Jhunjhunwala, Shankar Sharma differ on mkt direction-Article from MoneyControl.com

With never-seen-before range of falls being routine in the Indian markets and capitulation taking centre-stage, the question on everybody’s mind is: what next? What does one make of the madness and when does it stop? Samir Arora of Helios Capital; Rakesh Jhunjhunwala, Investor and Trader; and Shankar Sharma of First Global Services; three of the market’s well-known names, come together to answer.


Sharma is less optimistic of the picture and sees it closely linked to the global scenario. This time the financial situation is truly different, said Sharma, adding that pain is far from over. “The reason why I say that there is still downside is because I don’t see a revival of any of the factors that drove the last bull market any time in the next 12 months,” Sharma said.

“The reason why emerging markets did well was because the weak US dollar drove up commodity prices. That drove earnings in emerging markets in general, made a flight away from US dollars into non-US dollar assets. That tide has changed. The US dollar is back to being the safe haven, the reserve currency. That change is not going to reverse anytime soon,” Sharma added. “It’s not just about India or the BRIC countries. The larger problem for emerging markets is the strength of the US dollar.”

“A lot of leverage money came into a lot of asset classes. That leverage is gone. It is going, it is being pulled out. As it always happens, the asset class that did the best will be the one that gets hurt the most,” Sharma said, adding, “So, the whole legs from this bull market have been cut. Let’s make no mistake about it. We are not going to see the highs to this market for many years. The whole construct, the underpinnings of the market have to change. Newer players have to emerge; new sectors have to come up for that new next bull run to happen.”

Jhunjhunwala sees a three-phased way out of the current bear market. “First is going to be a phase of stabilisation and it will be linked in a large part not to local but international factors. Then we will go through a phase of consolidation. Then, we will go through a new market,” Jhunjhunwala said.

Arora — who like Jhunjhunwala has a more optimistic view of things — says the markets will rise whenever they stop falling and sees a resurgent India growth story happening soon after that. “If you see how the markets have been behaving in the last few months — it is as if they are supposed to go to zero, but ultimately, things don’t go to zero,” Arora said. “So, right now when we look for optimism, we are just saying that if markets were to stabilise, we would get an environment where the world evaluates what India and other relative strengths of the world are. India is very well poised for it.”

“The point is that we have fallen so sharply that even getting back a month ago would be a very significant appreciation in the market. That will start very soon one day because it cannot fall at the pace at which it has been falling,” Arora added.

Over a one-year period, Sharma says a retail investor should go for a 10.5-11% return on Fixed Deposits than for equities. “[Because] this is not going to be a buy-and-hold market. It is going to change its colours, its strips and become a trading market. Timed right [in the market], he (the buyer) is definitely going to beat the returns of 10.5% or 11% of the FDs. Timed wrong, he is going to lose everything.”

Arora, though, disagrees: “If you put in the investment average over the next three months starting tomorrow rather than one month later, then yes, you will do better than fixed income,” he said.

Summing up, Jhunjhunwala, on the possible reasons for things to improve, said there were two positives: Interest rates going down on the back of falling inflation; and India’s improving monetary, fiscal and foreign-exchange position thanks to the fall in crude prices.