Annual equity returns from Indian stocks will be about five percentage points on top of the economic growth of 7%-10% in coming years, according to billionaire investor Rakesh Jhunjhunwala.
Known locally as India’s Warren Buffett due to his penchant for equity investing, Mr Jhunjhunwala is counting on the nation’s potential for long-term growth and political stability to fuel further gains in the $3 trillion stock market that’s already been hitting record after record this year.
His bets range from banks and health insurance — which he says will be boosted by the pandemic — to a broad consumer rally on the back of Prime Minister Narendra Modi’s policies to give every Indian a home and access to clean water.
“We are in the middle of a bull phase which will last for a very, very long time,” Mr Jhunjhunwala said in an interview earlier this month. “India will also look lucrative when the U.S. Federal Reserve begins to withdraw stimulus, but there will be short-term disruptions.”
Long-time observers of Mr Jhunjhunwala, also known as ‘Big Bull’ in India, wouldn’t be surprised by his forecasts. Rich valuations and rising concern that the Fed may soon begin winding down its stimulus have done nothing to shake the confidence of the investor, who has in the past said his strategy of picking stocks early in a growth cycle is inspired by US billionaire George Soros and Hong Kong investor Marc Faber.
Mr Jhunjhunwala’s comments come as local shares have continued to climb despite a deadly wave of the coronavirus that hurt the real economy, rendering people jobless and denting consumption. India’s central bank warned in its annual report last month that the surge in local shares “poses the risk of a bubble.”
“The Reserve Bank and others were worried even when the Nifty was at 8,000 points,” Mr Jhunjhunwala said in a video interview on June 3, referring to one of the country’s key gauges that’s now heading toward an unprecedented 16,000 level after having almost doubled since the end of 2015.
Only two events would be significant enough to make him wary about India’s prospects, he said. Political instability — which he says is unlikely for now given his expectation that PM Modi will stay in power at least through 2029 — and any antagonism from India’s nuclear-armed arch-rival Pakistan.
The Nifty 50 index has risen 12% so far in 2021, outperforming the MSCI Asia Pacific Index by about nine percentage points. The Indian gauge is trading at more than 20 times its 12-month forward earnings estimates, versus a five-year average multiple of 18, data compiled by Bloomberg show.
A record pace of gains, extreme breadth (95% of stocks are above their 200-day moving average) and penny-stock mania could point to a near-term pause in Indian equities, yet “we continue to be structurally positive for the long term,” Bloomberg Intelligence strategists Gaurav Patankar and Nitin Chanduka wrote in a report earlier this week.
Mr Jhunjhunwala, 60, developed a childhood fascination for stocks by watching his father, a retired tax commissioner, juggle market investments, he said in an interview with Bloomberg News in 2005. After graduating with honors from Sydenham College of Commerce and Economics in Mumbai, he borrowed $100 from a brother-in-law in 1985 and began buying shares at age 25.
New money will only fuel further gains in key indexes, Mr Jhunjhunwala said, with a large photo of the BSE Ltd., Asia’s oldest bourse, visible in the background. The Reserve Bank of India sees the region’s third-largest economy expanding 9.5% in the year that began April 1.
A custom index of the billionaire investor’s top 20 stock holdings as of end-March has rallied about 85% over the past year, according to exchange data on shareholdings compiled by Bloomberg. That’s versus a 50% jump in the Nifty 50 gauge during this period.
Mr Jhunjhunwala has an estimated net worth of $4.6 billion, according to Forbes.
A Mumbai resident, Mr Jhunjhunwala also invests through his firm Rare Enterprises Pvt. that derives its title from the first two letters of his name and that of his wife, Rekha Jhunjhunwala. He declined to comment on individual investments citing local regulations and Rare’s own policies.
One of his early successes was Crisil Ltd., which he first bought in 2002 at 150 rupees apiece. S&P Global offered 775 rupees a share in 2005 to gain control of the Indian firm. Crisil is now at around 2,882 rupees, and Mr Jhunjhunwala, along with his wife, owned about 5.5% as of March-end, data compiled by Bloomberg show.
Mr Jhunjhunwala wasn’t always a bull. He said he made ₹ 40 crore ($5.4 million) shorting stocks during India’s first billion-dollar financial scandal, which erupted during the heady days of economic liberalization in the early 1990s.
Back then, a broker, Harshad Mehta, had funneled money borrowed from banks into equities on the BSE, pushing up stock prices. When the $2 billion fraud was discovered, it caused a market crash. The Securities and Exchange Board of India was created in the aftermath of the scandal, and millions of millennials have since roared in as retail investors.
“I have complete faith in markets,” Mr Jhunjhunwala said. “All my money is put into equities. I haven’t invested anywhere other than the equity markets.”