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Billionaire investor Rakesh Jhunjhunwala, bullish on India as crude oil prices plunge and Narendra Modi's government enacts reforms, is seeing some of the best investment opportunities in mortgage lenders and automobile makers.
The biggest collapse in crude oil prices since the 2008 global recession is "God's gift" to India and its benefits will flow in three months, Jhunjhunwala, who owns more than $1 billion of stakes in companies, including drugmaker Lupin, said in an interview with Bloomberg TV India on Wednesday. He cited LIC Housing Finance and Escorts among his top picks.
The benchmark BSE Sensex increased 30 per cent in 2014, the most among the world's 20 biggest markets after China, as Modi ended controls on diesel prices and allowed more foreign investment in sectors such as defence. Last month, he passed executive orders to make it easier for companies to buy land and to allow more foreign investment in insurance after parliament's session ended without votes on several key Bills. "This government is determined to do what it thinks is right," Jhunjhunwala said, adding he has "extreme faith and conviction" in the administration.
Brent crude, the international benchmark, fell as low as $50.52 a barrel on Tuesday, the lowest since April 2009. Lower crude oil prices slowed gains in India's consumer price index to 4.38 per cent in November, the least since January 2012, because the country imports 80 per cent of its energy needs.
Plummeting commodity prices will keep inflation within five per cent, below the Reserve Bank of India (RBI)'s six percent target for January 2016, Jhunjhunwala said. The RBI might cut the main rate by 100 basis points over the next two or three policy meetings, he said. The central bank has left rates steady at eight per cent since January 2014.
Opposition parties
RBI Governor Raghuram Rajan wants to be "doubly sure that there isn't a situation where he cuts rates and inflation goes up," Jhunjhunwala said.
The Sensex has dropped six per cent since the beginning of December as oil's rout fuelled concern that the global economy will get slower, and as opposition parties derailed plans by the Bharatiya Janata Party to pass measures permitting more foreign investment in insurance and make coal mining more transparent.
Modi issued executive orders to push through the changes, which still need parliamentary approval to come into force permanently. The BJP, which controls 52 per cent of seats in the lower House, of Parliament holds only 18 per cent of the other House. Modi needs to find alternative ways to ensure the passage of legislation until 2018, when his coalition's representation is expected to reach a majority.
"We are ourselves underestimating the change that this government is bringing and the effect of that change," Jhunjhunwala said. "Everything in India takes time, nothing can change overnight."
Home loans
Jhunjhunwala said he's bullish on some home loan companies and automakers. Home loans as a percentage of India's gross domestic product are about nine per cent, compared with 17 per cent in China and 69 per cent in the US, according to data from Housing Development Finance Corp.
Dewan Housing Finance Corp, in which Jhunjhunwala held a 3.89 per cent as of September 30, surged 85 per cent last year, data compiled by Bloomberg show.
Jhunjhunwala said the Indian equity market offered enough opportunities across the board over the long run. One stock he is bullish on is tractor maker Escorts, in which he held a 5.47 per cent stake as of September 30. The stock fell 6.5 per cent last year after surging 84 per cent in 2013.
"If India is going to have the kind of bull market that I envisage, all sectors will do well in time," he said.
