From a strong bull, Rakesh Jhunjhunwala, partner RARE Enterprises has turned into a hopeful bull amid the outbreak of COVID-19 and feels that money will return to equities on the back of fall in interest rates.
We have collated a list of 14 takeaways from his exclusive interview with CNBC-TV18:
Hopeful bull from a sure bull:
Despite being a long time India bull, now even Jhunjhunwala says that he is feeling frustrated. He has now become a ‘hopeful bull’ from being a ‘sure bull’.
Fall in interest rates will bring back money to market:
There is abundant liquidity in the market. Interest rates in India were falling, but they were not being transmitted. But, the situation is changing fast, suggests Jhunjhnwala.
“We have seen a fall in interest rates for top-level borrowers along with that there is a reduction in the savings rate. So, what is the alternative – money has to come to equities which is a big technical factor to watch,” said Jhunjhunwala.
COVID-19 was blown out of proportion:
COVID-19 created a fear psychosis, but infection & deaths per million in India have been lowest. He defended the decision of the government to implement a lockdown, but still feels that COVID-19 was blown out of all proportions.
People have to live with the virus for now, but the impact of lockdown is unlikely to be as bad as people are expecting.
On GDP numbers:
India's GDP grew 3.1 percent during January-March this year. The GDP growth for FY20 came in at 4.2 percent, against 6.1 percent in FY 2018-19.
Jhunjhunwala feels that even though the GDP may be negative this year, but the stock market may not be as impacted by the economic contraction.
Reform Measures from Modi Govt:
Jhunjhunwala is of the view that the reforms initiated by the government such as land and labour, but nothing concrete has come out on that front.
Reforms in the Agri sector, as well as mining, are good. But, what we need is some action on land and labour laws and further provide ease of doing business which could help in surpassing China.
Ease of doing business could fuel growth by over 10%
If the COVID-19 results in reforms in this country – it couldn’t have been more positive, highlighted Jhunjhunwala. He further added that the government has the required majority to push through major reforms that this country needs.
“People are underestimating the potential which India has if there govt push through reforms and enable ease of doing business then 10% growth rate is nothing,” said Jhunjhunwala.
Risks which one should watch out for:
Jhunjhunwala highlighted 2 risks for stock markets which could delay the recovery-A) No reforms
B) The occurrence of an abnormally large number of COVID-19 cases
PSU stocks could double but there is a caveat –
Jhunjhunwala is of the view that if the government has a coherent divestment policy every public sector stocks, in general, will double. “The biggest problem is that we don’t have a coherent divestment policy,” said Jhunjhunwala. If the government disinvest the kind of gain which the country could get is unbelievable, he added.
Financial sector unlikely to recover soon:
The market doesn’t like uncertainty, but the uncertainty in the banking sector is far more than in other sectors. At the same time one should understand that if as an investor you are bullish on India, you could not have growth without banks.
Post the lockdown and normalcy it will be the banks who will be the liability franchise. So, it will take time, highlights Jhunjhunwala. “I don’t see any substantial recovery before November-December when there is some clarity of defaults becomes clear coming out of the moratorium period,” he added. It is an investible sector for the long term.
Plenty of upside remains in pharma sector:
Jhunjhunwala remains bullish on the pharma sector. He compared the sector to the ace batsman Sachin Tendulkar hitting a double century.
“If we compare the move in the pharma sector to Sachin Tendulkar’s double century – he has hit 30-40 runs at the moment. In other words, pharma has entered into a long term bull market,” said explains Jhunjhunwala.
Outlook on Metal sectorJhunjhunwala is positive on the metal sector. He further added that the way in which the stocks in the metal sector is beaten down, and I feel that going forward some of the profitable investments will come out from the beaten-down space.
Aviation will take time to come back:
Commenting on the aviation space, Jhunjhunwala is of the view that airline stocks will take time to come back. Investors will be better off if they keep away from the sector.
Construction & Hotels Sector Will Come Back:
Jhunjhunwala is of the view that the hotel sector will come back. The sector was in a downturn for the last 5-6 years. The restaurant sector will also need to come back in a good way. Along with hotels, the construction sector will also come back.
Consumption will make a comeback:
Consumption will make a comeback. FMCG may grow only 5 percent this year but with the right policies, it can rise to 15 percent thereafter.https://www.youtube.com/watch?v=bxy0lTF1rI8