Big Bull Rakesh Jhunjhunwala bullish on banks, expects consumption to revive in the next 2-3 months
Veteran investor Rakesh Jhunjhunwala, popularly known as ‘big bull’, is not very happy with the state of the Indian market right now, but he will not be bearish on the market at current levels.
He maintained his view that Nifty should hold the 10,750-11,000 as the bottom, after recent corrections. The index corrected from its record high of 12,100 levels to below the psychological 11,000 mark in a two-month period.
One of biggest contributors to this fall was the banking sector, which has the biggest weightage in the Nifty50, as the Nifty Bank lost more than 10 per cent in 2 months.
Jhunjhunwala however is bullish on the banking sector, as he feels that the peak of the NPA (non-paying assets) cycle has passed.
Banks earnings in the quarter ended June 2019 were better than previous quarters, but asset quality, barring a few, remained weak with elevated provisioning.
The short-term slowdown in the economy was caused by fiscal situations and crisis in the NBFC space, Jhunjhunwala said in an interview to CNBC-TV18.
“The NBFC crisis rose out of indiscriminate lending. Every bank is shying away from lending to corporates. But PSU bank recapitalisation and support to NBFCs will aid lending,” he said in the interview.
He said that barring select NBFCs such as DHFL, others are able to raise money. “We need a sense of urgency with respect to dealing with NBFCs,” he said.
Non-banking finance companies, including housing finance stocks, and lenders that have exposure to these NBFCs, were hit hard in the market correction.
The liquidity crisis in NBFCs also hit the most important sector, that is consumption, which has been slowing for more than a year now, and the main victims have been the auto and auto ancillaries industries.
The Nifty Auto index has lost more than 14 per cent in the last two months, while the BSE Consumer Durables and Consumer Discretionary Goods & Services indices lost 10 per cent each in the same period.
Jhunjhunwala expects the consumption space to revive in the next 2-3 months.
“Consumption growth will come back when the government takes corrective action. I don’t think we will see double-digit growth in the next 2-3 years. Investments will pick up once demand revives,” he said, adding that the government may not want to do things in a hurry.
The government last week assured corporates that it would take every measure needed to revive the economy. The Reserve Bank of India has been doing its part, having cut the repo rate by 110 bps in four tranches in 2019.
Another sector that has been reeling under selling pressure for several years is pharma, due to US pricing pressures and warning letters from the country’s regulator, the USFDA.
Jhunjhunwala, however, feels that the sector has bottomed out.
In fact, the solid numbers by healthcare major Sun Pharma on August 13 is a reflection of this.
The company reported a 31 per cent year-on-year growth in profit and 16 per cent rise in revenue driven by India, US and Rest of World businesses.
Junjhunwala however said he is very bearish on cab aggregators such as Uber, Ola and Lyft, questioning their profitability.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.