How should investors approach the consumption basket now given the worries around input costs?
Some input suppliers are benefitting from this. The degree (of input cost pressure) may vary from one company to another but they have seen such scenarios in the last 20-40 years. So I would not be overly worried about inflation in general.
Generally, companies have pricing power. They probably benefitted during the last few years when the raw material scenario was benign.
The focus should be on where the volume growth picks up faster, which companies have solid brands and pricing power to be able to tide over this period. Thus the focus should be on the medium to long-term growth story of these companies.
Amid all the buzz around disinvestment, how would you approach state-owned companies?
We have not been investors in any of these companies, including banks. These are not classical value creating businesses where they are making more than the bank credit. That business criterion of return on capital is not being met. Then it comes down to how these companies are run.
When the stocks run like this, we tend to forget the time when the charts of these same stocks were shown as underperformers. So these have not been great value creating businesses from a shareholder’s perspective. We want to be on the path of compounding wealth and creating value through high-quality businesses.
There has been a lot of action in commodity stocks during the last 3 months. Where do you stand on that?
We own a few of those stocks as a derivatives play to benefit from the trend. One of them is a company called which we own. Refractories are a direct play on steel production and thus as we see this upcycle to play out. First the steel companies benefitted due to exports or local demand and in the second stage as production kicked off, some of the companies we own should be beneficiaries. We call them quality cyclicals. There are refractory companies, ball bearing companies and those related to engineering.
