and finance minister says something. I think it brings unnecessary attention and now the value of the rupee has now become a big discussion in all cocktail parties. So, do not know. Q: Do you think the government’s policy responses have had a role to play in this? A: There is some role in that because that has made it more and more apparent that we might have some weakness on the currency side, although the government acted well in restricting the amount Indians invest abroad and the amount that Indian companies can invest abroad, but market unnecessarily panic saying: "we will ban foreign institutional investors (FIIs) remittances then they will not be allowed to sell shares". I think there is a fair amount of rumour mongering and I see no reason. If the dollar appreciates against all currencies in the world then maybe the rupee will depreciate. But I do not see any reason why the rupee will go below these levels. Indian exports have also become very competitive. Q: How are you feeling about the market because things around us have not been great; earnings, growth, the overall picture seems to be not very friendly. Do you worry that the market may fall further? A: I do not surely seeing the precarious situation that we all are both physically and mentally in. I still retain (my) full confidence in India. I still think that India will grow in double-digits; it may take two, it may take three but it is not going to take five years. I feel this country is gone into a process of consolidation and correction. I like the way the other organs of democracy have responded to all the mis-governance. That gives me great confidence in this country. So, although I should be worried that market could fall in the short-term, but I am not worried. I think so be it. How is it going to affect me? Maybe the value of my portfolio may come down by some amount, but that does not affect me because I do not mark my portfolio to market everyday. Q: How much time will it take in your eyes? Do you think it can happen only after a new government comes into play? Is that what you are pinning your hopes on for the turnaround? A: The real turnaround will come only with the new government but the confidence if the market and the people feel that they will get a government, which will be good for the market and for the economics of the country— it could. It is a matter of confidence. The moment confidence returns, everything will return. We do not have inspiring leadership. Mr. Chidambaram is trying what he can. But he is also placed in a corner. Q: Even if it’s the same government again or are you hoping that it will be a different government led by a different man? A: You can believe or somebody else can believe that with this kind of mis-governance this government is going to be reelected. I think with the kind of feeling people have, they are going to reelect this government. I see absolutely a Bharatiya Janata Party (BJP) led government coming. Q: Just a BJP led government would be good enough for you or you are saying Narendra Modi Prime Minister is what you are pinning your hopes on for a turnaround? A: If BJP could form the government then there is no doubt in mind that Mr. Modi is going to be the Prime Minister even any other Prime Minister at least that government won’t have a (not sure --- bogy), it will be able to blame the problems of the past government and it will be able to take steps which are necessary. Q: I am only asking you whether because of the electoral math and how it shaped up, for some reason if a Manmohan Singh led UPA government were to come back, would you then take a more deem view of this market? A: I do not want to contemplate things which will not happen because today distinctly there is a trend away from the United Progressive Alliance (UPA). Did anybody predict, no poll, no individual ever predicted in 2009 that the Congress will get more than 180-185 seats but they landed up getting 209 seats. So, there is a trend and that trend will accentuate. I personally feel that BJP may get between 200 and 205 seats. _PAGEBREAK_ Q: Do you think some of these consumer names are beginning to give up because that has been the huge outperforming theme of the last three-four years? Do you see cracks coming up in that theme?
A: What is the crack; Hindustan Unilever (HUL) is at near high. It went from Rs 330 to Rs 700 in a year and came back to Rs 600. Nestle India is at Rs 4,900. One of the reasons why these companies are not cracking is there is lot of hope that there will be offer for increasing the stake by the multinationals.
But I agree that some of the multinationals in relation to the earnings growth that has been there or some of the fancy companies, their prices need to be corrected and have corrected. Look at Asian Paints. It has fallen 30 percent from the top; ITC has gone 15 percent. Q: Consumption is slowing down. One of your holdings has been VIP Industries, which has struggled quite a bit over the last three-four quarters. Are you seeing reflection of a slowing economy in consumption in some of these names?
A: Yes, consumption is coming down. Consumption growth is coming down but the fact remains that because consumption growth is coming down and earnings growth is slowing, that is why there should be decline in prices. A very big part of the valuation is return on equity (RoE) and the growth. If the growth slows the RoE will go down. Q: The other big consumer name which you have had and it has been a difficult holding period is Titan Industries. What have you made of the flip-flops that the government has been doing in terms of policy, gold on lease been taken away? Have you had rethinks or doubts about your large holding in Titan over the last two months?
A: I have no doubt. I sold some part of my holding in January-February anticipating all these problems. Whatever Titan I have, I am going to sit tight. I have full confidence in the long-term. The fact is that you cannot curb good consumption in India.
In the last quarter they gained market share, the customer footfalls are going through the roof. So, I have long-term confidence. I personally think this is a matter of correction, do not forget the stock which was Rs 6,000 in 2009 is still Rs 4,500.
I do not think government is going to do anything beyond this and I have full confidence in Titan’s long-term prospects. Q: You do not think something is changing in the environment in the business model of the company which you should take a hard relook at, you think they will be able to deal with this change?
A: Why not. They were having gold on lease at 3 percent maybe now as I read in the press they may have to pay 9 percent; nothing else is going to change. But more important is will they be able to attract the customers, will they have the growth. They grew 45 percent in jewellery sale last quarter and now they are coming out with lot of new products, their eyewear business is doing fantastically well now.
I first bought Titan at Rs 30. The stock went to Rs 6,000. I have had nobody in history come and tell me: Why don’t you have buy Titan? The only advice I get is: Why don't you sell Titan? Q: Tell me about stocks which you regret buying because some of these names particularly linked to the infrastructure space like A2Z Maintenance and Engineering Services or Praj Industries etc, they have not done well?
A: My investment in Praj Industries is still 35 times. So, I do not regret. It is a good company with good governance and management. I regret Bilcare, I regret A2Z Maintenance and Engineering Services, I regret Geometric, which has not done well. Q: Nagaruja Constructions (NCC) has not done well?
A: I do not regret Nagarjuna Constructions. They are good people and they will bounce back. I do not regret a decision because price has gone up or down. I regret the decision if governance is not good, if capital allocation is not good. I think Nagarjuna is doing among the best in the infrastructure sector and they will be the first to bounce back.  Q: What about Delta Corp? Do you regret that?
A: Why should I regret. I have done well here. I bought at Rs 51 and the price is Rs 65 today. I think it will do very well. Q: Let me ask you about the space which people worry about the most these days in the market; banking. Have you utilised this massive fall in bank stocks to buy anything?
A: No, I have not. Q: Why?
A: I have exposure in Karur Vysya Bank and Federal Bank? Q: Those are old holdings.
A: I will not buy public sector undertaking (PSU) banks and hold them for three-five years because there is no real earnings growth. The new private sector banks, although I made a mistake by not buying Axis Bank around Rs 50, I do not think the valuations are so attractive that I should go in and buy. Q: You think some of these big banks like ICICI Bank, HDFC Bank, Axis Bank will contract more in terms of price to earning (PE) multiples before they look attractive to a long-term investor like you?
A: If you look at the valuation of ICICI Bank and HDFC Bank today; HDFC Bank will continue its earnings growth. It an exemplary bank and a very smart bank and it has none of the bad debt, it has not lend to GVK, GMR and all the large industrial houses. It does term lending in a very selective manner and it is going on consumer side. I do not think HDFC Bank is going to contract.
Market is not taking adequate recognition of ICICI’s non-banking business. So, I do not see much space downside, I do not know much about Axis Bank in both these banks but ICICI Bank may have some exposure which could be troublesome. Q: Last time we spoke, we spoke about oil companies and you were saying that there is a lot of value in some of these oil names. Have you been disappointed by the way some of these collapses have happened in Indian Oil Corporation (IOC), Oil and Natural Gas Corporation (ONGC) etc?
A: I still think that ONGC and some of the oil marketing companies are very attractive investments although I have not invested in any of them. These companies have to come back to the normal and whatever subsidy government is taking from them, do not forget that 40 percent they will get back by way of various taxes, if they free them.
Today if you free the pricing of diesel the profit of Hindustan Petroleum Corporation (HPCL), 30-40 percent government will take in the form of sales tax and income tax. So, freeing of oil sector, the question is not– will it happen. The question is when it will happen but I am not invested in any of them. If I make some money in trading, I will. Q: Have you cut down on trading because you were telling me last Diwali that you are becoming an older man and these days you do not feel like trading that much, you just hold on to long-term investments. Has that changed around?
A: I am very active in trading from market, from March I am very active. Q: You take both sides of the markets; sometime short as well?
A: Yes sure but I am not much on the short side. Q: Have you bought anything in IT aside of Geometric which is a small investment?
A: I have not bought any investments. I have bought some trading assets. Q: There are some terrific companies in pharmaceuticals and you own Lupin but I do not know why you never bought Sun Pharmaceutical Industries in the past?
A: Lupin has given me as much return as Sun Pharma has given to investors. Q: Do you regret selling a bit of Lupin though a few months back?
A: I sold about one year back. One thing is that we cannot win it all and second thing is even after the remainder has been a lottery. Third is, has anybody comprehended the kind of foreign exchange gains these pharma companies will have if the dollar remains at this level and what kind of exports there are. Q: I agree which is why I am asking you why you haven’t bought more pharma companies. I agree Lupin has been a lottery for you.
A: I have bought Lupin, I have some others. Q: But none of the other big listed names, none of the Dr. Reddys Laboratories, Sun Pharma, Glenmark Pharma kind of names?
A: I have bought some Aurobindo Pharma. I am very bullish on it. Q: You think there is a big trading upside from here even in IT given the way the rupee is moving, given the improving leverage to the US economy?
A: I think so. I personally feel they are all matured investments. To expect more than 18-24 percent, I do not think is possible but surely they will give return between 15 percent and 18 percent. I do not think for a year, but they will give for continuous periods of time.
_PAGEBREAK_ Q: In that you are buying the proven ones like Tata Consultancy Services (TCS) and HCL Technologies or the slightly contrarian ones like Infosys?
A: I bought Tech Mahindra for trading purposes. I do take shares for delivery in my trading firm which I sell in six months one year. They are not investments; they are trading bets, which I leverage. Q: Which is the last big investment idea that you thought about aside of the ones which have been driving your portfolio gains like the Lupin and the Titan of the worlds? What is the last big one that you thought about?
A: My last investment was in United Spirits. Q: You still haven’t sold that one?
A: No, I have not sold. I have made investments in Escorts, Tata Communications, Just Dial. I bought a company called Firstsource Solutions. Q: That is a risky one. It is not a stock which everybody thinks as an investment name. What dragged you to that one?
A: They have got Rs 200-250 crore cash flow, pure cash flow which they use to reduce debt and marketcap is 600 crore or 700 crore when I bought. Today, it is about 900 crore. So, I am getting a company with three times cash flow. I am not talking about profit. I think they have sensible management. I am bullish. Q: Some one told me that you have been quite bullish on Tata Motors as well after looking at the Jaguar-Land Rover (JLR) numbers?
A: I am bullish on Tata Motors. I see a day when Tata Motors’ profit will be 30,000 crore a year. I think they will be able to sell between 6 lakh to 7.5 lakh Jaguar and Land Rover. Every car that they take out is the best of the year and they have 108 dealerships in China. I think this year most people are predicting sale of 375,000. I see in four years this sale will double, profitability could be anywhere between USD 4-7 billion. India will also correct, ultimately the market after all it is a cycle. I am very bullish on Tata Motors.
Q: What do you think is going on in the fixed income kind of the market, the way bond yields have been fluctuating? Do you park any of your money there?
A: I have no idea. There will not be a day in life when Rakesh will earn interest. I have got some money in the public provident fund and Rs 1 lakh I have given to get a bank locker for my wife, apart from that I do not have any deposit anyway. I only pay interest, I do not earn interest. Q: Let me ask you some personal question. On your 50th birthday you told me that you want to do some other things like learn swimming, travel the world. Have you lived up to any of those resolutions that you took on your birthday?
A: There are two problems. The first problem is I do not want to leave my children for extended period of time. Second, the market is so pulling and to live without them for me is very difficult. Q: You can take your children for holiday?
A: I go for holiday once-twice in a year. Q: I am told that whatever time it is in that geography at 9:15 in the morning you are still on the phone?
A: Not at all. If there is something urgent, some event happens then the matter it is different. Not normally. 
I want to make a disclosure that everything I have talked of, I am bias, I am interested. One should take his own decision, consult investment manager.