In an interview with ETMarkets, Chulani said: “Equity investing potentially gives people the opportunity to be part of India’s story, to diversify into other industries and effectively become “owners” of an elite group of companies that have managed to become outliers in their field,” Edited excerpts:
September started on a volatile note. It looks like the market is moving in a range and 18,000 is turning out to be a big resistance. Where are markets headed?
As a value investor, I believe that trying to analyze and predict short-term movements or trends is not easy.
Even the ability to de-couple has yet to be truly evidenced with the Chinese indices, which remain broadly correlated to the Dow despite the fact that China is the second largest economy in the world and a powerhouse in its own right.
So, rather than trying to second guess whether this is a continuation of the Indian bull market or a bull phase within a bear market, we prefer to look toward long-term structural themes and intrinsic values.
It is through this that we build on our confidence and conviction to stay the distance from whichever short-term scenario is thrown our way.
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We have more than 11 crore retail investors registered on the BSE website. The good part is that most Tier II and Tier III cities are seeing strong growth on a YoY basis when compared to metros. What does your channel check suggest?
This is good for India Inc. and broadly represents an increase of 140% from March 2020. This has been supported by the digitization of India and competitive broker rates.
Even then, I believe that this is a low double-digit penetration of the overall potential and will continue to grow as the ease of investing improves as well as the education of investors to allocate to a more productive asset class.
I am hopeful that this bodes well for both companies looking for capital to expand/improve productivity, which in turn should have a multiplying impact on the economy and employment.
On top of this, more and more people are getting a chance to be part of India’s growth story and its potential wealth creation.
What is powering the capital goods sector which was on buyers’ radar in the last month?
I believe that this is a result of a combination of multiple factors: the fact that we are coming off a low base, post-covid catch-up, strong planned spend from both the government and the private sector as they look to expand and modernize their existing facilities as well the fall in commodity prices which has made end products more attractively priced.
All these factors have given capital goods companies decently positioned order books.
What is your view on FMCG space in light of media reports that is planning to foray into the sector?
does, it has to go big to make it count. It certainly has the financial muscle-power, brand and infrastructure both technologically and through their retail footprint in order to make an impact and with the industry valued at over $110 billion, it certainly will be a prize worth going after.
Reliance is likely to initially push its commoditized products as well as acquire additional brands, which may bode well for smaller independents as they are folded into the Reliance family.
Existing FMCG valuation multiples, which are currently pretty fancy, may come under pressure as competition intensifies.
However, brands and shelf space in non-Reliance stores will be more difficult as existing brands have been in the business for decades and built-up stickiness in terms of customer and distribution loyalty.
IT stocks continue to suffer. What is pushing tech stocks lower and are they now available at attractive valuations after the recent fall? Any stocks which investors can look at for the long term?
IT has been impacted by multiple headwinds – firstly, their prime markets of the US and Europe are facing multiple issues from inflation, the US Fed is looking to take some of its money back as well as the knock-on impact from the conflict in Eastern Europe.
All this has led to great uncertainty, and predictions of a global recession thus dampening animal spirits. As a result, there seems to be limited visibility in their forecasts beyond 2-3 years.
On top of this, there has been a squeeze on margins caused by wage inflation and employee attrition. As for a long-term pick, I am more of a hard-asset kind of guy, so tech is not a sector where I would generally go fishing.
Small & midcaps outperformed by a wide margin the last month – how should investors play this theme in the coming months?
Given that we are stock pickers, we believe that there is still good value in this space. While I can’t really advise, if it was for myself and wasn’t a full-time investor, I would look for a strong fund manager with a long-term track in this space and then allocate a portion of my investable income on a regular basis.
This way I don’t need to spend too much of my own time doing any research and leave the hard work to the fund manager and his team of analysts to find a good clutch of stocks for me. It is all about outsourcing to those with a comparative advantage.
There is a lot of buzz around Adani Group of stocks. What should investors do –are all companies wealth creators or investors should book profits?
As a simple voyeur in this massive expansion of the Adani Group, one has to admire his sheer speed and boldness. He has literally cemented himself as a cornerstone player of the Indian economy.
I read a headline that his group stocks have zoomed 1,000%. Given the short time period against these bumper returns, if I had been fortunate enough to enjoy the ride, I would be looking to redeploy into other stocks that were relatively cheaper.
Please share a little about yourself.
I have always been interested in investing pretty much since I read Liar’s Poker in 1992. However, my journey and career has been one of ups and downs and side-ways moves – from the London School of Economics to audit to corporate finance to private equity and finally to finding the Holy Grail in public equity.
There are many MBAs, CFAs, and analysts who all dream of being the next big thing in investing, the next Buffett.
But at the end of the day, the ability to create true alpha is elusive to most. They may join a great franchise, but may never find the right investment philosophy.
For me that has taken a very long time and is very much due to luck and serendipity that I was able to connect with First Water’s Lead Advisor, Ricky Kirpalani.
I was very fortunate that he was generous enough to regularly impart his knowledge and guidance. Prior to First Water, he had a stellar personal track record and this has continued into the fund’s performance.
Currently, we are one of the top performing funds not just in India but in Emerging Markets Asia, according to BarclayHedge.
Even though at the time, I was running a $400m PE fund, I jumped at the chance to start First Water with him.
For sure, I still have a lot to learn, but it is like being a club-level tennis player and suddenly Federer opts to train you. You instantly become a better player.
Any changes you have made to your portfolio. If yes, what are the changes and why?
We are long-term investors so the names and sectors in our portfolio are generally pretty steady, but we are always looking at the relative value of the portfolio as a whole so are always looking to make moderate adjustments.
What is the trend you are seeing in retail investors’ trading? Does the trend favour long-term investment, F&O, intraday trading or commodity trading? What is the pecking order? What could be possible reasons for the trend?
I can’t possibly comment on the trends of retail, but it does seem that there is an increase in the discipline of the retail investor as SIP contributions have increased from around Rs 43,000 crore in 2016/17 to Rs 1,24,000 crore in 2021/22.
As a value investor, my only hope would be that they have a long-term vision in equities and don’t capitulate to the greed and fear of the market and its pied-pipers.
Equity investing potentially gives people the opportunity to be part of India’s story, to diversify into other industries and effectively become “owners” of an elite group of companies that have managed to become outliers in their field.
As mentioned earlier, if it was me, I would look to deploy the excess money that I can afford to lose towards fund managers who have a long-term proven track record and let them do the work to beat the market.
This should allow my money to work and let me do my day-job and not “day-trade”. This last aspect, I really don’t believe in and I will leave you with a quote from Ben Graham who is the pioneer of the School of Value Investing- “Day trading – holding stocks for a few hours at a time – is one of the best weapons ever invented for committing financial suicide”.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)