Next 5 years, I would buy both gold and equities: Rakesh Jhunjhunwala
- Low-interest regime extremely bullish for gold. I see gold prices at $2,500-3,000.
- Gloom and doom is for those who have followed incorrect business models.
- I am madly optimist about India.
What is Rakesh Jhunjhunwala a successful investor? Is it because of your attitude, understanding risk or is it pure luck?
You can never predict how market will react. You can model it. You may try to predict it, but weather and markets and risk, only God knows because only he has seen tomorrow. The markets are like a weather; you may not like it but you have to bear it. Third, just like with a lady, you can have a good relationship with the market only by showing respect and following it. All those who thought they are kings of markets went to Arthur Road Jail. What else can I say? I am very opinionated and sometimes a very irritating character but, I have learnt that the quest to learn is a journey not a destination.
How is it that your belief and conviction is not shaken up even during crisis? You have been sitting on stocks for years while India has gone through ups and downs. There was a global crisis in 2008 but your belief in India and the businesses which you bought, were barely shaken!
Nothing is linear in life but the fact that India has raised its growth rates in every decade since independence. What leads to a growth – skills, demographics, natural resources, democracy, entrepreneurship -- India has in abundant measure. It cannot be taken out. Ups and downs are always going to be there. What are the alternatives to stock investment? I own no real estate, except maybe a house and one land here and there. We invest the least amount in jewellery, as much as I can convince my wife. So what is the alternative to equity?
I am not looking at equity so that it should give me 25%, 30% or 40% return; it gives me 18% return and there is the ease with which I can invest. Suppose I am bullish on real estate, I search for a land, I get a broker, then investigate the title, then somebody is bribing somebody. I buy DLF shares on the screen. I have belief in India’s growth because India’s DNA is such that there will be growth in this country. We have the best skills in the world. We did not make the nuclear bomb by stolen technology. We did not sell it to anybody. If you read about the mission to Mars, the way we did it is unbelievable.
Google has an Indian CEO. Microsoft has an Indian CEO. Tata Sons has someone educated in India. We are going through the most favourable evolution of the demographic profile and this will continue. We have deeply ingrained democracy. I know of no society which has achieved growth and retained it without democracy. We have some of the best entrepreneurs in the world. We have vast natural resources. We have the deserts of Rajasthan. We have the oceans of the world, we have the Himalayas. Only we have to find oil. With so much, how will growth come down and why will it come down?
Why is there so much of despondency on the Street?
There is a 10% drop in auto sales or 15% dealerships are closing down. What have you invested, what business have you been running, if your business closes in 15% fall? What risk measurement have you done? This gloom and doom is for those who have followed incorrect business models. In commercial vehicles, there are valid reasons because a) 15% to 20% faster turnaround time; b)GST and c) you are not overloading.
In case of cars, the cost of ownership has been taken to extreme levels, but I do not think there is such a big slowdown. Flipkart and Amazon both are claiming to have doubled their sales.
Undoubtedly, there is a slowdown but why did the slowdown arise? It did because: First, in any election period, government expenditure goes dramatically down and government expenditure had become the more important part of the total capital expenditure. Also, in order to keep the fiscal deficit within 3.3%, the government withdrew a lot of expenditure in March and did not increase it later.
The second reason is that credit became costlier because none was available from NBFCs. We are changing from a chalta hai (everything goes) society where people would say kara lenge, banwa lenge, pata lenge, bol denge (we will manage it by any means). Now nobody saves you, all guilty deeds get punished. This society has better integrity because of the rule of the sword. I think that is another reason for the slowdown.
Third reason is we have been damaging our economy slowly. Do not sell the public sector, one company has got four four CDRs, electricity boards do not pay the generating company; gives free power to farmers; gives me electricity at say Rs 15 a unit, gives to industry at Rs 6. These are all slow poison. My diagnosis is that the last is going to be addressed. Mr Modi is a distilled socialist, he is one of the few prime ministers who has seen poverty apart from Shastri ji, may be Mr Vajpayee to some extent.
He knows what it is for a woman to cook food on a choolah (earthern oven) as his mother used to cook like that. So, he is a socialist but he knows who is a socialist, he fights so that everybody can have equal share of the cake but Mr Modi knows that first let us enlarge the size of the cake and he knows that investment is key. He is ready to take bold steps.
In Gujarat, he did nothing. Apart from one or two other states, the only solvent electricity board in India is Gujarat State Electricity Board. Water levels in Gujarat are the highest in India. The $5-trillion economy is his dream. He wants to be known as a great leader. That is why the reduction of taxes, that is why there is talk of strategic sale of public sector units and therefore they are telling the states that if you do not pay the generating companies, you have to give a letter of credit or we will cut your aid from the states.
I am madly optimistic right and he is in such a commanding position that his word is law in whatever he decides. I am told the tax was done in 48 hours. For the first time in the history of India, ordinance was amalgamated without cabinet commission. Then as far as the election expenditure is concerned, it has started. It will take time to reverse the slowdown, but the government is making efforts. I tell bankers, sir we are at the tail end of the NPA cycle. The NPAs are from 2009-2013 period. Beyond the companies whose integrity was hit, nobody else has NPAs. Already Rs 14-18 lakh crore have been recognised, About Rs 40,000-50,000 crore would be left. Remember, it is darkest before the dawn
I am unappreciatively bullish! In 2021, India will grow 8%. During 2021-2022, 2022-2023 we will go up to 9% I am not an economist, I am patriotic but I do not mix my business with patriotism.
Is this your view that what happened in the NDA-1 regime was essentially a cleanup act? We had demonetisation, IBC and other cleanup reforms and now we will see constructive reforms, tax cuts, privatisation, something out of the box?
You will see second generation reforms. They have done a lot of planning, they have reduced the rate of tax to 15% for manufacturing, they have identified 12 cities where they have got 8,000-10,000 acres of land so that if any investor comes, they can give him the land for manufacturing. If demand comes, why will investment not come? It is a process and it is not going to happen in a day and it is not going to happen in three months. The effects of the slowdown are going to be felt for sometime but remember market is a discounting mechanism, the market always looks at the future and react.
Globally interest rates have come down, they are going back to the regime of negative interest rates, what does that mean for everybody?
Very bullish, very bullish for gold, extremely bullish for gold. I see the gold prices at $2500-3000.
But gold goes up and there is fear?
Why is there fear? The fact is that America, China and Russia are adversaries of America have $4 trillion of reserves they want to reduce the exposure to the dollar. What is the alternative? If you do not want to take the Euro, you do not want to take the yen, you have to use your foreign exchange reserves.
Second, in terms of negative interest rates, people are going to question the monetary system itself. If you buy $50 billion or $100 billion of gold a year, it is enough. The ancient Indians are going to be proved right.
So the next five years gold or equities? Which will give better returns according to you?
This is not like a wife, you can have both. I would buy both.
Why are a lot of global market investors and some of them we respect, Ray Dalio, Howard Marks, are just making one simple comment, guys do you know this is the longest economic bull run from World War, watch your bag? What do you think?
I will tell you something. The reality is that growth in the western world and Japan according to me is going to be between 1% and 3% because you cannot have a society grow without population and growth has to come from productivity. Second, inflation won’t be there because; a) the prices of commodities are constantly coming down because of technology while the labour costs and services have gone to an extreme high. If they have 1% to 3% growth and no inflation, why will interest rates go up?
The economic cycle may be dead. In Japan, there has been no boom and bust for the last 20 years. That is going to happen in the developed world. People feel uneasy with low interest rates but I think they are here to stay.
Second, they are far more experienced and successful and mature and they are also very much afraid of the debt market, of which I have no idea.Maybe I am ignorant, but fundamentally I see no reason why there should be a collapse. Collapse of capitalism will take place when faith is lost. Faith is the bedrock of capitalism.