We attended the Morningstar Investment Conference, 2012 held in Mumbai on 1st and 2nd of November. It was a really great opportunity to listen to and interact with stalwarts from the Financial Services industry and we were not disappointed. Like many others, we were eagerly awaiting for the panel discussion on the topic ‘Stock Markets – Where to Invest?’ – thanks largely to the superstar participants. The panel included heavyweights of the industry like legendary investor Rakesh Jhunjhunwala; Madhusudan Kela, Chief Investment Strategist for Reliance Capital Ltd; Andrew Holland, CEO of Ambit Investment Advisors and Sanjoy Bhattacharya, Managing Partner of Fortuna Capital.
The discussion started off with Jhunjhunwala expressing his scepticism about the western world. “There is a lot of optimism about Europe and America that markets will make new highs. I am a little bearish on the Western world because I think the macroeconomic circumstances are not those in which new highs are made. There are challenges due to debt, demographics and Europe”.
This combined with an expected fall in commodity prices make him bullish about India. “I think that there is going to be a big fall in commodity prices. From the commodity bull market that started in 1997 or 1998, I think it is either the end of the bull market or we are going to go in for a very severe correction. So, I think these indicators are extremely bullish for India.”
Jhunjhunwala also mentioned that other pluses for the India Story were a strong central bank and balanced growth driven by both consumption and investments. All these things made him believe that the mother-of-all bull markets is ahead of us. “We had so much pessimism (on Indian stocks and economy) during June-July. Equity was a bad word and there was extreme pessimism. There was no faith in equity,” Jhunjhunwala said, pointing out that usually such extreme fear eventually leads to the beginning of a bull market.
As far as returns are concerned, he felt 15% returns were a given in the Indian stock market. Add to this another 2% by way of dividends and you can get 17% tax-free returns every year over the long term. Personally, he has a target of 18-24% returns and if the mother of bull market happens this could even go up to 30%. Jhunjhunwala is bullish on “India-centric” companies, be it media, which will benefit from digitisation, or infrastructure and banking. He mentioned that real estate sector too presented opportunities but the biggest problem in real-estate is that there is “no price discovery”.
Madhusudan Kela talked about the biggest problem with Indian investors which was their heavy investments into gold and realty. He felt that irrespective of the state of the market, there was a bull run going on for the past 2 years in some stocks. “I can tell you that 50% of the market is in a bull market since last two years. If one just leaves aside this obsession about where is the index going and where Nifty is going, there is a great bull market going on. I have never enjoyed investing as much as I have enjoyed it in the last two years,” he said.
On the sectors that will benefit over the next 3-5 years, Kela said a sector-specific approach might not help investors, as there are ‘hazardous’ stocks in every sector. “Blindly selecting stocks in a sector will not do any good to investors.” He said there were good quality stocks in the real estate sector, where the balance sheet is much better than 2008 and prices are 80 per cent cheaper.
Andrew Holland, chief executive officer of Ambit Investment Advisors, said he was a bit sceptical and was not sure if we are in a bull market, though he expects the benchmark indices to give 10-15 per cent returns in 2013. He said the global environment is difficult and investors in the US hardly made any money over the past 10 years. A big factor to watch out for is the change in leadership in China, he said, adding that the Middle Kingdom can change the world.
Sanjoy Bhattacharya also weighed in his thoughts about having a stock-specific view rather than taking sector specific bets. He agreed with Jhunjhunwala about dividing stocks in 2 types: stocks of mature companies which can give stable growth and stocks of high growth companies. He talked about how opportunities for Indian investors have increased manifold in today’s times. Going ahead, he was optimistic of financial services firms and PSU banks.
To summarise, the panelists felt that now was a good time as any to invest in stocks for the long-term. However, one needs to be selective and get the right stocks at the right price.
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