India is going to leapfrog like Japan did in 1960s: Ramesh Damani
I am constructive on our economic case despite it being troublesome.
What are the lessons one can take away from the market?
When I joined, the index was 800, today it is 40,000 and in the last 30 years, India has faced all sorts of tragedies. We have sent our gold to the IMF. We have had Kargil. Governments have come and gone. But the long term is a triumph of the optimist. While we are going through a particularly bad phase right now, most people will admit that we are in a very tough phase, there is an unexpected slowdown in the economy. There is a slowdown in corporate profits that is unexpected, but the arch of the stock market still points higher.
What I have learnt over long periods of time is to find great businesses and not worry too much and sit it out. You might obviously get gains immediately, but if you can find stocks that will compound over periods of time, you will have served your portfolio and yourself well.
You are also somebody who has a close eye on global investing scenario, you have seen economies evolve over time. What phase of the Indian economy are in we right now so that one could understand how Indian markets are likely to be in five, seven, ten years?
We are in an exciting time because every bull market tells a story and the story of this bull market has been that India is going to leapfrog like Japan did in the 1960s when it went from a third world country to a first world country.
I am not saying we are going to make that kind of quantum leap out here because our population base is much bigger, but we are going to create a middle class of some significant size in India based on economic prosperity. Now that it has been delayed a little bit, obviously the economy is slowing down right now. Ultimately the prime minister said that we get to be a $5-trillion economy. It might be seven years, it might be eight years, it does not really matter but we are going to be a $5-trillion economy. That will be a good source of prosperity for people. On the whole, I am constructive on our economic case despite it being troublesome. But any time you have to weed out inefficiency, corruption and tax evasion, it causes pain and I hope that we can recover. It requires a strong mandate from Delhi but I am hopeful that will happen.
How are you assessing various parts of Indian market valuations after the corrections that have panned out right now? Dou see scope of alpha in next couple of years?
Starting point values matter as does stock selection. We are buying very expensive stocks at this point hoping alpha or momentum will take them higher. They may but they typically do not end very well. I mean even glamour stocks correct and stay in a correction zone for a year or sometimes decades after that.
It is important for investors to find good valuations and I would suggest to them on a contrary basis to look at these midcap stocks which have bombed out completely. But some of them have good corporate governance, good visibility and good earnings. You could probably find value on those businesses.
You must have observed the various commentary coming from corporates from all sections not only autos and any other and you are also quasi corporates. What is your view, what is the handle on the demand scenario as far as the consumer goes?
In the retail part of the segment, where I am looking, no growth slowdown can be seen from the numbers, but if you look at auto or cement, there is some slowdown in bigger ticket items that are not popular consumption items.
Britannia made a headline when they said that biscuit sales are falling. Are all the categories under D-Mart exaggerated?
I do not want to particularly talk about those things because those get into areas which I am not supposed to talk.
Do you think that slowdown issue is exaggerated?
To be honest yes, there is palpable slowdown in many industries. The traders community fighting but there are some sectors which have been immune to these sort of problems. So, I would not necessarily paint it with the same brush or there are some industries are struggling and I think they require some sops but we need energy in this country. Forget everything else, the government needs to perhaps lower the direct tax rate and go with the PSU privatisation programme. In Delhi, they understand that the economy is in pain and they need to give proactive measures to revive it. I think they will come, and so I am hopeful.
What are your thoughts on disruption? Some of the categories like shared mobility have already got disrupted but what is on your radar?
It is extraordinary what you said. Everyone is, of course, familiar with the Ubers and Olas of the world which have had a direct impact on car sales. But recently, you would think that America could have a large non-vegetarian population but even when they speak to you, the Vege Impossible Burger launch by Burger King is challenging the basic pretext of the non-veg industry, that you can have your protein and you can have it on a plant based diet as opposed to a cattle-based diet. The profound implications of this for the livestock companies and processed food companies will mean all will undergo a rapid change. So, technology is challenging various industries at various times. As an investor, we need to be cognisant of that.
In fact, we also saw the speed at which Beyond Meat stock really went up in the US?
I was stunned, I thought it was just some fad going on and maybe it will take 20-30 years before it plays out. But there is a very clear possibility now that investors would not prefer beef or chicken but would prefer plant-based protein because it is just not only environmentally more friendly, the footprint for water is much less in those compared to the others. The number of litres of water it takes is huge compared to the plant protein that we are talking about. The economic implications are fairly staggering. So, industry after industry, automation, artificial intelligence, robotics, Ola and Uber, investors have to be cognisant. There are a few businesses of course which will survive. These are businesses with moats. There are some businesses; the sin stocks for example; cigarette, alcohol, seem recession proof. If you are feeling bad, you want a drink; you are feeling good, you want a drink, right. I do not think that business is going to be impacted immediately. So there are a few businesses, investors should look for those businesses but otherwise you should keep an eye on the technological cycle.
Are you giving a nudge that Indian alcohol and similar stocks which have gone into a bit of a range for the last couple of months and quarters, are looking attractive?
I would say that starting a few years ago, you were paying too high a price for them. These are great stocks, they are great franchisees. You can see the profitability for the next two, three, five years down the road. So I think the stocks now have corrected and they have come to somewhat more reasonable levels so they will continue to perform.
You have observed Mr Trump for long and the functioning of America. We are just months away from elections there as well. The way trade war issue is panning out and the way the fresh geopolitical risk in Saudi has erupted, what significance does it hold for Indian markets?
The Saudi drone attacks caught me by surprise. Saudi Arabia has a $75-billion budget in defence, third highest after US, USSR and yet they could not protect two key installations which is their life blood. That means they are more vulnerable, and this could escalate, get out of hand because clearly Saudi Arabia was caught napping at the wheel.
It is inconceivable to me that you would be so vulnerable in your key installations. That could lead to some geopolitical storm going on and given the fact that Mr Trump is already pushing the pedal with China, a lot of the medicines in the world, the API comes from China. So, they can start moving the prices up or cutting the supply of this thing. There is a lot of problems that need to be addressed by investors in the world and the Dow has had a 10-year bull run. It has gone to the 27000 level and has fallen viciously three times. This is the fourth time it is trying to make an attempt on that, let us see where it goes.