Friends,
I have pasted the interview of RD.I know he went wrong in 2009 but then I have always have great respect for him apart from RJ , JayKumar of Prime Sec(He is with other insti now)..........These are the personalities who have clear vision and know what is going on in India and how the Indian economy is going to prosper.....
If someone will read this transcript then I think one can get almost all answer for any doubts....
Read on:
In an interview with CNBC-TV18, market veteran Ramesh Damani, Member of BSE, reminisces over the last one year and looks into the future of the markets.
Here is a verbatim transcript of the interview. Also watch the accompanying video.
Q: What a year it has been from where we were on March 9th last year to where we are today not just in India but across global markets. What do you make of it?
A: It actually was a near death experience for financial markets. I remember it so vividly, it seemed like the bloodletting, the price falling would never stop. It has truly been astounding how much the market has rallied since then and how much blust has come back into the market whether it is in terms of price appreciation, whether it is in terms of bonuses given to employees or whether feeling that no matter what happens we are okay.
You are right. It’s been two complete opposite ends of the spectrum; near death and near normalcy. The thing of course I am reminded is what Mark Twain once said, "What we learn from history is that we never learn from history."
Q: Tell me if these market levels are justified anywhere else in the world for instance if I was to draw very simplistic comparison, the Sensex is up over a 100%. Do you think that the underlying economic fundamentals have improved over a 100% from where they were in March last year or have we gotten ahead of ourselves in these markets? Is it a case of extreme exuberance as compared to extreme fear and nervousness last year? What do you make of where we stand today and where this takes us next 12 months down the line?
A: Interesting question and for once I will isolate India out. I do not want to answer the question being centre of the universe, I want to take India out. The first thing you have to understand is what is happening in the US markets because those still are the primary markets.
What has happened there is that the US government has created a great moral hazard and the principle that everyone in the West or Europe or other markets know is that no matter what happens there is a textbook template on how to handle a crisis. You open the gates of monetary policy, flood the market with money, lower interest rates out there, give the financial market a case of steroid, markets will jump back and everything will be okay.
And that’s like saying you are going to have religion, you are going to have Bible without heaven and hell is like in capitalism you won’t have reward or failures or punishment or bankruptcy. It seems almost too good to be true that the worst single crisis we have seen since the Great Depression could be over by just opening up the money spigots.
That has created a moral hazard and somewhere down the road the economies of the West are in my opinion going to pay a price for that. There are definite problems in their society in terms of rising costs, lower exports, great current account deficits that need to be addressed with some hard economic decisions which I do not see happening. All that the Fed has done successfully is to open the money taps.
Coming to your question about India, I think actually we have escaped the bullet because we never had the kind of crazy inflated values that the Western societies had. There were excesses in our stock market, which the correction took care of. So fortunately for us India seems to be on a level path.
Is the case justified in India from the bottom, 112% here. In many ways yes because you go back and look at the data numbers whether it is automobiles sales, whether it is cement shipments they all are very strong. The index is not trading at any lofty multiple but maybe 15-16 times earnings. So India case is justified. Globally, all around me I just see huge amounts of moral hazards.
Q: How is that moral hazard likely to impact India down the line? I understand that on our own we seem to be far better off as you have drawn out in contrast to what some of the Western economies are going through but this sovereign debt problem overhang and if at all it goes from just being an overhang to being an actual crises can we escape the worst of it. I recall very sharply right now the comments that Samir Arora was making right after the Budget speech where we said that we are being a little too sanguine about the kind of impact that could chance upon India just like we were being little too sanguine just before the Lehman bust happened or we kept talking about decoupling and we couldn’t escape the implications of that crisis. What will happen to India if we actually see one of these sovereign debt problems turn into a crisis?
A: There is no doubt that if we have a sovereign debt crisis - the first leg of the fall we will be down. It will be led by Hang Seng, as it usually is in emerging markets and India will follow suite, along with Singapore, Taiwan, and Bangladesh etc. The point here is that growth covers a multitude of sins.
If your inherent economy is growing at 8-8.5% and there is reason to believe that you will do that over the next two-three years that covers for a lot of sins and excesses that take place in the market. And there is historical precedence to that.
When Japan was growing at 8-9% double digit rates and we had a great crash in the US when the market fell 27%, 22.5% at a single trading session; Japan fell along with the US but recovered right away because of the inherent strength of the Japanese economy.
We might see a similar situation unfold out here. the Reserve Bank of India has done great job as well know, asset prices except for few isolated cases of real estate are in line. There is reason to believe that we will be able to decouple not withstanding what the cynics say.
Q: What will it do in terms of appetite for emerging markets when it comes to foreign investment money? I am told by one figure roughly USD 20 billion come into the cash market in the last one year. This is foreign institutional investors (FII) money that I am referring to. A lot of it is also going into support some of the corporate fund raising activity that we have seen in the course of the last one year. If we see an explosion of that sovereign debt crisis of any sort, how is it going to impact FII inflow and therefore can it have longer-term implications for us?
A: It’s very hard to diagnose that because typically in such crisis there is a flight to the dollar. But at some point, the dollar's poor fundamentals will take over and people will move to hard assets like gold and metals.
But at the end of the day investors want return and they do not want to see that in gold. They want return in equities, dividends in equities, price appreciation. Money will come back to emerging markets if that growth is pure and growth is pegged at maybe 2 times GDP growth. Ultimately money chases growth the world over.
So if we do our correct policies in-house, we take care of our fiscal problems, we take care of our naxalites problems, I think India could be a shining example for the next few years of money flowing in and good productive growth for years to come.
Q: Global factors aside from a local point of view, what are some of the challenges that you put down as key challenges when you invest or trade in this market?
A: Challenge is always the same, you want to look for value. At 16000-17000, it gets no easier to find value, but all bull markets begin with some sort of intellectual theorem, you have to be in some sort of hypothesis. In ’92 bull market hypothesised that India was going to be a liberalised country and that’s what exactly happened a decade later. The 2000 bull market foresaw that India was a technological superpower, it came out right.
What is this bull market telling you? This bull market telling you there is something extraordinary happening in this country that we are going to go from a nation of 50 million middleclass to about 500 million middleclass in a period of ten years. If you believe that intellectual hypothesis, if you believe that we are creating a BRIC (Brazil, Russia, India and China) country with 500 million consuming Indians suddenly the investment paradise becomes very simple; you want to invest in domestic consumption, you want to invest in entertainment, in housing, in two-wheelers, in autos, cement because all these things are going to be in great demand once that middle class surges up to 500 mn.
If you think you track the auto numbers, that’s just a trailer of what is happening; demand is so strong, there was a backlog in automobiles for three-six months that is going to percolate to other sectors in the economy be it housing, be it entertainment, be it two-wheelers, be it consumer durables.( Understand this theory, that is the view I have been writing since long....)
So the trick is sometimes you tend to look at quarterly earnings or one bad fall in global markets and tend to panic, but maybe sometimes you want to take a longer view, maybe the winner in this market will not be the person who passes the pillow, but one who holds it till the end.
Q: You sound very bullish. Is there nothing that you worry about? Where would you think that this market would be March, 2011?
A: Peter Lynch said if you want to spend 10 minutes on a conversation you spend 10 seconds on predicting where the market is going. Nobody knows. I am not that smart enough, but my sense is the undertone is buoyant in India, stocks are looking good, corporate outlook is good, managements are talking about expansion, they are not talking of degrowth. So it's a good time to remain invested.
Bull markets will have corrections, it may start tomorrow, may start next week. You just have to ride the pain. Look at the broader picture, a country that’s changed in about 10-15 years time. It’s like investing in America in the 1950s, you want to hold on despite wars, Korean War, Vietnam War, Watergatel, any number or events that took place in America. The people who won were the people who held on to the Johnson & Johnsons and IBMs. So may be we are in a similar trajectory in history. It seems to me that the risk reward still favour the buyer.
Q: Do you think this bullishness has crept down the retail investor level as well?
A: Not entirely. I think they have become more of traders, in and out of market everyone wants to sell out on Friday in case something happens over the weekend. I think in that opinion I have a strong opinion about this is what the government should do, the government should have a full fledge policy to disinvest public sector undertakings (PSU) investors among retail investors.
They should hire some from the telecom guys who took penetration rates of telecom from 1 per 100 to 50 per 100 and say I want to get Indian public excited about PSU stocks, there are some great companies, I am going to offer them some great valuations. If they do that the whole equity cult around this country and that’s what the government can do. It’s essentially taking taxpayer money, building these assets and now returning it back to the taxpayer in terms of stock certificates. If I think they do that we will see huge retail surge in India.
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