Some of your top holdings have done exceedingly well like , LTTS and even . Have you booked gains in any of your holdings?
We keep finding new ideas and tend to trim some of these winners as they outperform and do extremely well in terms of absolute returns. We have been trimming our holdings in some of these names but that is not because we believe that the best is over for them or anything like that. It is just that these are becoming slightly larger positions of the portfolio and as we keep discovering newer and newer investment ideas, we need to create liquidity within our portfolios to plough the money back into some of the new ideas. So that is what we have been doing so I would probably say that trimming a bit is the right word rather than a complete exit in these names.
So what have you been buying? I am sure you do not want to sit on cash?
Some of the names that we have added in recent times are across a diverse set of sectors. A few months back, we added Triveni Turbines. We believe that the private sector capex is on a roll and we are going to need these kinds of companies and therefore Triveni Turbines really fits well in terms of resurgence and private sector capex.
We believe that the opportunity in real estate is there and therefore within that, we have added Can Fin Homes which is a housing finance company, a leader in the southern market which again is a very good market for housing finance businesses. The most recent acquisition is in the consumer foods or a consumer snacks space. It is a name called Prataap Snacks which we believe is currently at the bottom of the cycle in terms of both demand as well as margins.
We believe that as unlocking happens, as schools and colleges reopen and people travel, we will see demand coming back for a business like this. Currently, the margins are impacted because of high input costs, prices of palmolein oil, prices of other raw materials, transportation and logistics costs but we clearly believe that these are companies which are reorienting themselves bringing about efficiencies and productivity gains by altering some of their pack sizes and increasing the distribution reach.
We expect these companies to do extremely well over maybe a two to three-year timeframe. Prices are attractive from that perspective and these are some of the names that we have been adding in recent times. All these companies are relatively capital efficient, doing well in their niches and could be significant outperformers going forward.
When will you sell because bull markets do not last forever and bear markets will also not last forever. You should want to raise cash or change your stocks before we reach there because when the bull market ends everything will come down like humpty dumpty?
Well that will have to be a very stock specific kind of an approach but I do not think one can really take that in terms of a general market. When the general market corrects, the set of stocks that you own will also correct. But what we try to do is to just take individual stock specific views and see if the business is continuing to deliver to keep owning, unless valuations become totally astronomical and do not leave any room for you from a three to four year perspective.
I still believe that these are early days. The day it will fall is still far away and therefore we continue to be very positive and very constructive. We like the kind of companies that we own and in some of them, of course valuations have become a bit stretched but that is pretty fine.
Everybody is saying that they are not selling; they know stocks are stretched, valuations are not comfortable. So why are you not selling?
I will just point to a transaction which happened yesterday where a corporate announced the day before yesterday that TPG is coming in and putting in a billion dollars for
electric vehicles business. Honestly, that as business is still very young and in a nascent stage but they have given significantly high valuations. That is the kind of capital which is still getting committed. Now if private players can do that and they have the advantages of not having the ticker in front of them, probably we as investors in public markets too at least should have an approach like that when you say that these are kind of businesses which still have a lot of headroom for growth and if valuations are probably higher from a traditional from where we have seen them in recent times, I think that is fine. If earnings compound on a slightly higher pace, that will take care of the slight premium which is there in terms of valuation.
I do not believe that this market is going to fall because of valuations. I believe that if at all there is a correction it is going to be for some of the other reasons which could be inflation or interest rates going up or liquidity tightening or some of these kinds of challenges. There could be earnings which will get impacted for a quarter or two because of challenges in the global supply chain and those kind of factors but otherwise I do not see demand being a challenge. The demand base is becoming a strong tailwind and that to me is a big change.
On top of that, if liquidity flow continues, I still believe that directionally we are heading for even higher levels over a period of time.
The basic benchmark for the index return has been nominal GDP plus 3% that is how markets have given returns of about 13 to 15%. If one looks at that 13-15% historical return, can I safely say that by the time this bull market ends,the Sensex would either be above 100,000 or closer to it?
It is very much possible. It is not something which is going to happen tomorrow or day after, it is obviously going to take a few years but that is very much possible and that is only going to be a number. Several years back we used to think when it becomes 20,000 or 30,000 or 40,000. In the 2008 bull market, the Sensex had peaked at 21000. Now, 13 years later, we are at 60,000 but if I were to look at it in the context of 60,000 versus the 21,000, 13 years back that is not yet a great number. We probably should be a lot higher.
My view is that surely we will be around 100,000. The question is whether that number is three years away or is it five years away. Otherwise, 100,000 looks fairly certain.
What could pour cold water on all our assumptions, could it be China, could it be crude, could it be the energy problems which are coming up?
It probably will be all of them, that is going to be the worst case scenario where everything just comes up together which is Fed increasing interest rates, inflation, crude, China. These are a bunch of factors which could always play the spoilsport.
But even in the past we saw this situation. If we were to go back to the mega bull market of 2001, between 2001 and 2008, there was a bull market which lasted for six to seven years. Of course, in between we had some massive corrections. In 2004, the markets had hit a lower circuit. In 2006, again there was a huge selloff in the emerging markets and there was a huge correction for maybe a month or two and there was maybe a correction of 20-30%.
These are things which will happen but I clearly believe that the economy is in for much stronger growth. We have been so used to the 5-6% growth, but we have an economy which grew between 7% and 9% for a period of five years. The impact on businesses is going to be phenomenal. It is going to have a way more broad based impact and what we will clearly see is a lot of sectoral rotation happening. We are going to see a huge increase in terms of the number of companies that one could invest in.
So my view is that corrections will happen and that is very normal but net-net, we will overcome those corrections and scale even higher peaks in the next several years.
What are you telling your son to focus on in terms of future technologies?
One very exciting business going forward is going to be the SaaS space, software as a service. Clearly, pay as you use is basically becoming the new mantra and that is exactly what SaaS stands for. Every service, every software eventually is a service and basically you get your customers to pay as they use these services. I believe that that is going to be a huge opportunity. Already Snowflakes has defined the space, Freshworks from India has gone ahead and listed and these are kind of businesses which will probably grow at nearly 30-50% CAGR for the next five to 10 years and they have a very strong chance of becoming multi billion dollar businesses. If I have to bet on one theme over the next 10 years, I would probably think that SaaS is going to be a very defined theme for this decade.
