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What is happening in banking is quite interesting. Who would have thought that the biggest bad players of these years would be and and watch the rising stars – , Akis, all bottom-up games in PSU banks. Is the banking story intact? Are they still good for next year?
I don’t think there’s any doubt, in the past we didn’t have PSU banks because the balance sheets of the private sector banks are better, but this time they’re all starting at the same starting line and that’s because we went through a huge cycle of deleveraging and provisioning and then during Covid, we had we are another supply cycle and everyone has raised capital. So one can pick and choose.
This will be a marathon and it won’t matter who runs the first 10 km. As always happens in Hindi movies, the hero always comes in the last five kilometers and reaches the finish line. So, to your next question
or others, who didn’t do well in financial services, remember it as a marathon. There are a few who are off to a great start, there are a few who are running at a steady pace and may rise at some point.
So who is the hero of this movie? Who will win the last lap in the marathon?
This time the movie is different. You have to wait until the end to figure out who the hero is. But I have to say one thing that one of the thought processes that we have had and that has been going on so far is that when you traditionally look at banks or lenders, you have to look at creditworthiness, liability franchise, asset mix, yield, quality of management, especially leadership . All of that is still relevant, but there’s another box to tick and that’s how good your digital capabilities are because post-Covid this industry has changed. They have branches, but at the same time people don’t necessarily go to branches. Everything happens in the app.
So if you can’t give the consumer a great digital experience, you’re likely to lose a few customers. When we looked at the whole landscape of lending and financial services, we said okay, all the traditional parameters are ticked, but add one more — how good is the digital experience and I think some of the bigger franchises are struggling a little bit today and maybe the markets are realizing that. They might get it because it’s not like you can’t crack it, it’s not rocket science, you can crack it, but it’s an important variable to keep in mind because fintechs are coming.
We may not bet on fintechs because they may not make money, but they are certainly disrupting parts of the value chain and if one is not prepared, one is likely to lose a competitive edge. That’s one difference that all investors must keep in mind when jumping headlong into lending or financial services.
What were your top three holdings at the same time last year, and what are they now?
Honestly, they haven’t changed.
So what were they?
Well, they were
and .
Still think these stocks have a long way to go?
Yes. We don’t change things because the quarter or the narrative changes. One sticks to stocks over multi-year cycles unless one honestly believes that either the external environment has completely changed or the hypothesis has been turned upside down, which frankly has not happened.
Those are maybe the top three that haven’t changed, but I don’t think globalization is going away, but there’s a bit of musical chairs that’s going to happen and it’s time for India to take the chair. We have all the elements for production. We have the workforce. For whatever reason, the demographics are bad and on top of the bad demographics, they just give free money to those people and so those people don’t want to work anymore.
We have energy. We are now fixing the logistics. We have the capital and we have the entrepreneurship and we have the opportunity that is open to us because one of the major manufacturers in the world is no longer such an attractive source of people. It is quite surprising but we have always had talent as Rakesh Jhunjhunwala used to say, India is a runner without shoes. I think now India is a runner who has shoes and so can run much faster. Today, production is a reality. We lost a decade of production. Honestly, since 2011, since the 2G and coal scams broke out, I think the investment environment has gotten worse. Plus, we were coming off a big leverage hangover in the corporate sector that had been washed away.
So we had deleveraging. It took us 10 years to wash off the bullion hangover. We now have a far more efficient system in terms of GST. Digitization will help improve the working capital cycle because money can move faster, and we underestimate the power of productivity improvements due to the digitization we have done.
One of the reasons America was great was capital innovation and productivity. I think capital is available worldwide now if there’s a good idea, but we’re going to see a huge productivity cycle kick off in India, because before when I was paying my help, it would take him seven days to get the money to his parents. He can close it today in the same minute, which means they can spend it today, which means the seller gets paid today. Since we went through Covid, activity levels have been low. But as we emerge from Covid and activity levels jump, the real multiplier will be unleashed.
But your top three holdings include finance; they don’t include production, or am I missing something?
No, then you need to go in the top 10. You also need to understand that stocks become top not because of assigned costs, but also increase at what rate they increase. I honestly think that from that lost decade we will have a manufacturing renaissance in this country. India has shown that.
We built the champions of generic pharma in the mid-90s – Sun,
, Ranbaki- – who conquered the world. I think it happens in specialty chemicals and auto components. In two-wheelers, some of our champions are already selling 50-60% of their volumes worldwide. Then I think the whole of Aatmanirbhar is Bharat and I think the world has realized during Covid that for very critical things you cannot absolutely rely on someone else.
I think that now there is a growing realization that we need to build capacities or at least domestic capacities in many areas and that is why today one of the two big groups in this country is thinking about the production of semiconductors because if you want to be a leader in electric vehicles or in the new energy business, you must have supply chain under its control.
Second, this doesn’t happen often, but two industries on a global scale are about to go through a massive investment cycle; one is an energy transition. We are moving from old to new energy and that in itself will trigger a global investment cycle.
The second is in transportation where we are moving from traditional fuels to electric vehicles and hybrids, which are huge industries on a global scale. Whenever this happens, it is not just end industries that develop, but the entire ecosystem.
For example, when
and Hyundai came to India, they created 50-60-70 auto utilities that grew with them. Something similar is going to happen, and on top of that, there are two big industries that are very specific to India. One is defense where we now want more to be made in India. So while BEL, HAL and BDL will grow, no doubt, but they will in turn create an ecosystem of private players that will feed into the supply chain and that will start another manufacturing trend.
I think we have a great opportunity and we will have many winners. Indian entrepreneurs are great. Automotive component companies that were primarily involved in cars only, started to produce non-cars, for renewable energy and started to supply the electric vehicle value chain. So the skill sets are generic but can be applied to several other industries as well as defense. I mean Bharat Forge,
Fasteners and several such.
Which IPO do you wish you hadn’t invested in solely as an investor?
Luckily, I didn’t invest in any IPOs that bombed. So I can’t say that because I don’t invest, but the ones I invested in luckily made money.
When will sensek touch 100,000?
I think sensek will touch 100,000 in 2025.
Biggest investment mistake or regret?
I ask my father to sell
when Kinetic Honda was doing well because I was still young and inexperienced.
(Disclaimer: Recommendations, suggestions, views and opinions of experts are their own. These do not represent the views of Economic Times)
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