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It’s consolidation time, sub 8K can be bad: Jhunjhunwala

Market is headed towards consolidation in the near term, cautions big bull Rakesh Jhunjhunwala. But there is nothing to worry until and unless Nifty moves below 8000.

In an exclusive conversation with Ramesh Damani and N Jayakumar, Jhunjhunwala says he expects the market to pause for a while after what has been a dream run for the bull market in the last one year.

“There is lower quality which is available but for that lower quality we have to have lot of patience. Since the market had a run up from 5,200 to 9,000, I think it would consolidate here at these levels rather than run away.”

Jhunjhunwala further adds that the kind of volumes seen in individual stocks is an indicator that we are going to pause. As the market moves higher, the rise gets faster, he asserts. “I do not think that it will make a top which will be a top for a year or two years. However, we could surely consolidate.”

As an example he cites market moves —from 5,200 to 9,000 — and reminds individual stocks have had a dream run. “Even the good quality companies –Rs 1,000 per share  Tech Mahindra is Rs 2,800. Rs 600 per share Lupin is Rs 1,800 per share now.”

Catch the first part of conversation here

Rest of the discussion went this way:

Damani: What makes you so bullish on this country?

Jhunjhunwala: Where there is return on equity (RoE) then earnings growth is a function of nominal GDP growth. Suppose I keep on increasing the earnings by injecting capital and there is no return on equity then earnings growth means nothing. Only when there is RoE — economic growth has to lead to earnings growth accompanied with RoE then only will the markets value it. China’s economy expanded, but the markets didn’t expand because their RoE doesn’t go up.

Damani: This bull market will correct how much before you would be scared?

Jhunjhunwala: I feel we have bull market like we had in 1990 — the Nifty can go to 9,500, it is at 9,000 today, anything below 8,000 will be worrisome. One day we will tell people not to buy shares and they won’t listen to us.

Jayakumar: They will laugh at us.

Jhunjhunwala: They will laugh at us.

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