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Bull Market Run for India Stocks ‘Just the Beginning’ Says Local Investment Guru

It’s official. Indian stocks have entered a new bull market phase. From mid-February, 2016, through till the end of August, the BSE Sensex Index has returned 22 percent, according to Bloomberg data.¹ The catalysts are well known at this stage:
  • Above-normal monsoon rains, following two years of drought;
  • A pay hike for government workers intended to help boost consumption;
  • Strong recovery in corporate earnings, with ‘beats’ outpacing ‘misses’ in the June-quarter; and
  • The successful passage of a landmark tax reform which has significantly boosted investor sentiment.

In an exciting interview conducted at the end of August, 2016, Rakesh Jhunjhunwala, a renowned Indian investor and stock trader, referred to by some as the ‘Warren Buffet of India’, suggested that the current bull market in Indian stocks is very much in its initial stages.

Mr. Jhunjhunwala surmises that while valuations in the Indian market are getting rich, a lack of investor participation means that there is still more upside to come. “Just by having valuation froth [alone], bull markets don’t end,” notes Mr. Jhunjhunwala. “In stocks when prices go up, demand goes up, [which means] bull markets don’t care for valuation froth. And then there is a commitment froth [which he currently does not see in the market]. Unless the two combine, a bull market top is never made.” As of the end of August, 2016, the BSE Sensex Index is trading close to record-high levels, just around the 28,400 mark.² Mr. Jhunjhunwala went on to point out that while a correction could happen at any given time since stocks have been rising steadily for the past five months, a pullback would not spell the end of the rally.

Mr. Jhunjhunwala maintains that the new reality for global markets is that interest rates are at an all-time low, and will remain so for a considerable period of time, which makes Indian stocks an attractive investment proposition.

Rakesh Jhunjhunwala oversees a US$935 million equity portfolio as a partner with asset management firm, Rare Enterprises, and has a net worth of around US$2 billion according to Forbes.

¹ Bloomberg data, total return, in CAD terms, accessed on September 1, 2016.
² Bloomberg data, accessed on September 1, 2016.

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