“One of the reasons America was great is capital innovation and productivity. I think capital is now available around the world if there is a good idea, but we will see a huge productivity cycle unleashed in India,” said Hiren Ved, CEO, CIO & Director, Alchemy Capital Management.
What’s happening in banking is quite interesting. Who would have thought that the biggest underperformers of recent years would be and look at the stars in the making – , Axis, all bottom-up plays within the PSU banks. Is the bank story intact? Can they still be used next year? I think there is no doubt about it: in the past we haven’t had PSU banks because private bank balance sheets are better, but this time everyone is starting on the same starting line and it’s because we’ve been through a massive deleveraging and supply cycle and during Covid we had another supply cycle and everyone was raising capital. So one can choose and choose.
This will be a marathon and it doesn’t matter who runs the first 10 km. As always in Hindi movies, the hero always comes in the last five km and makes it to the finish. So to your question on
or the others, who haven’t done well in financial services, remember it’s a marathon. There are a few that got off to a good start, there are a few that run at a steady pace and maybe they will pick up at some point.
So who is the hero of this movie? Who will win the final lap of the marathon? This time the movie is different. You have to wait until the end to find out who the hero is. But I have to say one thing that one of the thought processes that we had that has played out so far is that if you traditionally look at banks or lenders, you have to look at credit options, franchise, asset mix, yield, quality of management, especially the leader. That’s all still relevant, but you still have to tick a box and that’s how good your digital capabilities are, because after Covid, this industry has changed. They have branches but at the same time people don’t necessarily go to branches. Everything happens on an app.
So if you can’t deliver a great digital experience to a consumer, you’re likely to lose a few customers. When we looked at the whole landscape of lending and financial services we said ok all the traditional parameters are ticked but add one more – how good is the digital experience and I think some of the bigger franchises are struggling a bit today and maybe the markets take notice. Maybe they will get it, because it’s not that you can’t crack it, it’s not rocket science, you can crack it, but it’s an important variable to keep in mind as the fintechs are coming.
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We may not be betting on fintechs because they may not be making money, but they certainly disrupt parts of the value chain and if one is not ready one is likely to lose the competitive edge. That is a differentiator that all investors should keep in mind when rushing into borrowing or providing financial services. What were your top three positions at the same time last year and what are they now? Frankly, they haven’t changed.
So what were they? Well they were
Still think these stocks have a long way to go? Yes. We don’t change things because a quarter of an hour or a story changes. One holds stocks for multi-year cycles unless one sincerely believes that either the external environment has completely changed or the hypothesis has been turned upside down, which frankly hasn’t happened.
That might be the top three that hasn’t changed, but I don’t think globalization is going to go away, but there’s a kind of musical chair that’s going to happen and it’s India’s time to have the chair. We have all the elements in house to realize production. We have labor. For whatever reason, the demographics are bad and on top of the bad demographics they are just giving free money to those people and so those people don’t want to work anymore.
We have energy. We are now arranging the logistics. We have capital and we have entrepreneurship and we have an opportunity that is open to us because one big manufacturer is no longer such an attractive source of people to the world. It’s quite surprising, but we always had the talent as Rakesh Jhunjhunwala said, India is a runner without shoes. I think India is now a runner who has shoes on and can therefore run much faster. Today, manufacturing is a reality. We had lost ten years of production. Frankly, as of 2011, since the 2G and the coal scams broke out, I think the investment environment has soured. In addition, we got rid of a major hangover of leverage in the corporate sector that has been washed away.
So we had deleveraging. It took us 10 years to wash away the hangover from leverage. We now have a much more efficient system in terms of GST. Digitization will help improve the working capital cycle as money can move faster and we underestimate the power of productivity improvement because of the digitization we have implemented.
One of the reasons America was great is capital innovation and productivity. I think capital is available all over the world now if there is a good idea but we will see huge productivity cycle unleashed in India because when I used to give salary to my helper it would take seven days for him to get the money to his parents. Today he can zip it up in the same minute which means they can spend it today and that means the shopkeeper gets the money today. Since we went through Covid, activity levels have been low. But as we get out of Covid and activity levels rise, the real multiplier will be unleashed.
But your top three positions contain financial data; they contain no production, or am I missing something? No, then you have to go to the top 10. You also need to understand that stocks top notch, not because of the allotted costs, but they also grow at whatever rate they go up. I really think that from that lost decade we will have a renaissance of manufacturing in this country. India has shown it.
In the mid 90’s we created generic pharmaceutical champions – Sun,
, Ranbaxy – who conquered the world. I think that happens in specialty chemicals and in auto parts. In two-wheelers, some of our champions are already selling 50-60% of their volumes worldwide. Then I think the whole Aatmanirbhar Bharat and I think the world realized during Covid that you absolutely cannot rely on anyone else for very critical things.
I think there is now a greater awareness that one has to build capabilities in many areas or at least domestic capabilities and that is why today one of the two major groups in this country is considering producing semiconductors because if you are a leader If you want to be in electric vehicles or in the new energy sector, you need to be in control of the supply chain.
Second, this doesn’t happen often, but two industries worldwide are going through a huge investment cycle; one of these is the energy transition. We are moving from old to new energy and that will itself unleash a global capex cycle.
The second is in transportation where we are moving from traditional fuels to electric vehicles and hybrids and these are huge industries on a global scale. When that happens, it’s not just the end industries, but the entire ecosystem that evolves.
For example, when?
and Hyundai came to India, they created 50-60-70 car accessories that grew with them. Something similar will happen and besides there are two major industries that are very specific to India. One is defense, where we now want to have more production in India. So while the BELs and HALs and the BDLs will grow there is no doubt, but they will in turn create an ecosystem of private players that will feed the supply chain and that will unleash a new manufacturing trend.
I think we have a great opportunity and we will have a lot of winners. Indian entrepreneurs are great. Auto parts companies mainly just related to cars have started making non-vehicles for renewable energy and they have started supplying the EV value chain. So the skills are generic, but you can also apply them to various other industries as well as defense. I mean the Bharat Forge, the
Fasteners and more like those.
In which IPO would you rather not have invested purely as an investor? Fortunately, I have not invested in an IPO that has been bombed. So I can’t say that because I don’t tend to invest, but the ones I’ve invested in have happily made money.
When will Sensex reach 100,000? The Sensex will reach 100,000 by 2025, I think.
Biggest mistake or biggest investment regret? Asking my father to sell
when Kinetic Honda was doing well because I was still young and inexperienced. (Disclaimer: Recommendations, suggestions, views and opinions of the experts are their own. They do not represent the views of Economic Times)