"I don't think the situation is as bad as people are making it out to be. The current phase of weakness shall pass," said big bull Rakesh Jhunjhunwala in an exclusive interview to CNBC-TV18.
Jhunjhunwala believes Nifty has formed a reasonable bottom around 11,000 after bouncing back from 10,700 to 11,700 in just two trading days after the government cut the corporate tax rate by 10 percent, on September 20, to boost the economy.
The market has a discounting mechanism as it recognised everything in advance. I am hearing sales have picked up in last few days during the festive season, hence, the consumption will come back in a big way going ahead, but investment (capex) will take time, he said.
"Private capex picks up as soon as consumption picks up. Private capex is not picking up because there is excess capacity in the market, and not because of liquidity and credit flow," he added.
Indian banks have been struggling with bad loans problem for the last five years and the same had impacted their earnings as well. But now, there has been some improvement in the asset quality of major banks.
"We are at tailend of that NPA problem as far as corporate defaults are concerned. We have not seen largescale defaulter for many months now. 50 percent of retail loans are home loans and method of appraisal for personal loans is strong enough at banks like HDFC Bank which is one of largest banks providing personal loans," Rakesh Jhunjhunwala said.
Upon asking about the opportunity in banking and financials (like Bajaj Finance, HDFC Bank etc), he said there is opportunity everywhere, some of these banks are performing and capturing market share.
"Greater opportunity always lies in the neglected parts of the world," he believes. Hence, he feels PSUs will give a very good return.
"Three reasons - 1) Corporate governance is not up to the market which reflected in the intention of government which prefers divestment, 2) PSUs are the biggest beneficiaries of recent corporate tax rate cut, 3) there is a great strategic value in company (like BPCL) hence people have to raise valuations," he reasoned.
On strategic divestment part, he said look at value created by Anil Agarwal in Hindustan Zinc, hence capital is always used by private companies efficiently.
He feels a voluntary retirement scheme (VRS) is very good in PSUs and, as a result, losses will be over.
On the consumption front, Jhunjhunwala said not only growth but also business model, cash flow and earnings also matter when he picks up stock.
"India is going to be a consumption story."
While citing an example, he said Hindustan Unilever was at Rs 324 in September 2001 and remained around the same levels for nine years, but look at the return after that.
Hindustan Unilever stock delivered a whopping 705 percent return since 2010 till 2019.
Infosys plunged more than 16 percent on October 22, wiping out all 2019 gains and losing more than Rs 52,000 crore in market cap in a single day after whistleblower raised questions over company's earnings saying unethical practices by top management.
"The complaint by the whistleblower is highly incorrect. SEBI should not entertain such baseless complaints of whistleblower and should make enquiry of all trades done on that day as he feels it is a high manipulation. Complaints should be the responsible one and this is being done purposely. Don't name the person, but should be investigated that person properly. Look at MCX example," Jhunjhunwala said.
After the corporate tax rate cut, broader markets trimmed their losses significantly and gradually started catching up with largecaps in terms of returns.
The BSE Sensex rallied 8 percent, BSE Midcap index gained 8 percent and Smallcap index rose 4 percent since September 20 when Finance Minister Nirmala Sitharaman announced 10 percent cut in the corporate tax rate. Before that, i.e. from the start of 2019 till September 19, 2019, Sensex was flat, and Midcap and Smallcap indices fell more than 13 percent each.
The broader markets started falling from last February 2018. "Since February 2018, 18 months of the bear market is enough," he said.
Among commodities, Jhunjhunwala is bullish on gold and expects Brent crude futures to be in the range of $50-60 a barrel. He feels Chinese consumption will not come as it was earlier.
In the rapid-fire round, in a reply to questions asked by Sonia Shenoy and Anuj Singhal of CNBC-TV18, he said he favours oil marketing companies over aviation space, health over money as he has enough money now, cautiously optimistic over raging bull market.
And the last he said he expects 12,000 on the Nifty first than 11,000.
"The bottom has been placed as the Nifty showed gains of 1,000 points from 10,700 to 11,700 in two days after the corporate tax rate cut. The market has to absorb that sharp rally. I have no doubt that the Indian economy will grow 9-10 percent after FY20-21 onwards," he reasoned.