Rakesh Jhunjhunwala is perhaps the most tracked Indian equity investor. A chartered accountant, Jhunjhunwala started his investing career in 1985 with modest sums.
Forbes puts his net worth at $1.1 billion (about Rs 5,720 crore) in March 2012, with most of the wealth coming from equity investments. He is both a long-term investor and a trader.
Known for his shrewd investment acumen, Jhunjhunwala manages his own portfolio as a partner in his asset management firm, Rare Enterprises. In an interview with Sowmya Kamath, he talks of his optimism about the future of the Indian market.
Q. The Indian equity market witnessed a huge rise after the government announced a series of reforms measures. Do you see scope for more upside? Where is the Sensex and Nifty heading?
A. The market went up as there was policy action by a completely paralysed government and due to optimism on the international front. Foreign institutional investors (FIIs) have been continuous and determined buyers, just as much as domestic players have been continuous and determined sellers.
There is hope of more reforms in India and that the global market will continue to perform. Having said that, much will depend on how the future plays out.
Also, this is the results season and expectations from earnings for the last quarter are not high. If the results do disappoint, they can affect the markets. The indices have risen by nearly 10% in the past one month while mid-caps have substantially outperformed the Nifty and the Sensex.
The ratio of new highs to new lows is extremely favourable. Many stocks have spent between two to four years in a narrow range and then broken out on the upside. Such price movement and the number of new highs indicate healthy technical movements of the markets. There is also great disbelief about the rise.
The disbelief in the market and the tremendous price action indicate that the movement of the indices should continue upward but much depends on what the government does and the global markets.
Q. Do you think the rally will be sustainable given that macro-economic indicators such as high inflation and fiscal deficit still cast a shadow on the market?
A. The market is consolidating after a 10% rise. As I said, the sustenance of the rally will depend on how events play out. Intuitively, I feel the market will not give up its gains easily, though it may enter a prolonged period of consolidation and move in a narrow range. If inflation comes down and subsequently interest rates fall, we can have an explosive rise.
Q. The QE3 (quantitative easing in the US) money has helped markets rally. Will FII inflow continue since domestic investors were net sellers in the rally?
A. Foreign investors have great faith in the structure, nature and openness of the Indian economy. If you look at India's share of world GDP and the share of institutional investment in India, FIIs are broadly underweight on India. I feel there is no reason why this FII investment should stop. If the government acts on policy matters, this flow of FII money can turn into a flood. Locals will have to withdraw at some point if FIIs keep buying.
Q. Do you think investors should be adding high beta stocks to their portfolio? What should be the investment strategy now?
A. The kind of stocks one should invest in depends on the investor's risk appetite. If the rally continues and gathers strength, high beta stocks will surely outperform as they have been doing in the past few months.
Q. How do you look at the disinvestment candidates- Hindustan Copper, Nalco, Oil India and MMTC? Would you invest in these?
A. I have had my tryst with public sector stocks and I am not interested in buying the disinvestment candidates. All of these are listed and if I am interested, I can buy it from the screen.
Q. Stocks such as Pantaloon and Titan have gone up after the announcement of easing FDI norms in retail? What should be the strategy for such stocks?
A. The policy has already been notified by the government and FDI in multi-brand retail is allowed as we speak. I would not like to comment on individual stocks.
Q. How would you look at infrastructure stocks? There have been government efforts to improve the sector's outlook but nothing substantial has been laid out to revive it.
A. The infrastructure sector will have to be revived sooner or later if India is to grow. The government and Finance Minister P Chidambaram are making efforts to revive investment in the country and ensure completion of ongoing projects. If you have patience and a high risk appetite, then some infrastructure investments can give good returns over a period of time.
Q. Which sectors are you bullish on and why?
A. I am most bullish on retail, pharma and banking stocks. I feel India-centric sectors will outperform.