India growth story to continue, despite odds: Rakesh Jhunjhunwala
Super broker Rakesh Jhunjhunwala (left) sounded optimistic while talking about the Indian market weighed against its US counterpart at a recent meeting organised by Shailesh J Mehta School of Management, IIT, Bombay. While analysing the Indian market weighed against its US counterpart, Jhunjhunwala quoted the former US Federal Reserve Chairman Alan Greenspan: "History has not dealt kindly with the aftermath of protracted periods of low-risk premiums." The super broker feels the going will get tough for the Indian markets for the next few months. This is sad, he said as India has all the ingredients that markets value.
'India growth story will be sustained'
During his 45-minute presentation, Jhunjhunwala made an irrefutable case for sustaining the India growth story.
US slowdown may affect Indian market only for short term, he assured, adding, "India will have favourable asset allocation outcome in the long-run."
Enormous wealth was created over the last five years because opportunities in India have grown manifold, Jhunjhunwala stated. Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.
The super broker took the cue from Warren Buffett's words: "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."
"Blindly following stock picks by big investors is not a wise thing to do," he warned investors. "I don't think the government is necessarily interested in hurting growth. The government is interested in growth with controlled inflation."
'America has 3.22 million Indians'
"There are 3.22 million Indians in America. Out of which, Jhunjhunwala said, 38 per cent are doctors, 12 per cent scientists, 36 per cent are NASA employees.
Dwelling on the statistics a bit more, Jhunjhunwala said that 34 per cent of Microsoft employees, 28 per cent of IBM employees, 17 per cent of INTEL staff and 13 per cent of XEROX employees are Indians. Indians, therefore, do have substantial contribution towards US growth.
The impact of the current credit crisis in the US will lead to a slowdown in the US economy, and that is bound to affect world equity markets, "India, however, may benefit," argued Jhunjhunwala, "but only after an intermittent transition period."
India vs US market by Rakesh Jhunjhunwala
Jhunjhunwala believes that India has all the ingredients that the stock markets value and hold in high regard. Just as cheap credit in the US fuelled its growth, (one must refer to the graph on the left hand side), India owes its progress to the following factors:
Efficient capital allocation
Sustained earnings expansion driven by growth and productivity
8 per cent+ real GDP growth + 4 per cent + Inflation = 12 per cent + Nominal GDP growth
Corporates to grow faster than unorganised sector
Operating and financial leverage to kick in
Corporate earnings to grow at more than 18 per cent
Favourable framework for equity investing
Rising savings, yet low equity ownership -- significant potential
Tax paradise for equity investing under the STT regime
'India's biggest asset: A large pool of skilled people'
Why would India benefit against these odds, one wonders. Jhunjhunwala cited the following reasons:
A large pool of skilled people,
Domestic consumption-led growth,
Corporate sector growing faster than the unorganized sector.
The withdrawal of reservations for small scale industry may result in the closing down of small firms, but it will also benefit the larger companies.