Rakesh
Jhunjhunwala, investor and trader, feels that the impact of the sub prime crisis
will be far worse than expected. He has said that the Fed rate cut is unlikely
to solve the sub prime crisis and the US economy will slow down and the housing
crisis will worsen. He
said that markets may see short-term reactions, but they will decouple from the
US. He added that India''s long-term bull market remains intact. He cautioned that
the US slowdown will adversely impact the Indian IT sector. Excerpts
from CNBC-TV18''s exclusive interview with Rakesh Jhunjhunwala: From
morning we have heard a variety of views on sub prime and what impact it could
have on India and emerging markets. What''s your take on it? I think the impact
of the subprime crisis is going to be far worse than markets are expecting today.
I do not think Fed rate cut can solve the subprime crisis. I
do not think that the US housing market is going to bottom for the next 24-30
months. I think the US economy will further slow; anyway at the moment the markets
are quite elated with the Fed rate cut. Let''s see what happens. You''ve
been bearish on US saying that the bull-run over there has ended. We saw how this
bubble has burst, the whole housing market has gone into a slump, and US stocks
are down. What is your take on it? The US market has not slumped; the Dow
is nearly at a new high. The markets perceive that this problem will be surmounted,
just like all other problems. You
expect more Fed cuts to keep fueling the markets going forward? I do not
know what kind of Fed cuts will happen, because inflation also has to be looked
at. But I do not think the Fed rate cuts can solve this problem. Our
Indian markets, or almost all emerging markets are clued on to what is happening
over there (US). Because of that, we are seeing heavy volatility coming into the
markets (particularly) in the past three days. I would disagree. About
two-two and half years ago, the Sensex first crossed the Dow and today the Sensex
is at least 20 per cent higher than the Dow, in numerical terms. So you may have
day-to-day reactions, but over a period of time you will decouple. From
a longish point of view, what is your take on the Bull Run in India? I
think the longer-term bull market in India is very much alive. The
factors driving the bull market are alive and kicking and will be present in India
for a very long time to come. Having risen from 3,000 to 18,000, we can always
be prepared for corrections or some fall. Markets may not even go up for maybe
another year. But I do not think the bull market is dead. We had a rise from 3,000
to 18,000 and if we consolidate and do not go up for a year or two, I do not think
it''s going to make any difference to the long-term bull market. Do
you think we are going to consolidate from now on and then only progress further? I
do not know whether we will consolidate. But even if we were to consolidate and
not go up much or go down a little, the longer-term bull market will still be
alive. We
heard Chris Wood say in the morning that the Sensex target, the long-term CLSA
target, is 40,000. What is your take on that? I can only have some idea
of the directions; I have no targets. You
been bearish on Indian IT for quite sometime now. What could happen to the US
economy? When we talked to the tech companies, they say fundamentals have not
changed, rupee is the only problem. Fundamentals today might not have
changed. But if there is a big slowdown in the US economy, which I personally
anticipate, then I think software will also come under pressure. Earlier,
we had all tailwinds for the software industry and in my opinion we have headwinds
now. I do not say that software companies are going to go down. Although volume
may or may not get affected, margins will be affected and therefore price earnings
ratios can be affected. Midcaps
have been very tepid over the past one-month. Is it just like in the middle of
the storm? How do you see them bounce back? I disagree. Mid caps are doing
exceedingly well. I think 50 per cent of all listed stocks have made new highs.
So I do not agree that they have been tepid.
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