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.
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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 equities. India’s benchmark index, also known as the Sensex, fell 0.2 percent to 11,261.70 as of 10:19 a.m. in Mumbai, the first drop in nine days.
“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.
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“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.”
