Rakesh JhunJhunWala Interview on 7th Feb 2019:

When we are confused, we look upon some expert for clarity. And for Stock markets, one such person is Mr.Rakesh JhunJhunWala - a self made investor whose views are much tracked in the market.

Few days back his interview came up on Bloomberg Quint Channel and fortunately it is in below mentioned youtube link. Worth watching once.

Following are some of the point (may not be the exact phrase) that captured my attention:

• Markets are like Women. They humble you. Don't try to brow beat them. You need to accept, respect and learn from them.
• Growth and prosperity of nation comes from Chaos.
• Advantage of India:
• Genetically skilled
• Favorable demography for 30 years, which is irreversible.
• Democracy
• Entrepreneurship
• Natural resource
• Inward looking economy with potentials for exports.
• India grows not because of politicians, but in-spite of politicians.
• Positives of  Present govenrment
• Doing Social welfare without leakage - Direct benefit transfer
• Inviting investments - increasing size of market
• Push towards common civil code
• Advise for Retail investors:
• Investing is NOT EASY
• Investing needs full time attention
• Many invest in stock market for excitement.
• Allocate 10% of money for such direct equity investing.
• Invest rest 90% through mutual funds and Portfolio Management services.
• Problems of Retail investors
• Attitude of Expectations
• If you compound at 21%, your money doubles in 3.5 years which is excellent
• If Debt returns are8-9%
• Expected equity returns could be 15% to 18%
• Equity Investing is not T-20, it is Test Match.
• Lessons learnt:
• Be realistic in expectations
• See reality as it is and accept it.
• Don't be too pessimistic or too optimistic.
• Dont be afraid to make a mistake
• Rely on intuition
• Invest in Future but keep in mind that Future is uncertain.
• Don't be too predictive.
• Do Financial Due Diligence AND Business Due Diligence.

Wealth is Comfort. Wealth is Independence. Wealth is NOT HAPPINESS. 

Radhakishan Damani: An Ace Investor

Since the days of Harshad Mehta, he's known to be the man with the Midas touch in the stock markets. Rakesh Jhunjhunwala's guru and now India's ace retailer, Radhakishan Damani is obsessively low profile but is revered among traders and investors. Kala Vijayraghavan deconstructs the man — the reclusive investor and retailer:

They are three of the best investors in India. Rakesh Jhunjunwala, Ramesh Damani and RK Damani—the last two, no relation to the other—are competitors and players on Dalal Street, but hearty friends off it for nearly three decades now. Whenever they meet, they have plenty to discuss, gossip, share and ask, says Ramesh Damani.

For the past few years, he adds, a poser from Jhunjhunwala to RK Damani has become a fixture during these meetings: "When are you going to list your business and let me buy 10% in it?" It's a poser that usually draws a gentle smile from RK Damani, a pause for silence, before the room reverberates with Jhunjhunwala again. "He doesn't like to talk, he is more willing to listen," says Ramesh Damani.

Radhakishan 'RK' Damani, 59, likes to let his work speak for itself. And it speaks volumes. It tells about a value investor whose portfolio of listed investments, at its last-known market value of Rs 1,731 crore, is an eight-bagger. It tells about a stock market trader who has eyeballed Harshad Mehta and ITC in their prime, and made a killing. It tells about the retail business that Jhunjhunwala covets, one that checks out about Rs 4,500 crore through its cash counters and yet barely registers in the happening retail landscape of India.

For the past few years, the imagery of the Indian retail story has been the naked ambition of its biggest players—the building and breaking by Kishore Biyani, the try-again approach of Mukesh Ambani, the tripping of Walmart on its own toes. They have all grown. But they have also bled. Amid these upheavals, Damani's retail chain, D-Mart, has grown consistently and profitably— and, in trademark Damani style, silently and unobtrusively.

Since the days of Harshad Mehta, Damani is known to be the man with the Midas touch in the stock markets. He's been Jhunjhunwala's guru. He's revered by traders and investors. But outside that community, even in the larger business community, few know about him. He's obsessively low profile. So few images of his are available on the Internet that a mention of RK Damani leads people to think about his more high-profile friend and namesake, Ramesh Damani. And that is just fine by RK Damani.

After two weeks of cajoling, Damani met ET late in the evening at his Dalamal Estate office in Nariman Point, South Mumbai. He is dressed, as always, in white shirt and white trousers—an appearance that earned him on Dalal Street the nickname 'White and White'. His first words reveal anonymity as a defence mechanism. "Why don't you just write about D-Mart? I am too small a person," says the man whose net worth, market players estimate, is Rs 5,000 crore. And this is without considering the value of the 52% he directly holds in Avenue Supermarts, the company that controls D-Mart; his investment company, Bright Star Investments, holds another 16% in D-Mart.

D-Mart has not shut a single store since it started in 2000. At last count, it had 73 stores—a fraction of that owned by Ambani and Biyani, but generating per store revenues even they would like. Its revenues have increased from Rs 260 crore in 2006-07 to Rs 3,334 crore in 2012-13, and are projected to hit Rs 4,500 crore this year, which would make it India's third-largest branded retail chain.

It has posted profits at the net level for each of the last seven years. Damani iterates basics. "There are some 25 things that we possibly do differently and consistently," he says. "He is a very focused retailer," adds Kishore Biyani, CEO of Future Group, who knows Damani personally. "There is a simplicity and clarity of thought in his approach to the business."

Investor To Retailer :

That comes from his days in investing. "Whatever I learnt in life is by investing," says Damani. In spite of a business that is in its growth stages, investing is what takes up most of Damani's time. "Most of the week, I am into investing," he says. "My weekends are for D-Mart."

For Damani, the idea of what a business should be was shaped by analysing companies as investments. On the stock market, he wears two hats. There is Damani the trader, trying to guess the market's swings. There is Damani the value investor, with a liking for brands, cash flows, predictability and the long term—much like the most famous value investor of our times, Warren Buffett (See box). "I liked the consumer business and I invested in such stocks too," he says. "So, there was this strong affinity to start something in the same sector."

In 1999, when retailing was yet just a concept in India, Damani and Damodar Mall, who is currently the CEO of Reliance Retail but was then a brand manager in Hindustan Unilever, took a 5,000 sq ft Apna Bazaar franchisee in Nerul and added one more in Navi Mumbai. Two years on, D-Mart was set up and it took over Apna Bazaar. Damani left the stock market, for six years, marking another professional turn—from trader of ball bearings to investor to entrepreneur.

The early days were about intensive learning, on the job—store layout, billing systems, gaining the confidence of vendors. Mall and Damani would pore over books on Sam Walton, who built Walmart into the world's largest retailer. They would travel to the APMC market in Vashi or Crawford Market, in Mumbai, to interact with wholesalers and traders. "Within six to nine months, we knew we were on to a good thing and had the confidence to apply the model to multiple locations," says Mall, who left D-Mart to join the Future Group in 2005. According to Mall, Damani was hardworking and unassuming.

"He is as comfortable chatting with vendors as with the lowest level of employees," says Mall. "He is not seen as this formidable owner, but as a very simple, unassuming man who is happy chatting with employees with an arm around their shoulders." In the choices he made for D-Mart, Damani focused on three things: customers, vendors and employees.

Business Values 

Take customers. All of D-Mart's stores are in, or close to, residential areas and not in malls. Since it owns 90% of its stores, it ends up paying more upfront but insulates itself from rising rentals or relocation risk. That works for it because D-Mart can use its capital steadily.

It is not chasing growth, it is well capitalised and debt-light, and its operations generate spare cash. As of March 2013, it had Rs 786 crore in shareholder funds and debt of 432 crore. "With owned properties and no cost of rentals, they are, in fact, building assets on their books," says Ruchi Sally, director at retail consultancy Elargir Solutions. Further, in terms of size, D-Mart does not aspire to meet every consumer need like a Big Bazaar. Instead, it aims to meet most regular consumer needs, while offering value for money. "They have a relatively smaller format, which helps them reach store-level profitability much quicker," says Sally. At Rs 53 crore, D-Mart's revenues per store is said to be the highest among grocery chains (a comparison is not possible as Future and Reliance house multiple formats).

"They (D-Mart) buy it low, stack it high and sell it cheap without undercutting," says George Angelo, executive director, sales, Dabur India. Adds a senior manager at a Mumbai based supermarket chain, not wanting to be named: "There is an unsaid rule not to open any store within a radius of one km of a D-Mart. We have come to terms that we cannot beat them on prices."

Vendor relationships are the second pillar of D-Mart's model. "His (Damani's) biggest strength was vendor relationships, having come from a trader background," says Mall. Against the payment norm in the FMCG industry of 12-21 days, D-Mart pays vendors on day 11, a trait that keeps them in the good books of vendors and avoids stock outs. "As a retailer, they are reasonable with vendors," says Angelo of Dabur, for some of whose products D-Mart is the leading seller. "There is a Lakshman Rekha (a line they won't cross) to haggle with vendors."

Nilesh Shah, a seasoned investor himself, sees financial logic in such vendor engagements, which he explains in a way that, initially, sounds counter-intuitive. "The sole motive of RK Damani is not to make money through D-Mart," says the MD and CEO of Axis Capital.

Shah compares D-Mart to Subhiksha, a discount chain that grew using debt and ended up going under. Subhiksha took credit from suppliers to sell to customers, and used its cash for overheads and acquisitions. It was always a spiral where cash disappeared and no wealth was created. "D-Mart, on the other hand, pays suppliers well in time. So, it buys goods cheaper since there is no interest loaded on them and, therefore, its turnover per square foot also increases," says Shah. "Since there is no expansion spree and no interest to be loaded, the model is hugely successful."

That's not to say D-Mart does not rile suppliers. "Since D-Mart buys in bulk to earn higher margins, at times, they run their own promotions through the year," says a sales head of a large regional food company, on the condition of anonymity. "This erodes brand positioning, especially of smaller brands, which find it difficult to sell without a discount tag." Counters Neville Noronha, CEO of D-Mart: "That is an immature view since this is not a one-day game. The incremental volume that D-Mart sells allows us to offer that additional value to the customer."

Profits Over Growth:

Employees are the third pillar of D-Mart's model. What it does not offer by way of money, it makes up by way of flexibility, empowerment and a relaxed, but efficient, work culture. "We are happy even with a 10th standard fail, but with the right attitude and commitment," says Noronha. "What we do is invest heavily in training. And so, even from a basic front-end, when they rise to store-level managers, they are not seen as target candidates by others, who cannot accept a 10th standard fail."

Dheeraj Kampani, who has been with D-Mart for nine years after joining from Spencer's Retail, values the empowerment. "You are just told once about the value system and policies at D-Mart and then given the freedom to operate without somebody constantly looking over your shoulder," he says. "There is a clear focus on what has to be achieved, but there is no mad scramble to achieve targets. If you have stayed a year at D-Mart, it is unlikely that you will ever leave."

In 2004, Neville Noronha was in Hindustan Unilever and interacting with Damani as a vendor. Today, after being convinced by Damani to join as head of business, he is the main man at D-Mart; and unlike the HUL brigade, he neither has an IIT or an IIM degree. "I had nothing more than the passion to compete and be the best," adds Noronha. Noronha iterates Damani's philosophy for D-Mart. "We are not looking at any numbers play," he says. "We do not look too far into the horizon to generate this much or more revenues. What we are, however, very clear about is in following Damani's vision that the business has to be profitable."

That also puts into context D-Mart's expansion startegy, which follows a cluster approach. D-Mart is in Maharashtra (45 stores) and Gujarat (18 stores), and has six stores in Hyderabad and four in Bangalore. "Supermarkets have to have local sourcing and supply to be successful," says Harminder Sahni, managing director of retail advisory firm Wazir Advisors.

"That is where other bigger players faltered because supply chain cannot be pan-India." "We play to our strengths," says Noronha. "Our management bandwidth and cost structures do not allow us to go national for now." Damani, who meets the management once a month, says he is neither looking too far ahead nor interested in tying up with a foreign retailer. He visits D-Mart stores regularly, interacts with employees, looks at merchandise and gives insights.

His two daughters, Manjri Chandak and Jyoti Kabra, are involved on a day-to-day basis, especially in merchandising; Chandak is also on the D-Mart board. "Both like consumer businesses," says Damani. "So, I guide them. They are being groomed more as stakeholders possibly than someone who will actively run the business."

The market buzz is that Damani might yet list D-Mart when sentiment in the stock market improves for good, the main reason being to offer an exit option to employees, friends, family and well-wishers who own equity. "As an investor, I think, D-Mart is a great, profitable model and RK Damani has it in him to deliver great value to shareholders," says Ramesh Damani. "He is exceptionally gifted."

The Value Investor:

For all his mild mannerisms, the legend of Radhakishan Damani was born in a pitched battle. In 1992, when Harshad Mehta, the Big Bull of the time, was ramping up share prices, Damani kept looking at the astronomical valuations— and shorting.

Mehta bought more, prices rose further, Damani sold more. Someone was going to be killed. When it was revealed that Mehta had been siphoning off funds from the banking system, the market collapsed, and Damani made a killing. Damani's conviction was borne out of a notion of 'right price'—or the hunt for value.

Much as he likes to dive into the rush of trading, there's also an old school part of Damani where value is a notion that takes many years to be realised. "He's a brilliant and successful investor, with a combination of being practical and humble at the same time," says Anand Rathi, founder of Anand Rathi Financial Services.

Damani, who joined his brother's stockbroking business at the age of 32 following their father's death, built his fortune by buying multinational stocks during the late-80s and early-90s. "My philosophy is long term, with a horizon of five to 10 years," he says. "If I like something and believe in it, I am committed to it."

That philosophy is demonstrated in his investment portfolio, which is housed in a company called Bright Star Investments. The subset of listed companies in it is a compilation of 31 companies, most of them blue chips, most of them chunks, most of them bought at low valuations.

As of March 2013, the cost price of this subset was Rs 212 crore. Its market value: Rs 1,731 crore. Its largest holding is also its most dramatic. 

In February 2001, Bright Star announced it held 15% in cigarette maker VST Industries, owned by British American Tobacco, and wanted to buy another 20%. It had bought that 15% at an average price of Rs 88 a share. A bidding battle ensued with ITC. VST stayed with BAT. Yesterday, the VST stock closed at Rs 1,700. This values Bright Star's Rs 51 crore holding at Rs 681 crore. And the legend of RK Damani grew.

Source : Above mentioned article appeared in Economic times. Click here for the original link

Investment Outlook : 2014 : Exciting times ahead

India is likely to witness exciting times, going forward, inflation is already topping out and the interest rate cycle is about to bottom out soon, says Vikram Kotak, chief investment officer (equities) at Deutsche Asset Management, which manages assets over 23,000 crore. In an interview with Economic Times, Kotak says a clear verdict in the upcoming general elections will act as "huge" catalyst for investment cycle revival and can help India revert to 7-8% GDP growth". Edited excerpts: 

How will the US Federal Reserve's decision on tapering impact the Indian economy and its financial markets? 

The US Fed initiated tapering of its asset purchase programme by $10 billion, with an indication of continuing at this pace, subject to future economic data. Initial talks of Fed tapering had created extreme volatility in currency as well as equity markets, but this time, India is well prepared on the back of some timely proactive measures taken by the RBI in the last few months. 

The gradual withdrawal of Fed QE (quantitative easing) will be beneficial for India in long term, as the estimated US economic recovery will help Indian export sectors, particularly the IT sector. Also, excess money flow will taper from the commodities market, thereby, helping oil and other commodity prices to remain under check which, in turn, should help India in terms of lower inflation and current account deficit (CAD). India should gain in the medium term, as it is much less vulnerable to external shocks now compared to six months earlier. 

Foreign institutional investors (FIIs) pumped in over $20 billion into equity markets in 2013. What is your outlook on foreign fund inflows in 2014? 

Foreign institutional investors have kept huge faith in Indian equities for a long period and, today, they own over 20% in most blue chips. Their support and confidence in Indian equities is commendable, despite currency fluctuation, steep inflation and a slow economic growth. India is likely to witness exciting times going forward, with general elections next year. Inflation is already topping out and interest rate cycle is about to bottom out soon. More importantly, India's rate of growth is showing signs of recovery with green shoots emerging in various sectors. Growth and earnings estimates probably will not get lower than this. The last quarter is the first in the last 10 quarters where earnings were higher than analyst estimates, both in terms of numbers and quality. India today is in much better position than a year back in terms of current account deficit, as we have seen the $88-billion of deficit in fiscal year 2013 come to close at $45 billion in fiscal year 2014. 

Global fund managers are betting on revival of the investment cycle post the general elections, as it is crucial for faster economic growth. How is your fund house playing this theme? 

The biggest concern today is revival of investment cycle; unless it revives, India cannot push its growth beyond level of 6%. There are some improvements in approvals and clearances in selected projects, however, high interest cost and slow pace of approvals are big bottlenecks for the cycle to revive completely. Business confidence in new investments is reviving to some extent backed by strong export growth, and strong growth outlook in developed economies will continue to keep momentum going in export growth for a long time. However, it is important to revive investment cycle for balancing supply side issues, which will have positive influence on inflation and economic growth. A clear verdict in the next general elections will act as a huge catalyst for investment cycle revival and can help India revert to 7-8% GDP growth trajectory. 

Which are the sectors your fund house is currently overweight on? Are you betting on sectors linked to revival of the US economy? 

We prefer sectors relevant to the developed markets, in particular the US economy like information technology and healthcare, and also domestic themes focusing on rural India. We think rural India has a great potential as rapid improvement in infrastructure and and higher rural income sectors like consumer, auto and retail will immensely benefit. We continue to like and remain overweight on the IT sector as it is highly benefited by supportive currency, recovery of demand in the US and Europe and operating efficiency levers. Lower attrition and single-digit wage growth along with significant increase in supply of manpower adds a huge operating leverage to the IT sector. 

We are also upbeat on private sector financials as most high quality players have weathered tough times very well, wherein previous quarter was a testing quarter for the balance-sheet quality of Indian financials. As growth has moderated, banks have focused on extracting operating cost efficiencies to generate profitability. Despite a challenging macro environment, private banks continued their strong asset quality performance. Private sector banks have added 4,300 branches (80-85% of 2010 base) in the last three years, which will help them to penetrate more and also their retail mix in the business is increasing. We believe that with an expanded reach, better product offering, improving liquidity conditions, market share gain and an improved growth outlook, private banks will continue to do well in next round of growth cycle.

What is the big investment theme for 2014? 

We believe rural growth and e-commerce will remain a very big investment theme apart from exports and investment cycle recovery in next few years. India is at a cusp of explosive growth and can grow much faster in e-commerce business. E-commerce today commands less than 1% of total trade and it is likely to increase manyfold in coming years. On the back of rising Internet penetration (addition of 10 million users a month), smart phone adoption (70 million connected devices) and with most incremental internet connections being added through hand phones, it is a massive business opportunity for e-commerce players and ancillary services like logistics. India's unique invention of cash on delivery model is also the key reason for success in online retail. Rural economy is a very important theme, going forward. Indian rural markets have transformed over last many years, well supported by government spending, surge in rural infrastructure, telecom revolution and wealth effect on the back of rising land and gold prices and good monsoons. A key beneficiary of road connectivity and rural infrastructure is the auto sector, where players with distribution reach and after-sales services benefit a great deal. In the last five years, urban density in telecom has expanded four times whereas rural density expanded seven times on back of low penetration and is likely to expand faster. Increase in gold and land prices have helped consumption and mounting aspirations, while with media and connectivity there is access to premium products and emerging trends. The rising wages at a faster pace than inflation in rural India are not only helping reverse migration but also increasing demand for consumer goods, which is well supported by increased social spending by central and state governments. Rural India is going to be an ongoing investment theme for many years to come and can benefit sectors like auto, banks, consumer, telecom and media. 

Many brokerages are saying that corporate earnings have hit the bottom of downgrade cycle. When can we expect some re-rating in corporate earnings? 

There appears a trend change in earnings growth trajectory in the last quarter, with earnings growth of 14% in index stocks. We think in the forthcoming financial year, earnings growth can be higher and the quantum of upside is largely dependent upon domestic economic recovery. The rupee around level of 60 versus the US dollar is extremely good for export-focused companies. Revival in the economic cycle and lower interest rates can surprise earnings on the upside in the next two years. 

Many economists say the Indian economy has bottomed out when it comes to macroeconomic indicators. Do you agree that the worst of macro data is behind us? 

The worst is over for Indian economy: weak industrial production data, current account deficit and consumer inflation numbers are behind us. But it is important to watch if the recovery is structural in nature and whether it will be swift or gradual. We think the recovery will be gradual in current environment but in case of a new strong government, the economic recovery can pace up with focus on execution and clearance. Cyclical recovery in the country is already in progress backed by strong exports and stable commodity prices. The good news is that we are at an extremely low level of growth and the macro indicators seem to be suggesting that we are at a trough now. GDP growth rate has bottomed out and can grow faster than market expectations in the next financial year. 

RBI has kept policy rates unchanged at its last monetary policy review contrary to market expectations. What is your assessment of the interest rate scenario? 

In our view, interest rates have peaked and we may see at best one more 25-bps hike. As consumer inflation is likely to fall steeply on account of vegetable and fruit price decline, RBI's decision on rates will be dependent on not only inflation but other variables like weaker growth in economy and global liquidity conditions. We believe RBI opines that the risk to inflation is tilted downwards as increased food supplies are expected to lower headline inflation. Tightening of monetary policy since late summer would also help dampen inflation, while appreciation of currency and output gap will help inflation to cool down. 

To read the original article, Click Here

Peter Lynch's "Local Knowledge":

Peter Lynch is a Wall Street Investor. He was working with Fidelity Investments as Fund Manager. He is a value investor, just like Warren Buffet. His book "One up on Wall Street" is a classic that every investor should read. He is currently a research consultant at Fidelity Invesmtents.

His most famous investment principle is simply, "Invest in what you know," popularizing the economic concept of "local knowledge". This simple principle resonates well with average non-professional investors who don't have time to learn complicated quantitative stock measures or read lengthy financial reports. Since most people tend to become expert in certain fields, applying this basic "invest in what you know" principle helps individual investors find good undervalued stocks.

No doubt. Investments are best understood when we correlate with our own experience. Many objects / items / situations we come across in day to day life would make us admire the producer of such products. Be it a Hotel or Tooth paste or hospital or bank. The prosperity of such products would make neighbours envy. Often we fix our mind to such single product, whereas these companies could be in more diverse businesses. If and only if we could take the next step – often a bold step – to dig deeper, understand their entire business model, their financials – we could make an investment in such companies and grow along with them. 

Secrets of successful Fund Manager :

Kenneth Andrade is clearly a numbers guy.

As chief investment officer (CIO) at IDFC Mutual Fund, the key to Andrade's success has lain in being able to reduce financial data to its essentials, which then tell him what he needs to know: Is the company worth investing in or not?

"The ease (with) which Kenneth manages to break down the critical financial aspects of any company under his radar had taken me by sheer surprise when I first met him... back in 1999," said Vetri Subramaniam, CIO at Religare Invesco Asset Management, who's worked with him at Sharekhan and Kotak Asset Management. "The secret to his immaculate stock-picking is his ability to identify the nuts and bolts that drive profitability and growth of a company."

Andrade, 41, is a soft-spoken man with a calm demeanour. Those who know him well say clarity of purpose and an infectious zeal for statistics allow Andrade to cut through the maze of confusing noises on the Street.

By focusing on information rather than cacophony, he's also able to apply his metrics elsewhere and see if other companies have the same characteristics that he's looking for. His worldview reflects the investment philosophy of the IDFC fund house, which is known for its mid-cap offerings.

When it comes to mutual funds that invest in mid-cap stocks and have a consistent record, most experts recommend IDFC Premier Equity, a fund Andrade has been associated with since 2006. It's also the second equity offering from the erstwhile Standard Chartered Mutual Fund, with a net asset size of Rs 3,209 crore.

IDFC took over Standard Chartered's mutual fund portfolio in 2008. "When I came on board in September 2005, the Premier Equity Fund already had its mandate in its place. Its agenda was clear: Focus on companies which have positive cash flows, almost negligible or no debts on the books and which are dominant players in their industries," Andrade said. "We had a free hand in terms of picking companies without the constraints related to preferences to a particular sector."

These were the factors that persuaded IDFC to invest, for instance, in garment maker Page Industries, a licensee for Jockey and Speedo. "We met the promoters of Page Industries before the company's IPO (in 2007)," Andrade said. "We fathomed through our interaction with the company that here is a single-product company with a very strong franchise and never sold a product but basically sold a lifestyle."

This rang a bell for Andrade as it mirrored the characteristics of GlaxoSmith-Kline Consumer Healthcare, which has been in his portfolio since 2005 and has worked wonders for the fund. Page Industries has been part of the IDFC Premier Equity Fund since 2008. How to apply one viable idea to another industry is one of the key lessons Andrade has learnt in his eight-year association with the fund.

Apart from GlaxoSmithKline Consumer and Page, Andrade was quick to identify Kaveri Seeds, Bata India, Asian Paints and Blue Dart Express as desirable stocks using the same template. In the past three years, Page has delivered a95 per cent return, far in excess of the BSE 500's 22 per cent.

Bata India, which wouldn't have struck anyone as an attractive stock at one time, has returned 171 per cent in the past three years. So what does Andrade look for? "It is very important to focus on industries which are expected to do well and then focus on companies which best represent the factors that contribute to the success of the industry," he said.

Andrade has mastered the art of identifying quality businesses early on and knowing which stocks to ignore. For example, the fund has benefited from Andrade's deliberate decision to avoid infrastructure companies. "While we were completely focused on good balance sheet and businesses, we saw the infrastructure space was completely collapsing by itself. By collapsing, we mean any business which does not have pricing power would also not have profitability. If a company does not have pricing power, it means there is too much of competition," Andrade said. "In the infrastructure space, order book became a metric for securing attractive valuations. This took a toll on the profitability of companies which, in turn, destroyed investors' wealth."

Andrade's track record over the past few years is exemplary, with his funds having outperformed peers. IDFC Premier Equity has returned a compounded annual growth rate (CAGR) of 3.4 per cent and 25.4 per cent, respectively, over three and fiveyear periods against -1.9 per cent and 19.8 per cent average gains made by other midcap and small-cap funds during this period. That makes it one of the top 10 best-performing midcap and small-cap schemes in the past three and five-year periods.

In the past year, it has generated a 5 per cent gain against the category average of 0.29 per cent, finding a place in the top 15 best performing midcap- and small-cap schemes and bearing out Vetri Subramaniam's assertion about Andrade's skill, which has been honed over a 21-year career. Before this, he headed portfolio advisory at Sharekhan (1999-2002) and was a fund manager at Kotak Asset Management (2002-2005).

To be sure, not all his bets have hit the mark. An investment call taken on state-run banks such as State Bank of India and Punjab National Bank in late 2012 was a mistake, admitted Andrade. Once this was realised though, the asset manager made rapid exits to avoid doing major damage to the fund's performance. Another key trait is that Andrade only invests if he knows the company and its management, besides understanding the business model and having a sense of its growth prospects.

That's why he's been wary about buying into the healthcare sector, while other fund managers have been much more enthusiastic. "I don't much understand the sector and the way the stock reacts," he said. "As such there are plenty of investment opportunities even outside healthcare in other sectors that I completely understand and am comfortable with."

While IDFC Premier Equity Fund has done consistently well, it's always compared with another mid-cap offering from the same house — IDFC Sterling Equity Fund, which has a similar portfolio. There has been no significant change in the portfolios of both funds for a long time. Andrade defines the difference thus: "Sterling Equity Fund mirrors the midcap index, while Premier Equity reflects the fund's philosophy of identifying companies which are good businesses and balance sheet."

The fund house has 70 interesting investment ideas at work across its products. Of these, Andrade's team is trying to unearth scalable business models in scalable industries. In coming months, the fund's focus will also be on companies that have easy access to capital at a time when banks have been reluctant to lend, those that have a dominant presence in their markets and have the ability to grow their share each year. Companies such as Gas Authority of India (GAIL) and Gujarat State Petroleum Corporation (GSPC) fit the bill at the moment, he said.

Market Realities : Prasanth Jain - Chief Investment Officer (CIO) - HDFC Mutual Fund

Markets are at all time high again. Investors who participated by investing when market was low a couple of months back would be smiling and Investors who did not do so would be doubting the sanity of the rally. No doubt, when we are at all time high (by 21200), we might feel dizzy and jittery. Is markets really over valued. Should an investor invest now or not. What are the justifications behind the current market valuation. 

Here comes Mr.Prasanth Jain - a name to recon with in the Indian Investment World. His wisdom and strong track record of successful value investing is a great asset for every investor. Managing a fund size of more than 1,00,000 Crores, with deep insight in the market cycles, his recent interview with ET NOW TV Channel is worthy read for every investor. 

ET Now: In the last three months, we have seen all textures and shades of market action - virtual crash, fear, a comeback and a new high. So what is going on? 

Prashant Jain: Markets are always volatile in the short run and that is why we always refrain from taking very short-term calls. Markets probably overreacted to the threat of QE tapering, which is more relevant for the fixed income investments into India and less for equities. If you look at the FII flows into equity markets for the last 20 years, barring two years - the year of Pokhran blast, 1998-1999, and the year of Lehman Crisis, foreigners have been net buyers. So I remain optimistic and we are of the opinion that the worst on the economic front is behind us. Markets have rallied, but I do not think they are overvalued. They are, in some sense, where they were five years back and it is only the Sensex which has recovered. The broader indices are still about 15% below where they were at.

ET Now: At a time when earnings are not expanding, margins are compressing, GDP growth is not back on the track, is there a case for an economic bottom?

Prashant Jain: Let us de-link the two - economy and earnings. Economic bottom has been formed and I will refer to the new RBI governor who recently said that the second half should be better than the first half for three reasons - a) agricultural production is doing very well; b) exports have begun to grow and we know that textile exports and even steel exports are doing quite well; c) a lot has been done in terms of resolving the bottlenecks for large projects which are under implementation in the road sector, in the mining sector and also in the power sector. So, at some point of time, even capex would start to kick in.

ET Now: Ultimately, what the economy needs is a stable currency. It has been a very volatile and choppy ride for the rupee from 55 to 60, 60 to 69, 69 to 61. Do you think the rupee has stabilised?

Prashant Jain: From 60 to 69, it was driven by sentiments and also because of a spike in gold imports of extra $10 billion in those two months and the debt sales by foreigners of another $10 billion. That $20 billion in a matter of two months was a lot for the markets and that is what has impacted that. The worst on the currency front is certainly behind us. The current account is down to very reasonable levels this year itself. So the progress on current account has been far more than on the fiscal account and our reserves are beginning to grow. The initiatives taken by the RBI are also having a very good impact. So, I would assume that the worst on the currency front is behind us.

ET Now: But can markets go up at a time when inflation is roaring again?

Prashant Jain: Earnings have been much better than what was being built in at least by many sell-side experts and the key reason is that despite the slow economic growth, the currency depreciation has a very favourable impact on the earnings. 50% of the markets directly benefits from a depreciating currency and includes software services, pharmaceuticals, metals companies, refining companies and select automobile companies. Another 40 odd per cent is neutral - banks, consumer companies, and consumer non-discretionary. So the currency depreciation is helping the earnings, and the earnings will be significantly ahead of what they were at least at the beginning of year. So despite slow economic growth, earnings are likely to grow at a reasonable pace and that is clearly supportive to the markets.

ET Now: But the good end of the market which is growing is already price to perfection, be it pharma or IT and select consumer names.

Prashant Jain: Yes, you are right and in a way, the quality premium in these markets is high and I would agree with you that in the consumer names, the room for PE multiple expansion is not there. Probably there is room for some compression there. But IT and pharma are fairly valued. They are growing sectors and they are less susceptible to a slowdown unlike the consumer sector and therefore the PE multiples can hold up. Barring these three sectors, whatever else you look at, there is room for multiples to go up as economic conditions improve and let us not forget that inflation is a pass-through for equities. So, equities give you real returns equal to real growth rates. If inflation is high, equities will take it in their stride. Companies will increase prices and you will still get your real returns equal to real growth rates over time.

ET Now: You always believe in betting big and have a long-term approach and if I look at your current portfolio, you are betting big on PSUs in general. Why is that?

Prashant Jain: I don't think it is entirely correct to say that we are betting big on PSUs, but it is correct to say that we have higher than benchmark exposure to PSUs. We appreciate that PSUs have certain limitations because of the ownership structure. But nevertheless they are sustainable businesses. They have a reasonable  track record. So we like some of the PSUs despite the constraints because of the valuations and some of the businesses that we own in that space have a closer linkage to the economy and the day core economy improves, the outlook for these businesses would also improve.

ET Now: Some of your top holdings include banks, especially State Bank of India. Are you not worried about the slowdown in credit growth and the kind of NPAs some of these PSU banks could generate if the economy does not recover?

Prashant Jain: Well, we have undergone pain on that front already and as I said, the worst on the economic front to my mind is behind us and we have seen similar situations in the past as well that the Indian economy slows down. There are bottlenecks. The government takes corrective actions and over time the economy recovers. If the economy recovers, the underlying performance of these banks would improve and the markets will also appreciate that.

ET Now: So are you now aligning your portfolio for the next bull market because you are clearly not focussing on the consumer end of the market, you are focussing on the economy end of the market?

Prashant Jain: See, we had very large exposures to consumer and pharma over last two-three years....

ET Now: That has changed now. 

Prashant Jain: But over the last one year, I feel that with the sharp expansion in multiples in that space, the room for good returns is limited and therefore we have been reducing exposure to that space. That call has not worked very well so far, but there is merit in persisting with that view and over time it should turn out alright.

ET Now: So it that evaluation call or is that a business call because for FMCG companies volume growth also is a concern, the kind of numbers we have got from HUL, ITC, Colgate...?

Prashant Jain: Absolutely. What we have seen FY10-11, the volume growth has been way above the longer term averages and that was one reason why we were cautious on that space and we have been not so optimistic on that space. The consumer companies cannot continue to grow in isolation irrespective of how the economy is doing. So today if the economy is slowing down to 4% to 5%, it means your customer incomes have also slowed down. So your business will also slow down. But I do not think the multiples are yet suggesting that.

ET Now: You have exposure to a large oil stock. What is the logic in owning oil companies? We do not know what they will report, their balance sheet is still very opaque and to top it up we do not know the government policy which will dictate the oil sector?

Prashant Jain: I do not think their balance sheets are opaque. Yes, what profits they will achieve that is subject to variations of the government policy, that is a fair comment. But the main logic for holding on to these companies is that they are trading at a fraction of the replacement costs. They could be as low as 20% of replacement costs and these are not businesses which are going away.

ET Now: But that has been the logic for the last many years now.

Prashant Jain: Absolutely. We think the markets will appreciate the value in these businesses better when the burden of subsidy is reduced. But so far, it has not happened.

ET Now: So to your mind the big joker in the pack for Indian markets and Indian economy is not the central bank action, it is not BOJ or US Fed, it is oil?

Prashant Jain: Oil is very critical to India and we have consistently maintained that view for the last five-seven years that oil is more important to India than even the US or European GDP growth. We import oil equal to 6% of GDP. So, a 20% fall or rise impacts us far more than a 0.5% increase or slowdown in the US GDP. So it is very-very critical. At this point, again it is extremely critical because a lot has been done within. So if you look within the country, a lot of things which were not right have been set right or are being set right.

The key variable that remains now is how oil behaves and unfortunately it is not in our control. A $10 fall is oil prices will do wonders for India in terms of fiscal deficit, current account deficit, currency, interest rates and inflation. On the other hand, if oil prices were to spike up, it will postpone or put further stress on the economy. So oil prices are a key variable particularly at this point of time when we are in not a too good shape.

ET Now: India has always been known as a growth market. So to your mind in this current market, what is growing and is still reasonable? 

Prashant Jain: Virtually the entire market is growing. If you look at last four decades, the gap between India's GDP decadal growth rates and oil GDP growth rates has been very steady between 3% and 3.5%. So we are a growth economy. And one year of slow growth does not mean that you cannot come back to 7-8% growth rates. We will in the not too distant future....

ET Now: That is not a pipe dream?

Prashant Jain: I do not think so. We have been in situations like these before. I have been in these markets for now more than 20 years and I have seen at least three similar situations.

The CAD was not such a big problem on those occasions, but the economy was in a similar state and we have come out of it because the underlying growth drivers are very fundamental, very basic and very sustainable and these are not going away. So we will come back to those growth rates and when the economy is growing at decent growth rates, there is nothing in this country which is not growing, which does not have long-term growth potential. Of course, if you talk today, the car market is not growing, the two-wheeler market is not growing, but these are temporary issues because income levels are under pressure. But as things improve, things should get back.

ET Now: Everyone is gung ho about IT, you also have a decent exposure to IT, your large holding there is in Infosys. How would you judge IT stocks at the current juncture...?

Prashant Jain: We have had a good move in IT. I would not say that IT stocks in general are undervalued. They represent growth. They should continue to grow. What these companies tell is that the business environment is improving. They also have the benefit of significant currency tailwinds, but at these multiples at a broad level, if you leave aside individual stocks, room for PE multiples to go up meaningfully are not there and the risk of currency appreciating, which today most people do not expect, cannot be ruled out.

ET Now: So apart from banks, where are you allocating a disproportionate amount of capital?

Prashant Jain: We have a fairly balanced portfolio at this point of time and even in banks we are not disproportionately allocating. We are in line with the benchmark. Please remember that banks are 25% of most benchmarks. So it is wrong to say that we are disproportionately allocating there. We are somewhat underweight on the consumer and the pharmaceutical sectors and any recovery in the economy should be led by investments and not by consumption. Consumption should pick up growth with the lag and any revival should be led by investments and our portfolios are geared to that thought.

ET Now: Markets could remain volatile, markets could remain choppy, but you are a table thumping bull on the economy?

Prashant Jain: Table thumping may be a strong word, but I feel in my limited understanding that the worst on the economic front is behind us. The next year should be better.

Indian Economy on Recovery Mode, but ...

IDFC Mutual Fund expects Indian companies to show a lot more financial discipline during the fourth quarter of the current fiscal year. Banks have already written off some of their bad loans and local companies will sell non-core assets to cut debt, Kenneth Andrade, chief investment officer, IDFC Mutual Fund, tells ET's Apurv Gupta.

However, the CIO, who manages Rs25,000 crore of investor funds and is known for his acumen in stock-picking, raises concerns on political uncertainty ahead of '14 elections as a fractured majority could adversely deteriorate economic environment for a while. Edited excerpts:

How do you see the year panning out against the backdrop of 2012, which was a turbulent year?

There has been a large economic expansion in the country in the past seven years. The first leg was led by the expansion from corporate and the second leg in the last three years was led by the growth in a consumer-led economy. We have been maintaining that Corporate India will see its last leg of balance-sheet growth or the increase in balance sheet into 2013 March end. Post this, you will see companies having a lot more financial discipline. Banks have already taken write-offs and corporates will deleverage and sell non-core assets. This is similar to 2000. We have come a full circle and are seeing a rewind. This could be the beginning of a new cycle.

Do you think that there is lot of nervousness on the political climate and policy deadlock which is scaring away investors?

Ahead of the elections in 2014 it is not surprising that the environment is uncertain. There is no political consensus and a fractured majority could adversely deteriorate the current environment for some time. But the latest round of events on FDI and attempts to lower subsidy are all in the right direction. As long as the longer term direction is to move to a market-driven economy with some level of subsidization, as a country we should pull it through as the economy tiers upwards in growth. Earnings growth, which is a rarity across the world, is something of a given in the Indian economy which has gotten investors' attention worldwide.

How are you positioning your portfolio in that case?

We are expecting this year to be a reasonably stable. There does not seem to be any one large macro event outside or internally which will disrupt the entire environment. So, the focus will be back on to earnings growth and the deleveraging of corporate and the economy. We will expand this part of our holding given the fact that cash flows will materialise on the system, balance sheets will stop growing and you would have some part of a capacity actually getting utilised.

So do you think that a large number of infrastructure projects stuck for want of funds and approvals taking-off this year?

We feel that infrastructure will be a stable sector from here onwards. There are several reasons for this. First, there was this execution issue. Many people said that Indian companies will not be able to execute large projects. However, that was resolved as many companies showed their competence on that front. The second issue is fuel supply. The supply is available but the issue is to negotiate and resolve. The third factor is that the price cannot be passed on to the end consumer. However, that, too, will see a resolution in the next two-three years. While this was not the case so far, states have now started passing on the cost to the consumer. So, most of the projects that were unviable as the cost could not be passed on to the consumer will become feasible.

What segment or space are you particularly bullish on?

We are positive on public sector companies, especially, from bank and power sectors. Most of our funds are drawing down their exposure to FMCG and pharma space due to stretched valuations. Most of these PSUs have survived many cycles and proved that they are as efficient as any other private sector company. They have several natural advantages in terms of their reach and distribution. Most of the PSUs have huge cash reserves and are not leveraged. Most of them are available at attractive valuations. For instance, companies in the utility sector like power and gas have been expanding their capacities in the past few years. The balance sheets are strong. All this while the stock is trading at historical low valuations despite many of these companies enjoying a sort of monopoly status in their segments. We believe it's a compelling place to be in. In case of PSU banks, the most talked about issues like NPAs, will be resolved in the next 2-3 years.

Apart from political uncertainty, there are macro-economic concerns like ballooning fiscal deficit. Do you think that will keep the investors on the edge?

The key risk continues to be the uncontrolled fiscal deficit to which there is still no answer. The recent events have changed that sentiment quite significantly. It is left to be seen if the same can be implemented in the spirit in which it was announced. A lot of this pessimissim is captured in the valuations of the market. Valuations are comfortable, corporates look like they will recalibrate their balance sheets towards a low debt: equity structure and this will make investing in corporate equity more attractive. So while at a macro level there are significant unanswered questions, at the micro level corporate business models are beginning to look attractive.

GEM Theory by Raamdeo Agarwal

Is this the Right Time to Invest in Equities : YES Says Reliance MF Head

Practical side of Rakesh Jhunjhunwala

"I advise people that they must put some part of their wealth into equities, but very few listen to me" says Rakesh Jhunjhunwala.

In an interview with Nargis Fakhri on ET Now, Big Bull Rahesh Jhunjhunwala shares his views on market and his success story as an investor. Excerpts:

Nargis Fakhri: I will start with asking you how did you become the most successful investor?

Rakesh Jhunjhunwala: God's grace and elders' blessings.

Nargis Fakhri: So I heard that you started off with a small amount of money and then you created such a massive amount. Do you really think that was God's grace or do you think that you studied a lot?

Rakesh Jhunjhunwala: It could not have come without hard work and ambition; I would say the ability to face failure and doing things in a rational manner and always using the right means for the ends. I believe I may not get my hands where I should never change my means and finally God's grace and elders' blessings.

Nargis Fakhri: Do you have an obsession with money?

Rakesh Jhunjhunwala: I do not think so because I am essentially a middle class person and I have far less wealth than people think, but far more than I need. I have a very simple wife. Only the hunt is more interesting than the kill.

Nargis Fakhri: That passion and drive; is it for money or actually now you said it is the hunt?

Rakesh Jhunjhunwala: It is not that it is not for money, but it is not primarily for the money as well. Somebody has said it is a difference of opinion which makes market interesting. You say A, I say B. I feel very happy when I am proved right and my opinions are fortified or are reflected by the market. I told you the markets are very interesting, like women, always demanding, mysterious, uncertain, volatile.

Nargis Fakhri: I want to know some secrets or some tips but I am not sure if you can give that.

Rakesh Jhunjhunwala: I have to say tips are hazardous for health. You cannot make money on borrowed knowledge. But if you invest some part of your money in the stock market, I'll surely help you.

Nargis Fakhri: It is not like you can tell a layperson to read some books and they might get an idea. You would not gain all that knowledge just like reading few books.

Rakesh Jhunjhunwala: I inherited no money from my father. Of course it was all his blessings. So I had no money, but I got the capital to trade. So I do two activities -- trading and investing. Trading is extremely difficult and 1 out of 5 million is successful in that.

Nargis Fakhri: I do not know how old you were when you took that amount that you did and invested like your first investment.

Rakesh Jhunjhunwala: No, I came into the stock market when I was 25.

Nargis Fakhri: Really. So before 25 and before your first investment, you were already into learning, studying and trying to understand?



Rakesh Jhunjhunwala: Yes, I used to look at stocks from the age of 13.

Nargis Fakhri: And who got you into it?

Rakesh Jhunjhunwala: Well, my father was interested in the stock market and at a young age when some were interested in sports, some in being doctors and some in being journalists, all I was interested in were girls.
Nargis Fakhri: I saw that India was doing really well. I do not know if that was a golden period or is the golden period coming. How do you see the markets; explain it to me, I am a layperson, I do not really understand.

Rakesh Jhunjhunwala: The prospects of Indian stock market depend on the prospects of the Indian economy and I believe that India's growth is inevitable. We are having some kind of a correction and India's chaos is organised chaos.

It is a talented society, multi-cultured. We have the most favourable demographics in the world and we have good skills and entrepreneurship, and all this cannot be reversed. So I am very bullish on the market. The golden period is still ahead of us.

Nargis Fakhri: I have also noticed like western companies coming into India, does that help to increase the market value as well?

Rakesh Jhunjhunwala: India has got a large population. Indians consume a lot. All western companies want markets. How many burgers will McDonald sell to Americans? So they need new markets and that is why they come in and they add to economic prosperity. It is a win-win situation both for the country from which they come and for the Indians.

Nargis Fakhri: Yes, companies like Walmart are supposed to come here?

Rakesh Jhunjhunwala: Yes.

Nargis Fakhri: Why are you bullish on retail investments?

Rakesh Jhunjhunwala: Because India is a very large retail market and a very small part of it is organised. Retailing business in India is $400 billion today. By 2020 it is supposed to be $1.2 trillion, and the shift to organised retailing is going to be big. So it is a big opportunity.

Nargis Fakhri: I found out that only 3% of Indians are invested in Indian stocks, which is less than the global average. So does that mean that people outside of India are investing in Indian supplies?

Rakesh Jhunjhunwala: There are a lot of Indian institutions, insurance companies which I invest in and a lot of money is coming from abroad. We have foreign institutional investors.

Nargis Fakhri: What is your advice to Indian investors?

Rakesh Jhunjhunwala: I have always been advising them to invest in India. When people ask me why don't you invest abroad, I say when the food at home is so good, why eat outside? I advise people that they must put some part of their wealth into Indian equities, but very few of them listen to me.

Disappointing to see Indian investors preferring gold and real estate over equities: Madhusudan Kela

In an interview with ET Now, Madhusudan Kela, Chief Investment Strategist, Reliance Capital, talks  about the factors influencing the markets and his trading bets. Excerpts: 

ET Now: You believe in three things -- bet, but bet big, always look at the size of the opportunity and buy company which has some kind of an competitive advantage. 

Madhusudan Kela: When I hear all these debates about bear markets, actually I now start closing my eyes because to my mind, this market provides such wonderful opportunity and it has provided such wonderful opportunity in the last three years. Actually, the job of an investor to my mind has been easy in the last three years than it was in the bull market because in the bull market, to make money, you are taking disproportionate risk.

So to answer your question, these companies will be there in plethora of sectors. I would hate to pick one sector. This is a 20-year learning. Just to illustrate the point again, auto sector has been going through a tremendous upswing in the last four years. You analyse the performance of all auto companies and the answer will lie there. If you invested in Eicher Motors versus in Escorts, just to name a company, there would have been a disproportionate difference in returns. So I am saying let us not pinpoint a sector. I told you the last time we interacted that there are two strategies -- touch me and touch me not. So from those touch me not areas is where we will have to pinpoint investing areas.

ET Now: Real estate is one touch me not which you are able to touch. 

Madhusudan Kela: Yes, but not the sector as a whole, but a few companies in that space. 

ET Now: Why do you like banks? I would imagine that when you say banks, the PSU banks are part of the touch me not category? 

Madhusudan Kela: Again, I would not categorise it fully. There are some PSU banks which may have gone through tremendous amount of restructuring... Sorry to digress a little bit, but one big thing which I have learnt as an investor in the last 20 years is people get biased positively or negatively. When they get biased negatively, they just close their eyes to any opportunity which is arising and when they get biased positively, they are unwilling to listen to any negative news. 

As an investor, I have learnt this -- never be biased, never close your eyes to any opportunity. So today when you tell me PSU banking space is a sector which will not be looked at, I will never ever consider that. I will again be in a look out mode within the PSU banking sector, i.e. which is the bank which has done aggressive provisioning in the last two-three years, which is the bank which is ready and which has relatively cleaner portfolio. So whenever that cycle turns, maybe that bank will lead this time versus the other banks. So there will be stock specific opportunities in all these sectors.  

Diwali 2012 : Interview with Rakesh Jhunjhunwala

The market is gradually revving up for a bull run that could take off in about 14-15 months time, feels Big Bull Rakesh Jhunjhunwala. He is betting on inflation, and commodity and interest rates to ease hereon. And contrary to popular opinion, Jhunjhunwala expects the 2014 general elections to throw up a strong reformist government.

"We will get a far better government in 2014 or whenever the elections are held, than what people are anticipating," he said in an interview with CNBC-TV18.

"Whichever government comes in, will have to take right decisions even if it is fragmented. I feel we will get BJP-led government and if Mr Modi is made the Prime Minister, I am told he is going to be BJP's prime ministerial candidate, we can have some good work very soon," he said.

On the stocks in his portfolio, Jhunjhunwala is bullish on the long term prospects of Lupin, Praj Industries and Nagarjuna Constructions. And while there have a few disappointments like A2Z and Hindustan Oil Exploration, Jhunjhunwala says he has no regrets since the outperformers have more than made up for the laggards.

Below is an edited transcript of Jhunjhunwalas exclusive interview on CNBC-TV18.

Q: Are you feeling more relaxed and bullish than you were on Diwali last year?

The uncertainty has not gone away, I do not know why. Looking at the screen, price movements of stocks; they are gaining, correcting and again going up. The kind of pessimism that we have and the way the market is gaining! We are at the peak of the interest rate cycle surely. I am bearish on commodities. We have made some kind of a bottom which will not be violated easily; it could be in the start of early bull market. In 2001 September, the market bottomed, but took off after 2003 March. So the real kicker in the market could come after 14-15 months but we could have bottomed. This is a feeling I get, of course I do not see the kind of rise we saw from 2003 to 2007 immediately, but we could have bottomed. It could be an early start for a good market.

Q: You gave the example of 2001 and 2003. What would convince you that we are in a phase like that and a bottom has been formed? Do you think over the next 12-14 months some of the data points will take off once again from here as in 2003? What would you expect to see over the next 12 months from the screen?

First, fall in commodity prices or a fall in inflation. We can surely call it a peak of interest rate cycle and then can have some aggressive correction of interest rates. Second would be some of the resolution or problems, better growth in America, a resolution to the European problems, Greece problems etc. But, most importantly there is an indication of a strong government in India in 2014. In 2014 we are going to get a good, strong reformist government.

Q: If a lot of people believe that it will come in the way of a progression for this bull market then the election uncertainty will actually become more pronounced after 2013-14 with the formation of a government that is fragmented. Do you think it will actually work out in favour of the market?

Yes, because the Congress and the Bharatiya Janata Party (BJP) constitute majority. There are certain regional reasons why someone like Mayawati will not join a government in which Mulayam is participating; Jayalalitha will not join a government in which ADMK is participating. So we have those reasons where Congress and BJP together have a majority or a near majority. Then there has to be a government supported either by the Congress or by the BJP. Also, the fact today is that people are voting for those who are bringing growth and development; it is one of the most important developments. It amounts to maturing of Indian democracy. So, we will get a far better government in 2014 or whenever the elections are held than what people are anticipating. Whichever government comes in, will have to take right decisions even if it is fragmented. I feel we will get BJP-led government and if Mr Modi is made the Prime Minister, I am told he is going to be BJPs prime ministerial candidate, we can have some good work very soon.

Q: What about earnings. You gave me the 2003-2007 example but their earnings trajectory was strong. Do you see the combination of circumstances over the next three-four quarters where we can have a launch pad for the next three-four years in terms of earnings acceleration or are you apprehensive on that score?

We wont have a ferocious bull market, but earnings growth in India can rebound to 20 percent. We had three years of 10-12 percent growth and reduction in interest rates. This in itself will be a big factor both for higher earnings and revival of the investment cycle. People will anticipate that with the revival of the investment cycle and a lot of companies' earnings will go up.

We are not sure about 2001 in terms of the interest rates, inflation or spare capacities with companies. But power companies are unbelievably leveraged. If things turnaround, they can get coal then they can be very profitable and consequently, there will be a big effect of increase in electricity production in India.

Q: How your own portfolio has done since last Diwali? Looking at your set of stocks, Titan and Lupin feature prominently on top of the list once again. Are there some pockets in your portfolio about which you are a bit disappointed at how they have turned out in the last one year?

I do not review my portfolio in that matter on a year to year basis, but within the portfolio Titan Industries and Lupin are very large. They are a large part of my portfolio so, if they do well everything is well. I am disappointed with how Hindustan Oil Exploration Company (HOEC) has performed.

Geometric has performed well. I am extremly disappointed at the way A2Z Maintenance and Engineering Services has performed. So, there have been some hits and misses, but the hits have been in the largest part of my portfolio. So I am happy, I have done quite well.

Q: You have been a long-term holder of Lupin and you have picked up other stocks in the pharmaceutical space. Last year or a year before that had you picked up Orchid. Are you disappointed that other stocks that you have picked from the pharmaceutical sector have not turned out to be the kind of right that Lupin has given you?

I was extremely disappointed with Orchid Chemicals and Pharmaceuticals. I have already sold it. So, Lupin is the only pharma stock, which I have in my portfolio, but I have a large commitment.

Q: Have you been examining other stocks in that space of-late? A clutch of other midcaps like Glenmark Pharma, Divis Laboratories, etc have also been doing very well, almost as well as Lupin has. Is that a place where you have been sniffing around for another good deal?

A: No. I have large investment in Lupin. I have large investment in a pharma company, which is only invested in Ahmedabad and it is doing very well. Therefore, out of choice I have not bought any pharma stocks. I am very confident on the long-term performance of Lupin.

Q: How long will it take to review this investment cycle because some of these bets like A2Z, Punj Lloyd, Praj Industries have tested your patience. When do you think the investment cycle will start getting galvanized and some of these stocks will start doing well again?

I have already exited Punj Lloyd. Even if I have such large investments, I cannot sell them in a bad market. Praj is trying to do some pioneering work on use of grass and other non-agricultural based raw material for ethanol production. Praj has really not done badly, but I agree, price-wise it has not done well. It could be an out-performer in time to come, but it could take a year or two.

Q: The biggest star in your portfolio remains Titan year-after-year, but some other consumer stocks that you have picked like VIP Industries have not quite had the same kind of sheen. Why do you think?

VIP has been affected by a number of reasons; about 30 or 35 percent of VIP sale was through central stores department and the central stores department has now stopped the purchase of a lot of goods. It was also affected by some price competition from Samsonite. We import 80 percent of goods from China and that was affected by the rupee depreciation. However, I am confident that in the time to come, VIP should do well.

Q: You were asking me about the other stock in the infrastructure space. I mentioned Nagarjuna Construction. When do those kinds of stocks start doing well? How long will it take for the investment cycle to get restarted?

A: The bigger problem with the investment cycle is interest liability. If Nagarjuna can reduce its interest liability, which it is making an effort to do by selling some of the BOT projects, they will do well. I must disclose here I am a shareholder and director of Nagarjuna Construction. I have bought shares in the last three months. I am bullish on Nagarjuna personally. It may take two-three years to revive, but the rewards after that will compensate for the waiting.

Q: Any new sectors that have come on your radar of late whether linked to consumption or infrastructure? Anything on which you have not taken big bets in the past?

A: Yes, I have taken a big bet on media which is TV18 its a fairly good bet. I have made an investment in United Spirits, Rallis and Nagarjuna Constructions.

Q: That must have made your Diwali, United Spirits closed day before the Muhurat at more than Rs 1,800, what price did you get in?

A: Let us not discuss the details of my trades, but I can tell you one thing that I have never seen such a price movement in my life. I am reminded of Harshad Mehtas days.

Q: Largecap stocks are not in the habit of moving 35-40 percent in a single day. Does that stock movement make you a little nervous?

A: It may lose 10-15 percent. I am now buying all stocks with 2020 in mind. So, it is okay if I may lose 5-10 percent, what difference does it make?

Q: What convinced you about media because that is a segment where you have taken small bets in the past, but not very significant? Why do you think the story is different this time?

A: Getting news channels now will be extremely difficult. It is a high fixed cost business. So if revenues go up, profitability goes up disproportionately. Thirdly, this whole game of carriage and digitization will change the entire picture for the industry.

After all TV18 is the leader in news and Colors, so the amalgamation of the entertainment channels will make it the second or the third largest media play in TV segment.

Q: You said markets may have bottomed out. You have been speaking earlier about the big bull market in India, you would be surprised if this turns out to be that one?

I give that a 20 percent chance. If we have the right government and the right policy reforms, India will grow double digit. I have no doubt about it.

Additionally, today equity is a bad word. What is the exposure? I think exposure of the household to Indian equity is at the lowest. There is no pension fund investment. India saves USD 750 billion a year. Even USD 1 billion does not come to markets.

I am extremely confident of Indias future because what is happening is good. The Supreme Court is working perfectly, there are civil activists. So, if anything wrong is being done, there are people who are questioning. That is what happens in democracy and that is how a democracy will mature.

Q: So when you say the market has probably found a bottom, did you mean that the market bottomed out in June at 4,700-4,800 or do you think we have a much higher floor on the Nifty right now, maybe say even 5,400?

Because of the uncertainties, which are involved, 4,700-4,800 is surely a bottom. I feel that if nothing untoward happens, it will not test that again.

Q: What about the global situation? We have got USD 20 billion of FII money and that is an important reason why the markets moved higher. Do you see that part of the equation being in place, the global liquidity aspect or does that make you a little nervous?

No, it doesn't make me nervous. I think China is never going to go more than 7-7.5 percent because the kind of investment they want to make in fixed assets is just not going to be sustainable. I think America will do well and eventually Europe will break down. Atleast, some countries will go. Greece will go.

One of the reasons that a lot of money is coming to India is because people perceive that India is at the highest end of the interest rate cycle and if inflation was to come down, it will make a very big difference. India's GDP is not lopsided. We are 57-58 percent of consumption, 15 percent of exports/ balance of investment. Unlike China's economy, the whole breakdown in Japan in 1999 took place because of over investments. Japan also invested 45-47 percent of its economy into fixed assets.

Of course valuation in China is not what was there in Japan. If we Indians get our acts together, we have a chance of outperforming the world. And there are also indications that India is one of the few assets of any substance, which is higher than on the day when QE3 was announced. So, the liquidity effect after that also most assets have lost. It is not just that global liquidity is good. That may be one reason, but people also expect that India will do well.

Q: Any thoughts on gold, would you buy it today?

Some part of our wealth should be in gold or diamonds, on non-stock market assets. I think we should keep some part.

Q: But you do expect that, at some point between this Diwali and next Diwali the market will make a new high on the index?

A new high means nothing according to me. Markets should make a new high, go at least 10 percent above and never go below the last high. Say we have 6,200 on Nifty as the high, it should go to 6,800-6,900 and not come below 6,300-6,400. So, new highs are not so important in index. But ofcourse they are also an indication that markets are good.

Q: What percentage probability would you attach to the event that you just described that the market may take out its previous high by 10 percent and come back and retest it but not break it?

If the market likes the government, it will do it 100 percent.