A few days ago, I distilled the advice of leading market experts on why the time is opportune to buy stocks.
Rakesh Jhunjhunwala has now offered valuable advice on the same topic in his latest interview in CNBC TV18. His advice can be distilled into a few core points:
The present consolidation/ correction is no cause for worry:
The index has gone from 5200 to 9200 in two years. Someone who has ran a marathon has to pause or he will have a heart attack and die. A market pausing for breath at this moment is no cause for worry at all. I would be worried if it just goes on going up.
All the fundamentals for the market continuing its upward march are in place:
There is no doubt that there is a cyclical upturn in the Indian economy. India is structurally a very good story. We have a government which will bring about lot of change. There is a decline in inflation because of decline in commodity prices. There will be a consequent decline in interest rates. Bull markets go up on rising profits and declining interest rates. We are having, and are expectant, of further decline in interest rates. We are setting the base of the stage for a very good growth and a continuous growth in earnings. Market will pause, has paused and market is going to take time. I don’t think we have to cross 9000 in a hurry and if it takes 3-6 months, I am not bothered. It is going to take time.
Mother of all bull markets is still expected, though the markets will test our conviction:
If I say that India is in the mother of all bull markets and if we believe that that bull market is alive, then the base which we form, that bottom should never be violated. I had said even two- three years ago that when will you have a true bull market and when will the mother of all bull markets be confirmed. We crossed 6300; we came to 9200. Let us suppose that we have made the bottom at 8000, maybe it could go to 7900, maybe 8000 we already made it, we don’t know. It could further go down also. When it crosses 9200, it is absolutely tested; it is a bull market. I would say, but I don’t know the time period-markets could test us for three months, six months, nine months but market is going to test us. Market may give another chance. It is not so easy to make money in markets.
The reason for the delay in resumption in the upward march is because most stocks are overvalued:
There is a section of the market whose valuations are unbelievable. You have midcaps at 25 times FY17 earnings. There is no scope to go up so. You have some very good quality companies where everybody is piled up in valuations that are unbelievable. So, those companies will sure take time and the fact is that earnings have disappointed. Now, the whole premise is that the macro is good – the interest rates have fallen and will fall, earnings will go up, and so we have had a gain. Now, we need empirical evidence. Market needs to be convinced that actually there will be a big cyclical upturn, there will be a big structural upturn and I believe it will happen. I can’t tell you the time period.
Be rational. Don’t be disheartened by disappointments in quarterly earnings:
Lupin went up from Rs 600 to Rs 2,100 in 15 months flat. It earned 24, then earned 41, then earned 55. It has grown more than double in two years; then there is disappointment. In my holding of Lupin for twelve years, there were two-three year periods, therefore six years Lupin never went up even one percent and see ultimately what happened. So, every rise has to be digested, both in profits and valuations. I am not disappointed by Lupin at all. Look at how it has risen and look at what the prospects are. For one year Lupin does not go up, what is the difference? It is the highest appreciated Nifty stock of the last 12 months. Let us be a little bit rational. Let us look at the expectations in relation to reality. If Lupin went from Rs 600 to Rs 2,100 in 18 months, I should expect the next 18 months to be around Rs 4,200.
Don’t be disheartened by mistakes. Learn from them:
(On why he never bought private bank stocks and whether he regretted that) What happens is; I wanted to buy a house, I didn’t buy the right house. Now, I can’t get out of the other house and buy the other one. So I misjudged; I missed it. Just because I have a large portfolio doesn’t mean I haven’t made any mistakes. I have made many more mistakes and as time passes by and I mature, I realise how many more mistakes I have made than the right ones. I always looked at EPS. I never look at book value, I never looked at return on assets or I never looked at quality of management. But I feel one thing about private banks that except one or two banks, I don’t see much difference between say a very good public sector bank and a very good private sector banks because I find they lend to the same people. So, I don’t know and for these kinds of valuations, you have got to really have faith to keep buying at these valuations and I missed the bus, let me tell you. Maybe the grapes are sour for me.
I am debt free. I have no debt for the first time in my life. When I entered the stock market in 1985, I had Rs 5000. I built my life on debt. Today, I have no effective debt against equity. I am not going to invest easily because I don’t want to have debt and there may be a lot of personal reasons involved in it. Of course I don’t rule it out. Tomorrow, if I see an opportunity, I will take any amount of debt and buy.