Rakesh Jhunjhunwala assuages nervous novice investors
Rakesh Jhunjhunwala, the Badshah of Dalal Street, knows that novice investors like you and me are worried about the state of the market.
We have invested our paltry savings in stocks and the last thing we want is for our savings to be wiped out in a correction.
Rakesh Jhunjhunwala took time out to address all of our concerns and to assure us that we are on the right path.
“Valuation froth” vs. “Commitment froth”
The Oracle of Mumbai made a masterful distinction between “valuation froth” and “commitment froth”.
He explained that “valuation froth” is by itself not a cause for much worry because at the most stocks will remain in hibernation till the earnings catch up with the valuations.
However, “commitment froth” is a deadly sign that the market has peaked. In this scenario, investors throw all caution to the winds and aggressively buy junkyard stocks by borrowing funds at exorbitant rates of interest.
What causes Bull markets to end
“When people worry and talk of peaks, that itself shows that the peak is not near,” the Badshah said, applying counter intuitive logic.
He explained that for Bull markets to collapse and turn into Bear markets, three circumstances have to happen simultaneously.
First, there must be “tremendous valuation froth”.
Second, there must be “commitment froth” where all and sundry are buying stocks without a care in the World.
Third, there must be bad news which upsets all calculations.
“When the market falls, the leveraged buyer has no choice but to sell and because there is a lot of valuation froth and everybody is committed and there is bad news, it is very difficult to find a buyer,” the Badshah explained.
This eclipses the Bull market, he added.
We are far, far away from that scenario
“We are not in that stage at all,” the Badshah declared with the air of a prophet.
“There may be valuation froth but there is no commitment froth …. so, we are far, far away from that,” he added.
Indian economy is in a sunny state
Rakesh Jhunjhunwala confirmed that the Indian economy is ship-shape and that there is nothing to worry about.
“I don’t think Indian economy has ever seen such a sunny time where you have stable interest rates, and good currency value. We are on the threshold of major growth and the NPA problem is likely to be resolved in next 12-24 months,” he said.
Tsunami of local funds will flood the stock market
The Badshah gave his seal of approval to the report by Morgan Stanley that a mind boggling sum of USD 425-825 billion will flow into the stock markets over the next 10 years.
It is a “Tsunami”, he said with a big smile on his face.
Explosive 10-11% GDP growth is coming
The Badshah gave a certificate of appreciation to NAMO even as he rubbished other politicians.
He explained that while other junkyard politicians pour more water to solve the problem of a leaking pipe, NAMO tries to plug the leak itself.
“To change India, you need a lot of time … But I do not see it is more than 2-3 years away and then you are going to have that explosive 10-11 percent growth. Remember one thing that he has transferred so much money into the states, he is increasing spending and still he is maintaining fiscal responsibility,” the Oracle said.
GST is a game changer, very bullish on it
“I am very bullish on GST,” the Badshah said, his eyes sparkling.
“It is going to raise Gross Domestic Product (GDP) by 2-2.5 percent over a period of time,” he exclaimed.
He added that GST will be a “big game-changer” because most companies will save at least one percent on logistics cost.
He emphasized that it will be very difficult to evade GST and that junkyard businessmen will have no avenues to siphon off profits.
The overall tax revenues will surge and help reduce the fiscal deficit, he said.
He also rubbished fears of disruption due to GST. It will have minimal impact just like demonetization did.
Stock tips and recommendations
Shereen Bhan, the veteran and charming managing editor of CNBC TV18, did her best to cajole Rakesh Jhunjhunwala to give us some stock tips and recommendations.
However, the Oracle of Mumbai stayed adamant.
He did give the subtle hint that we should buy private bank and NBFC stocks.
“Private sector banks are doing well, non-banking finance companies (NBFC) are doing well,” he said, implying that these are safe sectors to invest in.
The Big Bull also made it clear that he is bullish about real estate stocks owing to the Real Estate Regulatory Authority (RERA) bill being passed and now being operationalised.
“I am bullish on the real estate sector … RERA will inspire confidence for investment in real estate because people will be bound by what they commit,” the Badshah said.
He also opined that we can safely tuck into housing related stocks such as housing finance, steel, cement, tiles, etc.
“Kanya ko lao, samay aa gaya hai”
“Kanya ko lao, samay aa gaya hai,” the Badshah said in a jovial tone, much to the amusement of the sophisticated Shereen Bhan.
“India will have double digit growth and there will be a tsunami of local money. That is why I have kept all my wealth in equities,” the Badshah said, implying that we should also join the party without further delay if we haven’t already done so.
Nifty will give 100% return in four years
Shereen Bhan finally cornered Rakesh Jhunjhunwala into giving a specific target for the Nifty.
“What was the number? I forget the number that you had given me in terms of where you see the Nifty over the next 10 years,” she asked, pretending to have forgotten what the Badshah had predicted.
The Badshah fell for it.
“It should compound at 15 percent per year. So, it can double in four years,” the Badshah confidently predicted.
“The Nifty is going to be one lakh some day,” he added, even as Shereen Bhan stared at him amazed.
If Nifty will double in four years, individual small-cap and mid-cap stocks can treble and quadruple
Now, it is obvious that if the Nifty is to give 15% CAGR return, individual small-cap and mid-cap companies will effortlessly give a CAGR return of 25% to 30% and become multibaggers over the next four years. We need to identify these stocks and buy them in a systematic manner whenever the stock markets are down and hold onto them tight!