Is the next trigger for finally here? The prices have been going up slowly in the last two months?
Yes, I mean I am happy because we own Reliance. It has broken out and made a new high but I guess it is late to the party. Prices of other stocks have been making highs for the last three or four months. Reliance has only just started to move and perhaps part of it is in anticipation of some kind of a move on oil and gas. There was this talk about Aramco coming in and finalising the deal. There is also speculation around some of the entry into other businesses including the mobile phone launch by Jio in coordination with Google. I think that is what is driving the stock. There is no fundamental change here.
If you are looking to buy then look at it if you are actually convinced about Reliance’s long term potential or you are a technical player who likes to buy it at all time highs. Fundamentally, the story has not yet changed.
I was reading a very interesting note that was released on your blog just this morning about IPOs. You have compared the IPO boom with similar periods in 2010, 2007 and so on. What was startling is that in the previous boom periods, a majority of them have either gone out of business or have traded at lower than their issue price. How are you reading into this IPO boom?
The problem of stocks falling off the IPO radar in terms of numbers is startling because a lot of good companies have fallen 90-95%; some of them have gone out of business. Some of them have had to be taken private as well. IPO investing in the past has been sketchy at best in terms of percentages of success. But there are good companies like Page Industries which have gone up 86 times since its IPO in 2007.
But the point is one has to hold those good companies. One should not sell them off just because they have made some kind of a profit. D-Mart’s relatively recently listed IPO went up 8x or 10x in a relatively short time.
In case of the coming IPOs, we will see similar statistics. All these companies will not succeed. Some of them may get merged out. Some of them may not do as well after listing. Whether it is the tech space or otherwise, I expect similar statistics to persist. One has to take care. One needs a diversified approach here. We do not know enough about these companies, we do not know how they will react after they suddenly have to disclose so much more to the public on a quarterly basis, compared to when they were private. So, some of them will falter, some of them will succeed. Our hope is that we will be able to hold on to the ones that succeed. That is a good strategy to go on.
What are the prospects of the energy exchange ? We do not see energy volumes being traded as much as maybe the other shares and commodities.
We own a bunch of exchange companies — BSE, IEX and so on. I am obviously biased towards them but the point over here is that trading of whether it is electricity or shares or commodities will go towards exchanges rather than off exchange transactions, primarily because of the comfort in the settlement criteria. There will be multiple parties in a settlement. A settlement fund has also been created in case of defaults.
There is another mechanism that can compensate players in case there is a default.As a result of this, over time, more and more volumes will come on to the exchange. The fact is the laws have been made easier. From corporate entities to discoms, everybody used to do one on one negotiations, Now it is slightly more distributed, corporate entities can directly negotiate for power.
The different entities that were all playing in the grid sector — be it transmission plans or whether the producers are brought together in a command format in exchanges like city framework. Similarly, on the BSE, we are seeing a lot more debt transactions being forced on to exchanges by the regulators and hopefully that will build up the idea that institutions, instead of calling each other up and negotiating on the phone, can soon move to an exchange based framework for corporate bonds. That will also drive more volumes on to the exchanges. Things like these drive penetration into an exchange.
I am not talking purely about valuation because valuations of almost everything are stretched right now and maybe there is a little bit of over enthusiasm but I am not complaining because as an owner, we are seeing the prices going up.
In the past, you had very strong opinions on real estate. Do you agree it is a comeback story?
I am not a big fan of real estate as an investment but obviously as something where people want to buy where they live, it is obviously a personal choice to invest and it is more an expense than an investment. People are seemingly looking ahead because we are seeing early data from Mumbai. At least that shows transactions have increased. In the case of Bangalore not so much. Some of these companies are concentrated in Bangalore and the southern belt and we are seeing their stock prices increase quite substantially. So it is an overall favourable tide towards the real estate sector.
Also, a lot of these players have reduced debt quite substantially. The whole business has become much more streamlined due to RERA which has favoured a lot of the larger players in comparison with the small builders who have been impacted disproportionately but they also used to have a lot more ugly practices earlier and that have gotten weeded out. The business might actually see a rebound in the next few months.
We will have to see results come in and show us that kind of growth. While we have had some early numbers on bookings, we will have to see some follow through numbers as well. It may be a useful bet to start investing. We are still waiting for numbers to take a call on them. But the prices definitely look like people believe they are running up.
