‘What we buy is important; at what price is most important’: Rakesh Jhunjhunwala
The name Rakesh Jhunjhunwala conjures up many images for the markets. What Jhunjhunwala does, the market seems to follow with utmost keenness. His investment strategies – he holds stakes in several major companies -- are discussed animatedly in the corridors of the Indian equity markets. Sourav Majumdar & Yagnesh Kansara met a relaxed Jhunjhunwala in his plush 15th floor office – complete with sketches of global investment gurus, quotes from Tagore and a picture of President APJ Abdul Kalam — in Mumbai’s Nariman Point business district.
Excerpts from the conversation:
More than once you have said that Indian markets are in a very, very long bull phase. Currently where do we stand?
I think we are in the initial stage of that long bull run. My observation is based on two theories. One is that India is going to have tremendous economic growth on a sustained basis. And the second part is the fact that there is a well developed platform for equity investment in India. You have new issues, you have the mutual fund industry, you have humungous local savings and the stock market today is a tax haven. So there is no reason why money should not come into the markets.
The earnings growth of the corporate sector is driven by economic growth. So, if we have economic growth on a continuous basis, then corporate profits are going to rise with that. So mine is a very broad-based call. And I think as long as we do not reach the peak in growth and peak in valuations, the bull market will sustain.
But what about the risks? Even RBI has warned in its monetary policy about oil prices, geo-political factors. You don't see them as threats?
See, there are always going to be short-term aberrations. We can see that the factors which are driving the market are very much secular. So I do not say there will not be cyclical downturns or cyclical doubts, or cyclical factors which may slow down the secular run. But I have the feeling that it will not be reversed.
How long is your long term?
I think we will have a multi-decade bull market. Certainly the pace will slow down with time, but it will continue for a long, long period.
And you see FIIs also buying that broader, long-term view?
I see all forms of investors -- whether FIIs, local or institutions. I do not see the rules are going to be bent for a particular person. If the conditions are conducive for investment as history has shown, money will come...I do not know from where, but it will come and as far as the FIIs are concerned, I think not even 10% of the potential investors in India have really invested. See, the shift in investment by foreigners is because they are all ageing societies, and their economies are growing at a far slower pace than our economy.
Do you feel the worst for India Inc is over?
The worst is over by far.
What have been the basic guiding principles of your investment strategy?
I look at opportunities, market size. For example, if I invest in Titan, I look at the Indian jewellery market. If Titan is selling only branded jewellery, I will look at the size of the branded jewellery market. So it is important how you are competent. Competitive ability can be driven by brands, by tariffs, by culture, by location, by skills and technology. So the company should have huge opportunity, it should have the ability to tap that opportunity on competitive basis. Then comes scalability: it is a very important aspect and the challenges to succeed on the basis of scalability are humungous. Capital, ambition, market, time, these are the determinants of valuations. Because what we buy is important, at what price we buy is most important.
What do you think of the overseas buyouts rush by India Inc?
See, I won't look at investment as a good style. Rather, I would look at where industries have competitive ability. For example, Telco is one of the largest manufacturers of automobiles in the world, so I would like Telco to go abroad and buy more plants -- that makes sense. But I would not like Tata Tea to buy water brands.... there have to be some synergies.
How would you rate corporate governance in Indian companies and business groups?
Indian enterprenuers are realising its importance. There are two classes of entrepreneurs: those who are not interested in their company's valuations, others who are interested in valuations. The latter category know the key to their valuation is corporate governance. Valuation is not always money... see, after a person has earned wealth, he wants prestige. A lot of people’s prestige is linked to how the stock has performed in the market. That is the factor which is driving corporate governance.
Source: FE (link)
A very good article...it is not new that Rakesh is bullish on the Indian stock market like me. I have always been bullish even at the time when in the last May, 2006, the market dropped to record lows. It was I who said, with firmness, on 1st August, 2006(when almost all were seeing the markets go below 8000 mark) that we are just on the verge of a massive bull run.The rest is history...
Thanks for the article,
Best wishes,
Suman Mukherjee
India,
www.sumanspeaks.blogspot.com
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