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Markets - Interview


`Stock market is a buffet waiting to be relished'

Virendra Verma


Mr Rakesh Jhunjhunwala

Mumbai , Jan. 1

Mr Rakesh Jhunjhunwala loves stocks. It has been that way since his childhood. Today he is arguably the largest individual proprietary investor and one of the biggest single taxpayers of Mumbai. Mr Jhunjhunwala describes the current market as a buffet with an array of tasty dishes waiting to be savoured. He says even though it is difficult to pick, there are stocks that still offer long-term investment opportunity. He spoke to Business Line on the ups and downs that have come and gone in 2003 and those that await investors in the year 2004. Excerpts from an exclusive interview:

How do you see 2004 for the equity markets?

In consonance with India's fundamentals, the equity markets are in the process of recognising the strong fundamental change that India and India Inc have undergone, albeit at a pace which has exceeded even the most optimistic expectations.

There is nothing on the horizon, neither in terms of valuations nor technicals, to suggest that the market is overheated or nearing a crest. In the first quarter of 2000, the Sensex was around today's levels, but the Sensex PE was around 30x (as against 15x today) while the 10-year Gilts were yielding around 10 per cent (as against 5 per cent today). Above all, I believe there is a world of difference in the earnings and asset quality of the corporates between then and now, which will be apparent from a Du-Pont analysis of relevant periods.

The local participation is far from being at a zenith. The total funds available with Indian equity mutual funds is just over 1 per cent of bank deposits, which in my opinion is a reflection of the massive equity underweightage in the overall investible pie. The FIIs may have poured huge money, but it may only be the tip of the iceberg.

India's strong fundamentals and the above factors make me optimistic. Thus we look forward to a prosperous 2004, but with a note of caution in light of the stupendous gains the market has made without blinking an eyelid.

Lets not forget that corrections in bull markets can be short, swift and severe.

Which sectors do you think will attract attention in 2004 and why?

As I have said earlier, the market is like a buffet with most dishes being very tasty making the choice of stock picking extremely cagey. Choosing between sectors and companies has become quite difficult, and one keeps wishing one had more money to invest.

In the above circumstances, it's very difficult to choose particular sectors. I feel most will do well. My only word of advice is - do not overeat at the buffet despite the large number of good dishes.

In case the foreign fund inflows is not as steady and huge in 2004?

The market has been gaining but surrounded by a wall of worry. And your question is one of them. First of all, there are some pretty serious FIIs who are not investing on a year-to-year basis. The FII exposure in India is at about 10 per cent of the free float as against up to 40 per cent in countries such as South Korea and Taiwan. There is also a need to stay out of dollar assets, and this will make emerging market investing and continued exposure imperative for the dollar funds.

Having said this, we must remember not to judge markets with regard to how a group of investors will act but on the basis of fundamentals, valuations and relative opportunities. If, on this basis, markets are attractive, buyers will be born, FIIs or local.

Advice to small investors willing to invest in stocks?

My feelings in this regard are:

Take exposure to equities being conscious that equity is risk. It's never too late.

Limit the exposure in accordance with your risk profile and risk appetite.

Expect a reasonable return. Don't let greed or fear overtake you.

Don't do hearsay investments.

Just as you take a doctor's advice, take a professional's advice for your investments.

Don't trade or speculate. Only invest.

All this is easier said than done. But remember, making money is never `easier'. `Caveat Emptor' - Buyer beware, should never be forgotten.

Advice to investors who are still invested in the markets, and when to sell?

We forget Churchill's wise words " . . . You assume the future is a mere extension of the past, whereas I find history full of unexpected turns and retrogressions". I understand the trauma that investors went through in the last rise and plunge of equities, which has led to the insecurity about the current rise and hence the consequent selling. I feel that the circumstances do not warrant any reason to be insecure about the gains that the investors' portfolios have made, and they should not fidget around trying to sell X and buy Y.

Please treat every selling decision with care and caution and review it as you do when you make a fresh investment. Please do not sell your profitable investments and hold on to your loss making investments. Do remember that "the trend is my friend" and that applies to individual stocks also.

Extent of impact of Lok Sabha elections on markets?

I think that India has reached some stage of political maturity. The recent elections clearly show that good governance and a solid development agenda are unified platforms of political success. The only undisputed election plank is the economic agenda. This is but the maturing of Indian democracy.

In view of the above, whichever party comes into power, the only manner of power retention is the promotion of the growth agenda. In fact, just as I felt for the last 24 months, that the country is set on a secular growth path, I feel that we in the next few years will be surprised in the manner and the urgency with which the politicians will take up the reform agenda, regardless of whichever `ism' or party they belong to.

In fact, I feel that the country, which has until now prospered not because, but despite its politicians; will be greatly aided in its growth efforts by a paradigm shift in the political mindscape.

This makes me feel that the 2004 elections shall be a positive watermark for the market.

Any negatives or concerns for the market?

They say, "The worst of the mistakes are made at the best of the times". Although it's all blue on the horizon now, as equity people we must always be alert especially with regard to interest rates, world economic trends, terrorism and natural disasters. A deluge of primary market paper being lapped up at valuations far in excess of existing valuations is a Damocles Sword on the market.

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