You have used the phrase mad bull market run. The easy money that is right now leaving China, is finding a home in India among other destinations. Is this going to continue for a while? In that case, markets are only going to head one way which is north and at a time when we are also seeing retail participation go up?
Forget about money leaving China, China is a huge economy it does not really care about a few dollars going away to India. India is relatively smaller, it will benefit but I am saying forget about FDI. That does not matter, I have always said that all these things are nonsense, let us just focus on the market, the fundamentals and numbers, the economy and on that front a new force has emerged which is the retail investor as you mentioned. These are not the traditional retail investors who were gun shy or who were not very sophisticated, not very educated and who were really stock market speculators. This is a class of investors which is fairly smart, they have really clued in thanks to social media, thanks to Telegram, WhatsApp. Information dissemination is a 100x of what we had experienced in similar periods of our lives. This is a pretty potent force.
I do not know what the numbers are. There may be 10 lakh, 20 lakh, 50 lakh investors of this kind. But if they are putting in Rs 25,000, Rs 50,000 or a lakh of rupees on an average, multiply that and we are talking about a serious amount of money. They are not going to buy Hindustan Lever, they are not going to buy Asian Paints. They are going to buy the midcaps or the small caps which are emerging. So that size of investible money walking into a bunch of smallcaps can have a disproportionate price impact. That is one of the reasons why we have seen phenomenal moves in smallcaps. All this slew of money which does not want to buy an HDFC Bank, which does not want to buy a Kotak Bank or the blue chips. They want to buy the smaller companies because they want the penthouse. The old guys who are already in a penthouse, do not want to lose that penthouse. So they go and buy a Lever and HDFC Bank. The new kids are on the streets, they want to go to the penthouse, they are not going to get there buying the old stocks. So, they are going to buy riskier, emerging companies. It is a big potent force. Do not underestimate its power.
Since you have always maintained that skin in the game does not matter, it is always skill in the game, where is it that you have put your skill to work? What have you bought recently amongst these new age companies?
So many. On a personal basis, I bought 1.5% of a company called Brightcom which is an ad tech company. There is a company called Trade Test in the US which is actually a $37 billion market cap company. I do not want to talk it up. It has been a recent investment in the last 15 days or so. And the whole space is buzzing because the entire business of advertising gradually is moving online. Covid has accelerated the mover. Companies which are in the middle of matching buyers and sellers are a great place to be in. That is what ad tech does. So that is an interesting play. We will see how it pans out, the stock has been doing well lately. So yes, that is where I have put my personal money in.
You are a market cap agnostic investor and go by company fundamentals and valuations the stocks are quoting at and what opportunities they are throwing up. In this market where have you taken profits off the table or sold the stocks?
One is spoilt for choice. One can take profits off the table for practically everything other than HDFC Bank which has made no profits for anybody in the last 12 months. Instead of trying to be too finessed about it, we trimmed a bit from every place and put the money into companies like DLFs and JSW Energy, which were laggards in the first phase. We have just shaved off; there has been no really large scale shifts in the strategy. That is good enough to give you a bit of alpha over the markets. It has not been selling a Tata Elxsi or MindTree or Happiest Minds. All superb companies and you do not want to get rid of them. Just because they have gone up so much, they have become a bigger part of the portfolio. So just do some shaving and take that money into the laggards.
Lots of new age IPOs are going to come up. How much of these stocks should one have in the portfolio?
I love them. It is a great time for the Indian market ecosystem to absorb these companies. I have said this many times. They were getting exported or they would have got exported to Nasdaqs of the world. These companies belong here, they have grown here, their 90% of the businesses are in India, they deserve to be listed in India. In Nasdaq, who knows about Zomato or Nykaa or any of those companies? But here they are well known brand names. Indian markets hate loss-making companies but now there has been a paradigm shift and markets are welcoming these loss-making companies in the hope that someday they will become profitable.
So the valuation parameters are now similar to what they would have got if they listed on the Nasdaq. So there has been a momentous change in the way Indians approach investing. It is inconceivable that as recently as three years back, Indians would have loved a Zomato or any of the newer age companies that are listing but now they are being welcomed with open arms. It is a great time in Indian capital markets. It is akin to Dhirubhai Ambani taking equity cult to average, small investors in 1997 when the Reliance IPO happened. I am really enthused about this.
Do you think Nifty and the Sensex will look very different in a couple of years from now and that they will include a lot of these companies?
Not so, not so soon. The index criteria are fairly stringent. I do not think any of these companies will make it in the next two years but hey, if you have a 10- year view, it will be a vastly different index for sure. You will not find banks having 40% in the Nifty or the Sensex, no way. There will be newer age companies but not in two years. In five, seven, eight years’ time, you will find the pie chart has altered completely which is all for the better. The altering pie chart of the market shows newer companies coming into the index, categories which show innovation, which shows a vibrant IPO market. Otherwise, the same old HDFC Banks and the Levers have been there for a long time. From the time I started my career, I have seen the same companies in these indices. It is high time we get fresh blood into the team.
