Edited excerpts from a discussion with Rakesh Jhunjhunwala, Partner of Rare Enterprises, on India’s growth, equities market, politics and privatisation plans.
The international monetary fund expects India to be the fastest growing economy in the world in 2018, racking up growth of 7.4 percent. What are going to be the drivers of growth?
Jhunjhunwala: I have a very simplistic theory. Indians have skills, Indians save money, India is in the most favorable time of its demographic evolution. God is not so bad that he will give oil only in the sands of Saudi Arabia and not in Rajasthan. So, we have everything that is required for growth.
And there are going to be ups and downs in those paths, but I think we are only talking of the short-term pain that GST [goods and services tax] or demonetisation, or Jan-Dhan or Rera [real estate regulation and development act] or for that matter the insolvency law is causing us. We are forgetting the longer-term gain, and I think this is all going to come together and I think after this the main reform that remains is the sale of public sector and the liberalisation of labor laws which I think if Prime Minister Narendra Modi wins the 2019 elections, inevitably happens.
So, for me as an Indian and calling me a good bull, a bad bull, a fat bull, whatever, but by going bullish if people had followed me, they would have benefited. I think anything below double-digit growth for India is a disappointment. It requires patience. It will take time but we are getting there. It may sound incredulous today, but it’s going to happen and I think it’s going to happen in the next three or four years.
The Indian stock market has had a big run-up and the valuations are high. Has it got ahead of itself?
Jhunjhunwala: My argument is that if India is to grow 12 percent to 14 percent nominal, corporate earnings will grow at 18 percent, 1.25 to 1.5 times normal GDP growth. Now it is such an underinvested country. Your $600 billion of savings, this is going to go to $1 trillion. We have set up the mutual funds, the regulation and the methodology. We settle – today if you sell shares in India you will get your money faster than the New York Stock Exchange, right? So, I see hoards, hoards, hoards, and hoards of Indian money coming.
Where do you think Sensex will end next year?
Jhunjhunwala: We can predict the direction, not the depth. See, if I have too many drinks and I come home I know I am to get a firing from my wife, but how much I don’t know.
The market is assumed that 2019, the BJP [Bharatiya Janata Party] will win the elections and in 2018 this will be a big topic. I am of the opinion they will, but there may be different opinions.
Except the political climate, interest rates worldwide, I don’t think anything is going to really affect the Indian markets and the flow of money and I think earnings are going to be far higher than people are expecting, right? But the dilemma is that markets will not grow as much as the end of this year, because the increase in earnings may be silently anticipated by the market and remember the market is a discounting mechanism.
With the $32 billion bank bailout, do you think banks will be in a position to grow and help to supercharge the economy?
Jhunjhunwala: I think the first aspect was recognition of the NPAs [non-performing assets]. The re-capitalisation money is also available. Only thing I think the resolution part [of the loans], is still something which is – whether it takes 6, 9, 12 or 18.
Are we going to see sufficient reform of the way banks are governed to ensure that we don’t repeat past mistakes?
Jhunjhunwala: That will change once you sell the PSUs [public sector undertakings]. If you sell the banks and you bring the public holding below 51 percent, then the norms or the ability of the state to appoint chairman will go away.
See all the politicians know that has to privatise ultimately. Only thing is they don’t want to talk about it. They have agreed to do Air India, they are very serious about it. So ultimately – see, it’s not a question of if, the question is when. If this government comes back, I think it will happen in the next term.
How much should we worry about the polarisation of views in India?
Jhunjhunwala: Tell me one thing, we are a nation of 130 crore [1.3 billion] people, right. I mean if there is to be some communal violence, not that it is desired – if two, three, four, five, people die, is it going to change the course of this nation? Or do you think that the democracy or the courts will be overruled? I don’t think so. So, Indian democracy is too deep-rooted. Don’t forget from 1988 to 2013, we had no single party in power in parliament. Still, every institution of democracy, whether the supreme court, or the army, or the reserve bank, or the comptroller and auditor general worked perfectly. So, I think nothing is going to happen, the fear is baseless and it’s blown up, blown up beyond proportions.
What do you think about crypto-currencies?
Jhunjhunwala: Crypto-currency. This is a new tulip. It will be 200 years later as the madness of this century.