Jhunjhunwala, India’s Buffett, Says Avoid Market Post Election

By Pooja Thakur

April 16 (Bloomberg) -- Rakesh Jhunjhunwala, ranked a billionaire by Forbes magazine last year for his holdings of Indian stocks, says investors should avoid the markets after nationwide elections until a new government is formed.

Voters go to the polls today in a five-stage election across the world’s biggest democracy before counting begins on May 16. The Bombay Stock Exchange Sensitive Index plunged 11 percent on May 17, 2004, the most in more than a decade, as investors feared a government formed by Sonia Gandhi’s Congress Party and communist allies would slow the pace of reforms.

“My advice is to stay away from the markets between May 16 and May 30 as there will be volatility in the markets post elections,” Jhunjhunwala, 48, said in an interview in his Mumbai office yesterday.

The markets more than tripled since 2004, before dropping 52 percent last year after a global credit crisis wiped out more than $30 trillion from the value of global equities.

Prime Minister Manmohan Singh’s Congress Party-led United Progressive Alliance is competing with the main opposition Bharatiya Janata Party-led National Democratic Alliance and a group of communist and regional parties known as the third front.

“It’s a very closely fought election,” Jhunjhunwala said. “It’s a triangular contest and to predict the result would be very difficult.”

Jhunjhunwala said even though some forecasters are predicting a third front-led government, he expects either the Congress or the BJP will get 150 to 170 seats and will lead formation of the government. About 714 million voters are eligible to elect 543 lawmakers to the Lok Sabha, or lower house of parliament.

Bear Market Rally?

Indian stocks, laggards among the world’s biggest emerging- market economies in the first quarter, recovered to post the steepest returns the past month as investors snapped up the cheapest shares in 13 years.

The benchmark index, also known as the Sensex, climbed 38 percent since falling to its lowest level this year on March 9. The advance beat increases among equity benchmark indexes for Brazil, Russia and China, the biggest developing economies.

“The pace, breadth and volume of the market suggest this could be more than a bear market rally,” said Jhunjhunwala, who has pictures of investors including Warren Buffett on the walls of his Mumbai office.

Buffett of India

Forbes named Jhunjhunwala the Buffett of India after he turned a $100 investment into $1 billion over two decades. He predicted Indian stocks would fall two months before the Sensex peaked in January 2008, and the benchmark measure has gained 17 percent since his Dec. 11 prediction of a bull run. The MSCI Asia Pacific Index rose 1 percent during that time.

The Sensex has crossed its 200-day moving average and if it remains above that level over the next 10 to 15 days, the rally may be sustained, he said. Still, he doesn’t see the markets forming new lows. The moving average is a technical tool used by some analysts to predict the direction of the market.

Investments by Indian insurance companies will be the biggest drivers of the equity market, Jhunjhunwala said. Insurers could invest about $50 billion a year in the next two- three years, he said.

“The scope for disappointment is not much,” Jhunjhunwala said. “There are no positive expectations from the election results. Markets may not tank this time round even if the result is something that the market may not like.”

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To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net;