Sunday 19 August 2007

"Believe in India" - Rakesh Jhunjhunwala

The biggest bull of them all Rakesh Jhunjhunwala, says that India is likely to benefit from its strong fundamentals in the long term but only after a tough intermittent transition period.

He feels that high degree of complacency has set in as too much easy money has been made too quickly and world equity markets are bound to get shaken in the near future.

Mr Jhunjhunwala was speaking at the convocation ceremony of IIT Mumbai last week. In what should be called a rare glimpse of bearishness - he bet that the US economy is bound to slow down sometime after a 25 year bull market.

Corporate profits as the engine

But this has not changed his faith in the Indian economy. “India has got all ingredients that markets value,” he quipped. In a presentation made to students, he said that corporate earnings will grow at over 18% (faster than unorganized sector) the sustained earnings expansion driven by growth and productivity.

India has a favourable framework for equity investing with high standards of corporate governance, transparency, effective regulation, electronic trading, dematerialisation and tax paradise for equity investing under the STT regime. “Good balance between domestic consumption and global outsourcing opportunities coupled with rising savings, yet low equity ownership offer a significant potential,” said the legendary investor.

Mr Jhunjhunwala also sang an ode to India’s economic resilience by proving that its being a country with least volatile economic growth. He calculates that the difference between the maximum and minimum GDP growth is least as compared to other Asian countries like Taiwan, South Korea, Singapore, Hong Kong and Malaysia.

Indians everywhere?

Mr Jhunjhunwala says that its people are the country’s biggest assets. One of his slides said that 38% of doctors in America are Indians, 12% of Scientists in America are Indians and similar numbers for Nasa, Microsoft and IBM employees are 36%, 34% and 28% respectively.

He sums up by saying that Indian skills and Indian enterprise have now got a global level playing field and a much superior platform than India Inc has ever had before.

A tough period for equities

He, however, also spoke of scenarios under which the Indian economy could lose way temporarily. Slowdown in US economic growth, tanking of global economy, politicians messing up figure prominently this list.

Turmoil in debt markets, rising oil prices, rising interest rates, China slowdown and global currency realignment are some of the other factors. But the impact on India could be lesser as here interest rates may soften and India’s domestic consumption could see it through. Having said that he warns that the next few months will be tough for stocks.

Conclusion

India has now changed from a deficit to surplus economy with emergence of first generation entrepreneurs. The growth in the airlines industry, mobile phone, increases in tax to GDP ratio and changing attitudes where wealth/profit no longer a dirty word, is a tribute to India’s growing prowess.