Considering that you have been observing Bharti for a long time, how do you assess the dynamics of the industry and whether or not Bharti will be able to brave the power that Jio brings with her?
There are only two, three players and yet the telecoms industry is struggling to reach its breakeven point. If you add the three together there is hardly any profit on the table and that is a very sad part. It is one of the biggest consumers of data in the world. I think we are by far the biggest or maybe the number two in the world. So everyone is hoping that someday it will make money. Current valuations are based on book price rather than reality, but that hope is well placed and I’m sure in the next 24 months we will see a much better outlook than what we’ve seen in the past two or so. last three years.
Over the next year or so, all of the supply chain disruption or shortage that has occurred due to logistics will hopefully be resolved. Today what appears to be a problem may not be a permanent problem next year, but the markets will start to take notice and they will start to normalize it long before it actually happens. So what’s the best way to play on the topic of supply chain standardization?
I don’t have a good idea of the standardization of the supply chain. Whether it takes a year or two, no one knows, the authorities are trying things out. In some cases things are improving as well but if by any chance it continues, you have to look to see the guy who takes advantage of this supply chain problem. He does not want this problem fixed. So it can go on and it can really hurt some businesses.
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One of the things you can do is skew the portfolio between services and manufacturing and you can be a little underweight on manufacturing and overweight on services, that’s a strategy.
The second strategy is that manufacturing companies that don’t make much use of global logistics, inbound or outbound, can be looked at, but it’s very difficult. It is not known which level two, level three raw material comes from abroad and how the link works. So, manufacturing companies will struggle, at least in terms of profits until this is sorted out.
Is the automobile a pocket where one should be a counter-buyer or should we worry about the disruption of electric vehicles?
Of course, one has to be aware of the EV challenge because now it is clearly in the foreground. Each company is committed that by 2025-2030, a significant part of production and one or two innovations on the battery side will make it a much more serious challenge for integrated circuit companies. But right now in India the penetration is a big problem in the sense that we don’t have enough cars and motorcycles on the road and the demand is very high. I don’t think people are going to wait for the arrival of electric vehicles.
Electric vehicles have their own challenges in terms of mass customization, but at the moment the problem is the challenge of sourcing from the car side. Two-wheelers have a demand problem and that puzzles me when we talk about a strong economy. The bottom of the pyramid is driven by two-wheeler consumers and things are not going well.
But I think the auto is a really big opportunity, posting all these problems because there is going to be pent up demand and as the economy gets stronger and consumers come out, if there is any growth in the job, it is not possible that people do not buy motorcycles and cars. I therefore remain optimistic about the medium-term demand outlook. It’s just that I have no idea when the CPU issues will be fixed.
As a traditional investor like yours, are you worried about the kind of valuations that some IPOs end up with?
There is such a rush on IPOs. Before, we never cared about IPOs and they were much more reasonable back then. Today there is a rush of IPOs and they are not reasonably priced. I don’t know how to negotiate and some of them are very good companies. It’s great to beat all the management and understand them. At some point, whenever the ratings are reasonable, this would be a great time to participate.
But in general IPO prices are very demanding. Secondary market businesses are cheaper.
So, you haven’t subscribed to any of these mega IPOs?
We don’t have strong feelings against a company, but the appetite that comes when you hear about a new story and the prices are undiscovered and low is lacking. Digital businesses, whether local or global, are entering markets and thanks to Sebi, allowing them to enter markets without even making a profit. This has led to many companies entering the market that are not making a profit. Now is the perfect time to find out about these companies. We can allocate 1% to 1.5% in these companies to see if they are able to grow. I am convinced that the return on this part of the allocation will be quite low compared to the rest of the portfolio. But if we don’t invest now, we will never learn.
So we should not be anti-digital companies. I think in the next five to seven years digital businesses are going to explode. Once they are successful they will develop at a crazy rate and therefore this space will be much bigger. What these businesses will be and how quickly they will grow, no one knows. We only reserve our space at a few of these companies, but we are very careful about what we buy.