Nilesh Shah of Kotak Mutual Fund shared these views years ago – at the 2015 Morningstar Investment Conference.
He will be participating at the 9th MIC to be held in Mumbai on September 17 and 18 where he and Sanjoy Bhattacharyya of Fortuna Capital, a Mumbai-based investment advisory firm, will discuss the road ahead for fixed income investors.
As mentioned, though these views were shared in 2015, the crux of the matter is as relevant today.
Indian equity is owned by foreign investors, by the foreign direct investor, and by Indian promoters. Don’t get left out.
In dollar terms today, Maruti Suzuki Ltd has delivered far better return than any other automobile stock in the world. Its market cap is bigger than Suzuki.
Suzuki owns more than half of Maruti, but Maruti doesn't own anything of Suzuki.
Suzuki doesn't give anything to Maruti, Maruti pays royalty to Suzuki.
Suzuki operates all over the world, Maruti operates only in India.
What is true for Maruti is true for Hindustan Unilever, P&G, GlaxoSmithKline, Colgate, and so on and so forth.
My father is no more. But had he still been around, I would have walked up to him and said, “Papa, if you had bought Colgate when the IPO came at Rs 14, or if you had bought Hindustan Lever when the IPO came at par, I could have retired by now. I would not have had to work this hard.”
My father would most probably tell me that in his time there was no Morningstar or CNBC or Economic Times. Fair enough. That is a good point. What excuse do you have when after 20 years your child asks you why you never bought the Kotak Bank stock or the HDFC Bank stock despite opening an account there?
Our GDP is now, let's say, about $2 trillion (do note this was 2015). And companies like Infosys and Axis Bank and Kotak Bank and Reliance Industries were created. Over the next 7 to 15 years this $2 trillion will become $4 trillion. Won’t we see similar kind of wealth creation? You need to be in equity to capture this. The generation before us, nor the one after us, will get this kind of opportunity.
The domestic flow of capital into equities is increasing. There are 86 lakh Indians who do SIPs every month, amounting to Rs 30,000 crore every year. (This is in 2015). The domestic flow of capital from real estate and gold which is coming into equity that can really change the dynamics of demand and supply. In the last 10 years, we imported $221 billion of gold, silver and diamonds. All the FIIs put together in debt and equity markets have given us $190 billion. Imagine if this money ($221 billion) went into Indian equity?
Draw a balance between some global exposure and some Indian.
I do see the logic in some global exposure from an asset allocation point of view.
Take Apple. Huge market cap. Huge brand recognition. Huge brand loyalty. The brand loyalty of Apple is so strong that people stay up overnight and line outside the store to buy that product. And, pay a premium for it. And are willing to upgrade it when a new version comes along. Apple is sold all over the world; from the U.S. to Azerbaijan to India to Zambia.
Take HDFC. It has barely scratched the surface of the whole of India. They have one simple product, the home loan. In a fiercely competitive market; if someone is walking into an HDFC branch to get the loan and at the door they are told that SBI is giving the same amount for a a quarter percent cheaper, the customer will move out.
Apple's market cap is 23x bigger than HDFC, yet in dollar terms HDFC has delivered 3x more return than Apple. All of us know that HDFC is a solid company, but how many of us have shares in it? But most will have an iPhone or iPad.
So go overseas in your hunt for good investments, but do ensure that you retain ownership of Indian companies too.
Make the leap, if you have not.
The Indian equity market is like the Indian Railway. When you sit in the train, it makes lot of noise and jerks a lot. But it is important to sit in the train rather than stand on the platform. If you stand on the platform until the train improves its ride to become much smoother, you will never get onto the ride.
HDFC has outperformed Apple. How many times would HDFC have looked expensive in last 25 years? Most of the time. Or at least, half the time. How many times has the HDFC stock corrected in one year from top to bottom? Average is 45%. If HDFC was quoting at 100 every year, it has come down to 55 every year. The gap between high and low of HDFC is 45%. Now, if you want to time and are successful, then you can invest at the bottom. If you don't have that ability, invest systematically.
Nilesh Shah will be participating at the 9th Morningstar Investment Conference to be held on September 17-18, at Hotel Sahara Star, Mumbai. Below is the brief for his session, where he engages in a conversation with Sanjoy Bhattacharyya of Fortuna Capital.
Registration
Speakers and Agenda
The Road Ahead for Fixed Income Investors
It appears that the jazz age of India’s debt market is grinding to a halt. A series of difficulties have pulled the carpet out from under everyone’s feet. Credit investors are continuing to wade through troubled waters with a relentless stream of downgrades and defaults weighing in on investor sentiment. Sudden downgrades post a default have led to questions about India’s rating agencies. The regulator has stepped in to introduce tighter norms. Managers grapple with stressed investments, jittery investors and shrinking flows. An analysis on the implications for investors.
