By Pooja Thakur
Dec. 2008 (Bloomberg) -- Rakesh Jhunjhunwala, who predicted Indian stocks would fall two months before the benchmark Sensitive Index peaked in January, says the worst may be over for Asia's fourth-biggest equity market.
Stocks are poised to recover from their biggest annual decline because companies in the benchmark index are valued at less than half their four-year average, said Jhunjhunwala, named India's Warren Buffett by Forbes magazine in March. Investors will look beyond last month's terror attacks because the country is growing faster than almost every other market, he said.
"India will see the mother of all bull runs in the next four or five years, boosted by double-digit economic growth and increased investment by domestic investors, including pension and insurance funds," Jhunjhunwala, 48, said as he smoked a Cohiba Cuban cigar in an interview at the South Mumbai office of his company, Rare Enterprises, a name that combines Ra from Rakesh and Re from Rekha, his wife.
The Sensex rose 7 percent since the three-day attacks that started Nov. 26 in Mumbai, trimming this year's decline to 54 percent. The slump left the index valued at 9.6 times the earnings of its 30 companies, compared with a four-year average of 19.2, according to data compiled by Bloomberg. The measure fell 0.1 percent to 9,645.46 today.
The MSCI Emerging Markets Index of equities in 24 developing nations trades for 6.8 times earnings.
'Great Potential'
"Indians as a society are not going to be bogged down by these terror attacks; the nation's tolerance, skill set and democracy will prevail," said Jhunjhunwala, whose office is a two-minute walk from the Oberoi hotel, one of the locations where terrorists killed 163 people in about 60 hours. He was stuck in the office all night with seven employees, eating Nestle SA's Maggi noodles and popcorn.
"We will see a period of great uncertainty but great potential too," Jhunjhunwala said. He's holding on to investments including Titan Industries Ltd., India's largest watchmaker, which fell 47 percent this year, and Aptech Ltd., a computer training company that lost 84 percent.
His other holdings include Praj Industries Ltd., an Indian maker of equipment for sugar mills and distilleries that dropped 75 percent this year, Lupin Ltd., a manufacturer of tuberculosis medication, which declined 12 percent. He also owns shares of Crisil Ltd., a Standard & Poor's unit that has fallen 47 percent.
Economic Growth
India's economy grew at a faster-than-forecast 7.6 percent pace in the third quarter from a year earlier. The rate is the fastest for a major economy after China's 9 percent and compares with 6.8 percent in Brazil and 6.2 percent in Russia.
Investors pulled money out of India as they retreated from emerging markets, sending the MSCI developing-nation index down 55 percent this year.
International investors sold a record $13.5 billion in Indian equities this year as of Dec. 5, according to data from the Securities and Exchange Board of India, as global credit losses and writedowns approached $1 trillion.
Investors bought a record $17.4 billion in 2007. India's $573 billion stock market is the region's fourth-largest after Japan, China and Hong Kong.
Jhunjhunwala, who graduated with honors from the Sydenham College of Commerce and Economics in Mumbai, advised investors to be cautious and predicted the market would "pause and correct" in a Nov. 11 interview with CNBC's Indian unit. Ranked a billionaire by Forbes earlier this year, Jhunjhunwala said he didn't expect the Sensitive Index and the S&P CNX Nifty index to fall to their lows for the year in October.
'Surprise'
Buffett, the 78-year-old chief executive officer of Berkshire Hathaway Inc., is the second-wealthiest person in the U.S., Forbes magazine said in September. Berkshire has a market value of $161.4 billion, according to data compiled by Bloomberg.
Jhunjhunwala, who owns a $5.2 million six-bedroom apartment in the city's luxury district of Malabar Hill, declined to disclose his net worth, the amount of money he manages or the stocks he wants to buy.
"I was caught completely by surprise when the Nifty broke the 4,000 level; that was the rock solid bottom, I had thought," said Jhunjhunwala, who employs about 15 people and has invested about $100 million in 15 privately held companies. The S&P CNX Nifty Index on the National Stock Exchange slid 0.3 percent to 2920.15 at the close of trading.
'More Attractive'
Mark Mobius, who oversees more than $24 billion in emerging- market stocks as the Singapore-based executive chairman at Templeton Asset Management Ltd., and Hugh Young, who runs $45 billion from Singapore as a managing director at Aberdeen Asset Management Ltd., agree with Jhunjhunwala.
Mobius said last month that economic growth will help stocks recover. Aberdeen is looking for investments in the Indian market.
"Great companies which were at that time fully valued have come back down to good valuations," Young said. India "is now looking a lot more attractive," he said.
Annual inflation in India may drop to less than 5 percent in the next two months, which should result in lower interest rates, Jhunjhunwala said. Inflation slowed to a seven-month low of 8 percent in the week to Nov. 29.
The rupee, the second-worst performer among Asian currencies after falling 19 percent this year, may strengthen to between 44 and 45 rupees against the dollar by March, Jhunjhunwala said. The currency gained 1.4 percent to 48.35.
Jhunjhunwala recommends investors bet on gains in equities, commodities and emerging-market currencies, and declines in the U.S. dollar.
"The malaise of the West isn't a problem India is facing; we don't have overextended banking systems or overextended credit," Jhunjhunwala said. "The basis of India's economic growth has far deeper roots than many other countries."
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