Help us understand what is going on. In the last four sessions, FIIs have sold shares worth Rs 15,000 crore.
I am not sure I can tell you what all FIIs are doing. I can tell you what we are seeing and why we have been cautious. We have been sitting on a reasonable amount of cash in terms of our India portfolio. We see inflation going up in India and globally and we are looking at markets where the currency risk is not that high because the central bank is being somewhat more cautious about inflation. Frankly, the Fed is clearly facing pressure to taper faster and we are not seeing any signs from RBI about being too concerned.
So our concern is near term headwinds. We still believe that the cyclical recovery coming in India at the new cycle is going to have a long duration but short term, part of the reason FIIs are selling is not because they have given up on the growth story of India but rather valuations are not cheap and the inflation risk is as real in India as it is anywhere else in the world while RBI, which historically was one of the more vigilant central banks, right now seems to be more on the dovish side.
It creates some nervousness and that to me is our main concern. I am assuming FIIs in general are a little bit risk averse as they see a probably more aggressive taper looming and are looking at places where they see less risk from that.
After Paytm listing, how does one go about understanding the consumer tech companies or the new companies in India? That is one space where there are PE and global investors who funded them at incubation stage. What is your view there? If a stock is down 40% from its offer price, it is a debacle. There could be more pressure from existing players to start liquidating some of these stocks?
The fintech stocks are in general the unicorns that are now becoming public. They are a great 2010s play which are little late in the cycle in 2020s to be getting new investor interest. This was a great story for both public investors and for venture capital and private equity investors in the 2010s. As we go into a rising interest and inflationary environment which looks nothing like when these companies were set up or their valuations were rising, with a higher discount rate suddenly look less valuable or worthless — not because of their businesses because some of these companies may succeed and deliver real earnings by four-five-six years from now, but in a rising interest rate environment they are not going to give the best performance.
One wants to look for companies with cheap valuation on current earnings and not expensive valuations on five years out on earnings. That is the fundamental reason why the meme investors or the YOLO investors as we call them in the US, who think they have discovered easy way to make money, will be left swimming naked when the tide on easy money goes out.
I think a lot of investors jumping on these stocks are taking a lot of risk. Again this is not to say that some of these will not turn out to be real companies in a few years but from a valuation standpoint, they face serious headwinds in the short term if my concerns about rising interest rates and inflation turn out to be true.
