Markets perhaps are factoring in a lot of good things like drop in crude, topping of inflation, reversal of interest rates, strong economic growth and maybe a good budget. Which factors do you think the markets are pricing in for the next three to six months?
I agree that markets have priced in a lot of good news but I think the fact remains that globally and also in India we are at peak inflation. So we are much closer to the peak of interest rate cycle at this point of time than we were at the start of the year. The fact remains that India has been a standout market in that sense and a standout economy as well in terms of resilience despite growth headwinds.
My underlying belief is the standout performance that we have witnessed of Indian equity markets this year is not a one off thing. I think it is the beginning of a trend where India will clearly stand out.
More importantly I believe that probably once we see global investors starting to reallocate capital to emerging markets next year once the US Fed goes on to a pause I think this time around the capital flows that India will get will be significantly higher than we have seen in any of the previous cycles.
Is the party really over in rate sensitives, I mean, when I say rate sensitives I am talking about real estate largely?
No, not really. I do not think so because the fact remains that the underlying demand for real estate and the real economy remains very strong. Month-on-month for the last 14 months across top eight cities in India we are seeing highest ever monthly sales on real estate and highest ever stamp duty collection. And given the fact that prices by and large have remained flattish so the affordability index in the real estate has gone up significantly.
Also bear in mind that it is a sector which because of the RERA has seen massive consolidation. We have seen almost 60% of the players exit the industry because of the new tougher compliances.
I think the growth in the sector remains very long term because India is a market which is hugely short on housing and we need to create many more houses for many more people. And customers are concerned about the affordability than about the marginal increase in interest rates and in that context I do not think so that 100-200 bps increase in interest rates will have a significant impact on demand.
We have had a detail conversation on fintech and you have said that it is a bet which you have taken because now the margin of safety and your view of these businesses is strong. But if the fintech regulations are changed what will happen to some of these businesses. For example, right now is deriving a lot of business by its new lending business but in that margins are 4%, they may not sustain. So my question is that while these are high growth businesses will the environment and the moat around us change and will this make these businesses unfavourable?
India and the world itself is in transition where we are gradually transitioning towards the digital world. As they say probably 20 years out there will be convergence within the real world and the digital world because as they call the classical, the current generation is born digital. So I think over a slightly more longer period of time there will be convergence between lot of these traditional businesses and the so called digital business. In fact some of the new born companies are also taking omni channels approach to grow faster and to access different segments of the customer.
There is a segment of customers and that segment is growing very fast where customers like to do or execute things digitally and they are moving away from the physical world and I think that number of customers will keep increasing over a period of time. As customers become more and more adaptive to the whole digital world a lot of traditional companies will navigate and probably make a right pivots in their business by investing in technology to make their business agile and adaptable to digital technologies and digital world.
Having said that I firmly believe that businesses who do not transition themselves to digital world in 10-15 years probably will have a difficult time to survive.
I do not know whether it comes as a shock but the Adani Group has had quite an eventful year so far. Not just stock returns but also made it to the Nifty and it seems like many are gunning their way also into the Nifty. Just wanted to get your sense in whether you are invested in any of the names and if so why and why not and which are the names you find attractive still?
No unfortunately we do not have exposure to any companies across the Adani Group. We are more bottoms up investors and not top-down investors. We look at companies from bottom up perspective and we have by and large stayed away some of the utility or commodity oriented sectors which is where I think their dominant businesses are.
Secondly we like to own cash generating companies where we have as shareholders direct access to that cash flow. We do not usually prefer holdco structures where cash flow does not come to us as shareholders directly and as a result of combination of these things we have not been able to invest into any of Adani Group companies.
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