Rakesh Jhunjhunwala at CII - Sensational Sensex - Retrospect and Prospect

Stock markets in the country will remain bullish in the long run but with intermittent downtrends as they are facing now, according to equity investor Rakesh Jhunjhunwala.

"I strongly believe that India's economic growth is based on structural factors and not on cyclical factors. I see no reason why the stock markets cannot remain bullish," Jhunjhunwala said at "Sensational Sensex-Retrospect and Prospect," as part of the Thought Leader Lecture Series, organised by CII, Hyderabad Chapter here.

Jhunjhunwala said his predictions were based on factors like strong economic growth, superb corporate performance, huge under-exposure to equities, growth in financial savings and tectonic shift of investments from the western world to emerging markets like India.

The only problem is to predict how frequently and for how long would markets experience bearish trends, he added.

Terming the Sensex as "sensational", for the kind of returns it has offered investors over the last 29 years, he said no other investments on any sector would have given about 18 per cent compound return on investments per annum for the last three decades as the Indian stock markets have.

He pointed out that India enjoys certain growth enablers such as its culture of tolerance, educational base, skilled individuals, economic factors like a well-developed entrepreneurial class, vast natural resources, strong resilience, strong democratic foundations, secular fabric, young population and finally its nuclear power.

All these would definiely catapult the sensex in the coming years, he added.

The Indian stock market is a function of the country’s economic growth, return on equity and return on capital employed, said Mr Rakesh Jhunjhunwala, Partner, RARE Enterprises and eminent equity investor.

Delivering a lecture organised by Confederation of Indian Industry titled ‘Sensational Sensex – Retrospect and Prospect’ he said: “Also, infrastructure to attract local money, growth of the Indian financial savings, correction of Indian under-exposure to equities are some of the other factors that will drive the markets,” he said.

He said the movement of the Sensex from 3,000 to 21,000 over a five-year period (2003-2007) and now back to 14,000 was no mean achievement.



“In this entire journey, we have had a few significant price-wise corrections but almost no time-wise correction. This is the first significant time-wise and price-wise correction being witnessed,” he said.

Analysing the genesis of the Indian downturn, Mr Jhunjhunwala said, until now we have had three bear markets. “In April 1992, the peak PE was at 63.1 per cent and we have the scam of Mr Harshad Mehta, then in 1994 we peaked at 42 times the earnings, then in December 1999 we peaked at 30 times the earning and had the Ketan Parekh scam. In 2008, we peaked at 21 times the earnings with no scams. While there was euphoria and mania, this time we have peaked at a far more reasonable valuation and are still below peak PE levels of the past,” he said.
Factors to watch

According to Mr Jhunjhunwala, the key factors to watch for are the US economy and world slowdown, global financial system stability, commodity prices, local and global inflation. “Also political elections, the performance of the Indian IT sector, base forming patterns in equity indices and Indian and foreign fund flows are other key factors to watch for the markets,” he said.

He noted that the aftermath of the 25-year-old US bull market cannot be pretty and the end of the easy money era in the financial markets will shake many out of complacency.