Are the markets secretly pricing the drawdown every time it starts?
The reduction was the most important thing on people's minds just a few weeks ago, and now it is fading into the background because there is an understanding that perhaps the Fed will take notice of this new variant of Covid and perhaps not tighten the screws as much as we hope.
If the Covid variant spreads, what happens then? How do you think the markets would adjust?
Last year, when this Covid situation occurred, there was panic. The market fell dramatically but recovered very quickly. People have been hearing about Covid, big disaster, big trouble, and now they are starting to say that the last time it wasn't that bad, the market got it right. So why should you panic over this situation?
Yes, the new variant is highly contagious, but not necessarily fatal. In other words, the deaths so far are minimal. So you may find a situation where people realize that this new variant is not as serious, but people will tend not to react as strongly as they did in the first panic.
Its exposure to India was limited to three stocks. Have you done four or five?
No, we keep those stocks and we are very happy with them. We are still looking for possibilities, but so far we are not making any changes.
Any reason you went for a persistent and not top-of-the-line name like TCS or Infosys?
Yes, the whole idea about the fund was to be different from indices. ETFs are instruments that many investors use because they are based on indices. So for us to offer something different than what people have now is to do something where the index is not involved. We make sure not to invest in index companies.
In our portfolio of three stocks, perhaps two are in one index and not the main index. That is one of the fundamental principles that we have in our portfolio. The second thing is that we want to go after small and medium-sized companies, which people have not noticed.
People don't like the idea that these companies will grow. They will gradually recognize the value of companies, of course, then prices will go up.
PolyCab and Apollo, two stocks it owns, are, in a sense, consumers of raw materials. At a time when we are seeing a new rating in the commodity complex and companies are struggling to maintain costs, does it make sense to bet on commodities, consumers and not producers?
Not necessarily. If you look at the two manufactures, yes, they are using steel and steel prices have gone up, but it is only part of their total cost.
The other part is labor and other aspects of manufacturing. So the impact on prices is not that great.
The good news, on top of that, is that with the power of quality you can get a premium price. They can raise prices without having too much impact on demand. It depends on the individual company.
You will find that many commodity consumers continue to do well simply because the demand for their products is so intense and their quality is so good that they can hold the market while increasing prices.
Is there a reason for you to be concerned about your exposure to India?
We only care about one thing: the companies we invest in. What is the situation of the company? What is the macro environment affecting them? We are not focusing on the index or what ICICI or Reliance are doing. We are focused on companies in which we invest, and we find that price behavior differs from these companies and others.
Are you surprised with the kind of IPO euphoria we've seen from some of the tech startups? Have you looked at names like Zomato or Paytm, or taken a full leap from them?
We will jump for two reasons. We don't participate in IPOs too often as they are priced perfectly. Their prices are not necessarily a bargain. Second, many of these IPOs, particularly in technology, are based on hope and a shortage of cash, while companies are still losing money. We have a policy of not investing in companies that are losing money. Now yes, prices couldn't go through the roof when people are excited about the technological innovation or excited about the company and its hopes and fears, but at the end of the day, we find that it is best to stick with companies that have a base. solid, low debt and good earnings.
Many global investors investing in India buy private banks or buy finance. Why did you jump?
Finance is often on the index, so we are avoiding it. It is often difficult to know what is happening with the banks. So if you go to a bank to interview management and ask them about how many bad loans they have, they won't tell you what's going on. They don't want to look bad.
Let's say bad loans are 2% or 3%, but actually it's probably more like 20%, so this kind of opacity makes it very difficult to invest in banks. You have to be very careful. Those are the two reasons why we cannot favor the banks. It does not mean that we will never enter a bank, perhaps a small bank that is growing rapidly for one reason or another and is solid and where we can get the information we want, but otherwise, we must be very cautious. .
Would you buy Bitcoin? So if you have to consider a buy, sell and hold for multiple asset classes, how would you classify them?
People should have some gold, maybe 10% of the assets for emergencies. Gold, a currency throughout human history, and it's something you can have. Bitcoin or cryptocurrencies are in the religion class, it is a belief that will rise if other people believe like you, but otherwise it is not an investment. It is not something that makes money, that pays dividends, that produces something. It is not just a coin, it can be used for industrial purposes.
I was talking to a semiconductor manufacturer and I said, have you ever used gold? He said yes, we love gold for connecting semiconductors, but the problem is its price. It's a bit too high. If it goes down, we will switch from copper to gold because gold is far superior to copper. This is why I don't think cryptocurrencies are in the category of viable investments. It is speculated that you could play with it, have fun with it but not consider it as an investment.
Do you think a bubble is brewing throughout the EV space?
In some cases, there is a bubble. All buyers rush into that space. New electric car companies are being listed or formulated.
It's like the California gold rush. Many, many years ago, the people who made money were the people who were selling shovels and tools to the miners, and probably two of the people in the electric vehicle area who are making battery components or certain gear shafts, that sort of thing. they will probably make money. But many of the car companies will not do very well.
What is that data point that you would monitor that will convince you that it is time to sell or exit your India portfolio?
Most important, of course, would be government regulations. For example, says the Indian government, we are now going to impose a large tax on foreign investors, or we are going to limit the ability of foreign investors to limit their earnings. Things like that would lead us to panic and be of great concern to us.
That would be problem number one. Others like problems with earnings, the characteristics of the company. Until now, we can handle that. We can work with companies or sell based on what we think they are going to do. Generally speaking, we tend not to change our portfolio much. We have a very, very low turnover because we have companies that we believe in and we know will do well in the long run.
