Rakesh Jhunjhunwala’s portfolio: Rakesh Jhunjhunwala admits he was wrong about pharmaceutical stocks

There is chatter among many global brokerages that Indian markets are trading at a premium to other emerging markets…

So they sold Rs 1,37,000 crore and that was absorbed. They are not God. They sold and what happened?

You have always told me that domestic investors will come back and they have come back. Are they here to stay? Is this asset allocation changing?
People said eight crore demat accounts were open. What about 80 crore? In the coming times, India will have $2-2.5 trillion in savings. Where will he go?

Is this just the start of what you might call a shift in asset allocation for Indian investors, in your opinion?
There are four ways to save: real estate, jewelry, our own business or our financial assets. The percentage of investments invested in financial assets will increase significantly, savings will increase significantly, and the share of financial assets coming to stock markets will increase significantly. So it will be a big blow.

The Indian market is trading at a premium to other markets. Is it justified?
But we were still trading at a premium. Japan at the bottom also had a higher PE than America. We therefore always trade at a premium.

Also Read: Besides IT, I’m Bullish on Metals, Infrastructure and Hospitality

Is there any reason to believe it will only stay that way because of profits, corporate governance, government policy?
The day we reach corporate profits of, say, 8% of GDP, they will contract.

Rakesh Jhunjhunwala at the onset of Covid said, “I am a very, very, very happy investor in the Tata Group of Companies.” Some of these companies have seen a remarkable turnaround, be it Tata Motors, Tata Consumer and even Tata Communication. Is this once a depressed revaluation for the Tata group of companies?
I can’t answer this question if it’s behind us or ahead of us, I’m very bullish on the fair price. I still think the journey is long.

Tatas is trying something very interesting; they are becoming very important in the chain of electric vehicles via Tata Motors, Tata Power and Tata Chemicals. Are you excited about this?
I am very enthusiastic about the space of the vehicle. They will become the biggest player in India and also in the developing world on electric vehicles. Where in the world can you get an electric car for $10,000?

When we last met, you said Tata Motors – with a revelation that you’ve invested in it – are on the verge of transformational change. What is the next Tata company on the brink of transformation?
I look for. When I find one, I’ll call you.

The thesis of why you like Tata Group shares is that you said Chandra is cash flow driven, understands technology, understands skills and is about size.
And he’s a sensible risk taker, an aggressive but sensible risk taker.

So your thesis and your belief in the Tata group and what Chandra is doing remains intact?
Absoutely.

You mentioned the PSU banks, but over the last year the private banks haven’t participated. HDFC Bank, Kotak Bank have.
This is exactly my call. Public sector banks will far outperform private sector banks in price performance over the next three years.

But if the credit cycle starts, private banks will also lend to businesses.
No, they will lend to businesses, but they already did and their cost/income ratios are low. Their debts, their postcodes were low. We’ve seen the best of the private sector and what the difference in valuation is. After doubling, the market capitalization of Canara Bank is Rs 45,000 crore and it has a book as big as ICICI Bank. I am not saying that banks or other banks will not outperform. I think PSU banks will outperform.

Three of your private companies have gone public in the last two years – Nazara, Metro and Star. Where do you see more value as an investor – private space or public space?
The only rule I have is that there are no rules. So we’re looking at business by business, situation by situation. We don’t reserve our mind ki hai public, hai private.

Right now, you say you have enough opportunities in the market?
Yes, if I have money, I can see a lot of opportunities.

I can assume you are fully invested?
Yes, in debt.

There is one of your quotes that you have always expressed on various forums that I made my money trading but an average investor should not trade. Why not trade?
Simply because there is empirical evidence that if 100 comes to trade 99 loses money, but trading is very exciting and so people want to do it.

If you need to split the market into two or three parts, you always do. India has a market capitalization of $3 trillion. How much of the market do you think is overpriced? How much of your market is undervalued?
I look at my stocks. Titan was too expensive for life. I would have sold Titan at a value of Rs 2,500 and today it is at Rs 50,000.

Why does this happen? Why do stocks maintain such high PE multiples?
Because there is corporate governance, growth prospects, transparency and cash flow and there is market leadership.

There are two types of expensive actions. One consists of companies that were made on imagination and valuations and the second are companies like Titan or Asian Paints or Pidilite which are big but expensive companies. What is the future of good companies but where PE multiples are out of whack?
In the case of PE multiples, you may have discounted earnings for the next two years. I sold 5 million shares of Titan and each time I sold the price went down.

In 2010 we were in Oberoi at an event and you said if Titan didn’t become a billion dollar investment for me. I will take this investment to my grave. Would you now like to expand this list with more names?
I have two investments that individually amount to a billion dollars. For Titan, it’s $1.75 billion and there’s Star Health.

Is the worst lagging behind in the health insurance industry?
With a bit of luck. With a bit of luck.

It’s an amazing industry isn’t it because the need for health insurance has increased and the numbers are not there?
But at the end of the day, if loss ratios don’t come down, we’re going to have to raise premiums. There are two points of view for which we may have to do this. One is of course Covid. The second is an aggressive increase in hospital costs. There has been 40-50% inflation in hospitals over the past two years and it is not going away.

But you own hospital stocks and healthcare stocks like Star Health. Can they coexist because one has to lose for the other to win?
No, no, not necessarily, both can win.

Are you disappointed as a pharma investor?
I am not disappointed. I chose the wrong companies. I am disappointed with my judgement. Why should I blame anyone?

But something keeps going wrong periodically for the pharmaceutical industry. Sometimes it’s the pricing power, sometimes it’s the USFDA, the challenges are many. A few years ago, we all thought that the pharmaceutical industry would opt for IT. The turn of the curve was very different?
Yes, it was different. The US generics market hasn’t been very healthy partly because of Covid.

Everyone is talking about the associated risk in the event of a crypto crash. Could this have an impact on other asset classes in a risk-free environment?
Yes, it could, but see that the class of investors investing in stocks and crypto are totally different. I think crypto will crash one day. Where will they invest then?

You are a very quick decision maker, some of our mutual friends tell me that you make the decision to invest millions in 10 minutes. You don’t take hours, you take minutes. How it works?
You have to grasp the vital points and the second thing is that I don’t want analysis paralysis. You are investing in an uncertain future. You can’t predict it beyond a point.

Some of our mutual friends tell me that you have decided to take it easy on trading. Are the rumors true?
I’ve felt that for the past 25 years, but not yet.

Once a trader, always a trader. Since you have technology investments, I’m sure you’re aware of the meta avatars that everyone is talking about, the meta world.
I do not know what it is.

For a SIP investor, in the next two or three years, is there a probability and possibility of a double digit return?
It’s always hard to predict. The return will be more than that I think.

The view on the street is that we had a good double-digit return in 2021 for the indices, more than 40-50% for the small and mid cap indices. It could be a flat year with low returns, do you agree?
No, I don’t think it will be a flat year. I think it will be a positive year.

What do you think is in store for this year?
I can predict direction, I can’t predict depth.