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Bull phase intact; correction lurking: Jhunjhunwala

In May, four days before the election results were announced, super bull Rakesh Jhunjhunwala announced that India is witnessing the mother of all bull runs. Four months later, with a majority Modi government & falling crude prices, he is double bullish. ‘This is just the trailer he says…picture abhi baaki hai…promises the big bull.

Jhunjhunwala is a partner in his asset management firm, Rare Enterprises. A recent newspaper article said that over the last year or so, he had made close to Rs 35 lakh every hour. That is how successful he has been in this market over the last 12 months or so.

In an exclusive interview to CNBC-TV18, he ponders over things, global and domestic,  that is transformational for Indian market and economy.

Below is the transcript of Rakesh Jhunjhunwala’s interview with Menaka Doshi on CNBC-TV18.

Q: I am going to ask you about two things I think that have changed dramatically between the time we last met which was May 12 and today. One is that we met a few days before counting since then of course the Bharatiya Janata Party (BJP) won, Mr Modi has become Prime Minister (PM) and that in itself has been a fairly transformational thing for the Indian economy. The second one is what has gone on with crude prices, which again has several layered impact on the Indian economy. First up how would you assess what you have seen the Modi government do so far?

A: First of all it is too short a period to assess. Second thing is my comment is that India has to undergo a change. We live in a democracy and change has to be slow. For everything that has to be changed, every decision has to be considered. So to think that Mr Modi and his government could show some miracle in six months would be childish. But I have no doubts that there will be miracles over a period of time and I will at least give a further period of 18-24 months; that’s when you will see the burst of all these actions taking place.

Also I would like to add that as far as crude prices go, in crude or commodities, what has happened, you have had one of the largest bull markets in commodities in the last 15-20 years. Now, I think it is not — people are saying that commodity prices have come down only because the consumption has gone down. I think consumption reduction is very marginal. What has happened is that there was so much super profits in commodities that investment was attracted. I think the super cycle on the commodities boom is over. Now we are going to go through a deep correction and maybe a bear market in commodities. I personally think oil prices will settle somewhere between USD 70 per barrel and USD 80 per barrel and will stay there for a long time maybe bottom at USD 75 per barrel or top at USD 85 per barrel that is what my expectation is.

Q: How does an investor play something like this?

A: I have not done a detailed analysis.

Q: One sector group of stocks or companies that will invest the most are oil sector, public sector companies because they have been strangled virtually by the lack of any kind of freedom in pricing?

A: There is a very big misnotion that Hindustan Petroleum Corporation Ltd ( HPCL ), Bharat Petroleum Corporation Ltd ( BPCL ) and Indian Oil Corporation ( IOC ) were not bearing any part of the subsidy and they were having market related prices including margins and profit.

The only thing was that government was paying them late. So they are biggest beneficiaries in terms of interest cost in normal terms of profit.

Q: But someone like an Oil and Natural Gas Corporation (ONGC) would benefit because the subsidy burden that ONGC had to bear as an upstream company hopefully will come down dramatically or reduce to zero technically if the diesel price deregulation persists?

A: Let me first of all say that I am long  ONGC, I am very bullish. Please take advise from a financial adviser, I am extremely interested, I am long ONGC. I feel the biggest beneficiary of this will be ONGC and Oil India .

Last year ONGC’s realisation was USD 41 and my personal opinion maybe in 2016 or in the Budget after that, the government is going to abolish all this and the entire subsidy is going to be borne by government of India. That is what my judgement is, I deserve the right to be wrong. So the real beneficiary of this oil fall – it is a big dilemma that ONGC — if the government of India abolishes the subsidy — is the largest beneficiary in the world of falling oil prices.

Q: So there is a multifaceted set of benefits that India draws from that kind of price region for crude?

A: I think that is one of the small — that is a big benefit –but there are bigger benefit. In a meal, that is like a chutney, it is not the main vegetable and the main roti.

If you look at the world today, countries are facing two kinds of challenges. Some are facing structural problems which include the entire western world, Japan and China. Then there are countries which are facing cyclical problems where I include the developing world and there are countries which is on upturn both cyclically and structurally and India would fall in that category.

Q: I am saying what we expected on May 12. A Modi government is what you anticipated at that point in time. Yes of course this majority was unanticipated but we have got that and that bolsters your expectations. Did you expect crude prices to be at USD 80/barrel?

A: It bolsters the reality.

Q: But there is a double good whammy here because we have also had crude prices come down. Does this double whammy of good factors make you a double of a bull than you were in May is the question I was trying to get?

A: If you talk to me about India’s bullishness I cannot express how bullish I am. When I came to the market in 1985 the index was 150. I feel India as a country is at 150. People may call me anything, mad bull, big bull but these are my feelings. And when I think about the factors involved it is the thought I get. Because we are underestimating, we have a cyclical upturn, we have the best structural upturn in the world.

I envisage that post 2017-18 India will grow double digit I don’t know for how many years.

Q: I want to connect what you have said about the Modi majority if I may call it that, the bear market in commodities and what is going on in the rest of the world with regards to central bank policy because it has been most confusing in the last month, right?

A: Structurally the richest countries of the world have never faced the problem they are facing today. With commodity prices going down, inflation — people are talking of deflation— why should interest rates go up and even if they do, then by what measure?  I am told deposit rates in Singapore are 20 bps. Suppose those deposit rates become 1 percent, what difference is it going to make? Are you coming to India to earn 1 percent? So all this is overhyped.

So I am of an opinion that what happens in the world could affect us may be for a week, 10-15 days or one month. But I don’t think interest rates will go up aggressively. I think they wont go up. Even if they go up, the quantum of rise will be one which is not going to affect sentiment towards India.

Second, India is going to be the best performing economy, I am not saying market, amongst the developed and developing world for a long period of time. Also there are a lot of investments waiting to come into India, which needed change in policy which is happening.

Q: All bull runs go through corrections at various points in time. We did see a lot of volatility in October. We also saw our markets come off their peaks by about 3 percent or so which was probably the mildest of corrections relative to how other markets did. Are we therefore in imminent danger of an impending correction over the next few months given how much we have run up?

A: We had a nonstop rise from 5200. In August 2013 the market bottomed. In August 2013 I said the mother of all bull markets is ahead of us. In December 2013 I said I believe the bull market has already started, in May 2014 I said this is the mother of all bull markets. This is just a trailer, you just watch the action movie.

We had a rise from 5200 to 8200, a 3000 point rise. Correction can come anytime but I don’t think especially the last two days the screen is indicating any correction. And it is my feeling and opinion and I deserve the right to be wrong that if any serious correction will come, either it will come post December and finish before the Budget or it will come post Budget.

Q: When you say a very serious correction what would the depth of that correction be roughly?

A: It could be 33 percent of the rise. You go from 5200 to 9200, you always lose some points. I am not sure when it will start but corrections are part of market.

Q: So would it be fair for me to assume that you are still long on your trading portfolio?

A: I am bullish.

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