Is it a good time when it is bad
The legendary wildcatter oilman J Paul Getty who went on to
buck the big oil companies by offshoring his refining to the Gulf, invested one
million dollars, his entire profit from a gusher he had drilled as an
independent, into the US stock market after the Wall Street crash of 1929. That
was when every dollar stock had plummeted into a ‘penny stock’ indiscriminate
of pedigree and provenance.
It took nerve to do that in the aftermath of the slew of
brokers and stock market millionaires who committed suicide when they
comprehended the extent of their losses at the abrupt end of the ‘roaring
twenties’. But we are talking about a very exceptional man here, a legend
amongst legends. This million dollars of
J Paul Getty’s investment grew so much that it became a bedrock of his
legendary fortune in years to come.
Our own cherubic market bull, Rakesh Jhunjhunwala, who calls
his company Rare Enterprises, after himself presumably, says he has never seen
so much pessimism about Indian equities as he countenances nowadays. And he agrees
the retail investor has gone missing.
Everything that could have gone wrong already has- a market
in the dumps for 5 years in a row, an FII investment flight with billions of
dollars moving out of both equity and debt every month, other emerging markets
seeming more attractive, including China. Then, bonds crashing, rupee free-
falling, GDP growth stymied, IIP numbers at a stand- still, manufacturing
negative, exports down, FDI in the doldrums, an RBI bereft of a good idea, a
helpless Finance Ministry, and on and on.
Private equity, even from usually keen Singaporeans has also
left the building, and venture capitalists have gone off to greener pastures.
The Mauritius ‘round robin’ route is feeble because one needs to earn money to
go round-robinning and even corruption is down of late.
For the uncomprehending it means sending black money out of
the country via hawala or shell transactions. And bringing it back into the
stock market via Mauritius because there is a nil- tax treaty in place for
investment from entities registered there. And thereby laundering the black
money white as well. But since all this can be expensive in handling fees along
the route, the stock market must undo the damage, except it cannot at the
moment.
But, says Rakesh Jhunjhunwala, this is an excellent time to
buy chosen equities because the valuations are incredibly attractive. They
could get even better if the markets fall further but there is intrinsic value
in many of the beaten down stocks of companies with good products and services
and not much debt. The highly leveraged have been punished mercilessly says Jhunjhunwala
evenly.
Given a five year horizon though, says Jhunjhunwala, who
thinks a return of 18 per cent annually is decent in usual times; he expects
very much more from this distressed Equity.
Of course, he does
have hundreds of crores that he made over the years following his hunches on
the stock market, and has developed a certain self- assurance as a consequence.
But he is signalling that India still has a bright future and the present
troubles both here and in the West are temporary. Quite a clear voice in the
wilderness, and not one that belongs to a Government spokesman.
Jhunjhunwala does not think 2013 is anything like 2000, when
he also exhorted all who would listen to consider buying in, because the market
was destined to rise. But what took a year then to double will now take five to
deliver multiples he says. How does he know- well he has great hunches and
follows them. He does not call himself a great economist, but he does keep up
with what is going on in the markets around the globe.
Other contrarian strategies being applied by India Inc. and
indeed some PSUs involved in oil and gas and mining too, is to seek
opportunities abroad using our liberalised policies on making productive
investments abroad.
In this regard, we almost have a convertible currency,
especially compared to the years under very stringent capital controls that
preceded 1991. This has resulted in more Indian FDI going out to acquire
companies and raw materials abroad than has come in to India from foreign
entities over the last eighteen months. Besides about 80 per cent of all FDI
into India lately has been brought in by MNCs to strengthen their subsidiaries
and JVs here, and has not gone into new green-field projects.
Business has a way of rooting out opportunities, and if they
are considered lucrative enough, dramatic and dynamic action tends to be taken,
even in an essentially laid- back Indian corporate bazaar.
The technology transfer that both the Government and private
sector always seeks comes to us as part of the package when we stop pleading
for it and simply ask how much for the whole company instead.
Indians do make an impact nowadays, and contribute, just
from tourism, not secret bank accounts, and some 3 per cent of the Swiss
economy for example. They also constitute the biggest private sector employer
in the UK.
If one adds in the content of the Swiss bank accounts, with
zipped lips on ownership, but without bothering about all the other tax havens
which contain a good deal of Indian money too, we could probably stop being considered an emerging
nation.
Our cloak and garb of poverty works to define us a lot of
the time because there is self-evident truth to the statement that millions of
our people are abysmally poor.
But we also have a lot of wealth concentrated amongst very
few people. And the millions in population tends to keep us competitive and, as
yet, still a good ‘outsourcing ‘ destination.
So yes, it is sometimes true that it is good when it is bad.
It is just very difficult to tell.
979 words
July 25th, 2013
Gautam Mukherjee
No comments:
Post a Comment