thank you so much for uh the time on your calendar so to begin with today's uh uh discussion so uh the first question is from rickin ricken is our alumni he's presently working with omkara capital with varinda sir we can maybe you can proceed further with your question hi sir uh good evening to you this weekend this is i've been a avid listener to most of your session then in one of them you mentioned about cycles and you know small cap large cap and med cap and you know how they diverge during bear markets and they converge during bull markets so when you had taken that session that time they were perfectly you know meeting each other and then we have seen the rally ever since so at this point of time they're all below their october peaks so uh going forward how would you think of uh these would like would you expect history to repeat going forward like what would how would you make sense of this data now yeah um there are two things to bear in mind when we use these graphs first is we should be conscious that these indices composition change time to time sometimes a stock which runs up sharply and as a result of which common to the top 500 therefore come into small cap index after a big rally similarly a stock which is between 250 to 500 because of sharp upside movement becomes a mid cap which is 100 to 250 and comes into the mid capital x and if the index did not have any restructuring any change then this graph would have looked slightly different and these changes are not at constant intervals sometimes in a year you may find three material changes sometimes in two three years you don't see any material changes and therefore um making short period inferences based on this stuff may be misleading but it gives you what it gives you an empirical evidence that in a raising market make caps raised more than large and in a following market to follow now price has two variables right earnings and payment so in a raising market small caps raise more either because units of the small caps rise more in a rising environment or maybe p multiple of small caps lies more exactly on the reverse side also in a falling market the prices of small cap indices decline a lot maybe because earnings of small caps struggle in tough environments or pre multiples of small caps decline sharply in tougher both can happen so these two we should be arrested but where we use this graph practically is before i explain why where we use also i am assuming that you already know that large cap is only 100 companies mid cap has 150 companies small caps has 250 companies um but when you talk to investors as well as fund managers they look at these three as separate islands of opportunities many often i am sure you may come across your own clients your own friends saying should we sell mid caps should be by large caps or should we increase small caps and decrease that kind of choices um like you have in us and europe and many other countries in india you have those kind of choices only in few businesses like financial services i.t maybe pharmaceutical where you have large gaps you have mid caps you have small caps sometimes small cap id is cheap sometimes large capacity is expensive so you can make that segmental choices but let's say tomorrow you want to invest in insurance industry there's no small cap there there's no mid cap the only logic but on the other hand you want to invest in footwear industry no large cap you have only split caps you want to invest in building materials like plywoods lamination tiles you don't even have mid caps you have small cats you want to invest in your industry or our industry wealth management industry there is no mid cap largest wealth management company iaf and bill is a small cap so the choices we need to make in our hopefully is a function of the businesses we choose to use right but if the business we choose to invest doesn't have choices then how do we make choices of the portfolio based on these three lines okay but where we should use this is uh for example if you take 2018 there is 2018. look at january 2018 and december 2018. what you will find large are ac small mid caps falling correct do you find that so it happened which never it happened before it happened never later why because that year january sebi came with the mutual fund restructuring regulations whereby they said first hundred companies are large caps next 150 mid caps next 250 small caps and then then told every major fund you have to define your benchmark variable scheme and once you define your benchmark 80 percent of the composition has to be from that units so you can't call a fund as large cap fund and have many small meetings you can have twenty percent smaller yes but eighty percent has to be from this university so that made many mutual funds in 2018 to sell small mid caps and by large caps not because they felt as the right thing to do but because they have to comply so they were selling small med caps because they have to sell and they have to sell before 30 percent so is that an opportunity fantastic opportunity if someone had seen this graph and if you are in december 2018 what proportion of your portfolio should be in large cap zero what percentage of portfolio should have been small make a hundred percent now come to september today that is september 21 yeah september 21 september 21 correct in september 21 two things happened one the number of ipos in india hit all time high and number of companies insiders increase take it 12 year low 12 year low in september both tells you what both tells you that people are happy to die right promoters are happy too they're not keen to eat this is one sign the second sign the incremental flow we discussed no small caps rising either because earnings are rising rpe multiples are exceeding so if you look at the small cap price which one was driving that price earnings are p p multiplies not earnings so what do what should you do if you are not benchmarked investor you have freedom of making choices you should be reducing smart meetings right but this is only at the uh allocation level that doesn't mean every small cable should sell that doesn't mean a very large capacity but these graphs should be used more in the broader inferences not in stock selection it gives you warning signs it gives you opportunity green lights it gives you when you should be even so what we did in september 21 are during around that time is we have reduced to small caps from 50 60 70 percent of certain portfolios to below 20 30 and we have never been in large caps in 2018 19 20. today 30 40 wasn't our previous logic okay the final point in this is this chart captures only the price right this is only value how index went up where is the volume in this it's not there and we are assuming volume is neutral it is not the large cap delivers is 75 percent of india's market cap mid cap universe and small cap universe put together is only 20 percent another 20 percent may be 78 small caps maybe 11 12 split caps the price discovery mechanism in any asset class in any country is a function of the type of people who are in the price discovery process let's say you want to buy real estate in chennai and there are only five guys in chennai who are selling real estate market leaves queue but if you are buying a real estate in palm beach delhi and you have 50 different types of sellers 50 different types of buyers price discovery mechanism is little more mature right so in large caps you have 85 percent of fi investments in india are in large caps more than 80 percent of material investments are in large caps more than 85 90 percent of private insurance companies portfolios are in large caps and in large caps maybe 70 of the top five portfolio managers are also in large caps large number of family offices large portion of their portfolio is in large states which means what in large gaps you may find sme a spine you may find a mutual fund selling pms buying you may find some family offices selling some family offices buying but that's not the case in smaller maintenance so what it means leads to about a month back on a thursday market swim 2 400 points right do you remember in one day it fell big so what was 2400 points in percentage terms about four percent of census it declined four percent in one day that day how much small net caps fell you don't need statistical evidence it would have fallen more than four percent like some five six percent but how many of us noticed that day that uh when sensex went 2400 points all the sensex stocks were trading some buyers some sellers someone bought some console there were price transactions happening but that day if you take total number of stocks listed in 1940 stocks 912 stocks had government sector mobile only sellers because in large caps when they fall 10 percent you have seen 10 percent green line drug decline in the last few months right and the same time you found metcalf swallowing small caps falling but uh the small cap medicare volumes fell seventy eighty percent archicad volume did not actually large volumes sometimes but small mid caps are not that so if you are readjusting your portfolio if you have to restructure your portfolio how do you restructure portfolio in spawn mid caps or times like this you cannot because what do you want to sell you can't sell so people like us who manage large capitals relatively speaking i'm still a small manager but when it comes to small caps i'm a large manager so uh should i restructure on a fall or should there be structure and arise is easy to restructure an erase so it's so some of that this graph won't capture which is what i am trying to help you understand the graph should be used more than a the directional inference not in implementation today um looking at the graph we should not decide we should buy small cap but looking at the graph it is clear that we are far away from convergence which means we should not be overly into smaller capsules because the pain if it continues you can't restructure if you buy so what do you buy is something you know you want to clear your mind for some time that's one i don't know whether you have the other graph which you always use in divergences within large cap mid cap small caps if you allow me to share i can share my circles and maybe because this is a topic and we already have discussed seventy eighty percent the last 20 percent if we discussed in the same classes a lot of clarity can you enable me to share my school so sorry yes so this is what i mentioned if you see the promoter buying where is september 21 this is september 20. do you see the number of companies promoters buying has reduced a lot the bar to be seen with the left hand side number of companies promoting board and yellow line this mid cap index so when index went up a lot it's huge this line that you see you didn't see since 2007. right now this is what i wanted to it may take only five to three minutes but it may need some attention so this we prepared last month and we took last three years last three years we have seen a fall under ice so if you take february 19 to february 22 and we have this for january 19th to january 22 we have this for december 18 to december 21. so if you take over a three year stretch it's very very very clear and it is consistent that the line graph is large cap index to be seen with the left hand side y axis each dot is each large cap stocks actual return in the last three years to be seen with the right hand side y axis so what is the point we are trying to say is had you invested 100 rupees three years back in sensex or nifty or any large cap index that would have become 70 rupees by march 20 and now 150 so how much sensex has gone up last three years 50 from the recent low 70 has become 150 it looks like 120 percent growth in last two years effectively last three years how much sense xnmp has gone up fifty percent during this period did how many of the large caps moved fifty percent this is fifty percent hardly twenty large gaps have moved to fifty percent last three years but 100 stock large cap index has smoothed 50 percent out of 100 stocks in large cap universe which has moved 50 percent last 30 years only 20 stocks small 50 percent there are 20 stocks which are gone up more than 150 and there are ten large cap whose prices today are lower than what they were three years back collection of all this is large capital index okay you see divergence even within large categories when you see that in mid caps this is mid caps optically first thing that strikes your mind is number of dots diverging is lot more correct there are 150 mid caps so 100 rupees in mid cap index in february 18 has become 65 rupees by march 20 which means it fell more than large caps and then it went to 165 it went up more than index but effectively how much mid caps have done last three years same 50 but during this period how many mid caps went up 50 percent this is hardly 20 30 bitcoins one third of the mid cap index has gone up more than 150 in the same time now this is small caps is there any pattern absolutely no pattern you find so 100 rupees in small cap index in february 19 by march 20 became group below 60 then went to 200 60 becoming 200 looks like a wonderful rally but 100 has become 200 but during this period that 100 went to 200 and then fell to 170 how much small cap index has gone up seventy percent during this three years period the small cap index went up seventy percent and how many small caps went up seventy percent maybe hundred hundred fifty but more than hundred small caps are today lower than what they were three years back in absolute price and there are hundred large caps which are gone up three times divergence is small so you can't use the first line first graph that we used in building portfolios but the first graph that you used gives you some kind of a directional indication of where do you look for right opportunities and what is driving that if small cap growth of 100 that became 60 becoming 200 is driven by p expansions then you know you need to be careful um and if large caps haven't moved within large caps certain stocks have not moved even though units are moved maybe they can consider somewhere so uh when september 21 not only this graph show i showed another promoter inference data so if you combine these two you will get a fair idea that september 21 is not a time one should be aggressively allocating more small cap and within small cap that was not a time to spray and pray there are certain times you can do that um right you don't know which is really the best one so you instead of buying four or five best stocks by 20 to capture some which is what many mutual funds do um but september 21 certainly was not a time to do that this is a time to be even more more and more stock oriented than index oriented but having said that this is not uh we are far away from convergence point convergence point is where we should use this graph to reconvince ourselves that almost all of our portfolio should be in small mid caps because that's what is taking most of the but today that's not we are nowhere near that place yes sir rick and i have a follow-up question on that is it okay if i ask so please answer uh sir so we you said uh we can't use this graph to you know obviously decide in which direction we should move but let's say if we are in the mix of large mid and small and there comes a point where you need to let's say shift buckets from mid and small towards large how do you do that like how much proportion what method do you follow there's no method yet there's no the more and more you put method into it sometimes it you get trapped into that method your stock as i mentioned your selection should be driven by the businesses that you choose uh large cap should be an outcome of what you are doing not you should not have a top-down decision okay i'm going to be in large capital i know here what are we saying the businesses that we were holding and small cap index when we looked at this trend most of the growth is coming from b expansion and when small cap index went up 200 percent it is not that all stocks went up 200 percent somewhere didn't move for example take broken industry take our own industry all of you know if you know you don't guys you know i see securities so what has happened in the last three years four years and material stock today is half of where it was fully respected so utilize stock is 40 percent of where it was four years back and isis securities three times of very well four years so your your inference of allocation to the sector should be driven by whether you are holding icc similarly within small cap if you are holding specialty chemicals which in 2018 they are trading at the same level where they were in 2015. and even though earnings were growing price did not in 18. and when the market interest came into rupee many stocks went up 4x 5x unix did not go same 20 22 percent earning companies knew 25 26 percent but even if you calculate three years of earnings not in the price and next to two years of earnings to get into the price still 100 should have become 250 but many stocks 100 became 500 and 600 because p multiple which used to be 15 18 20 40 50 60 and therefore you cut down but most of the specialty chemicals were small caps that became expensive but if today some of the large i.t names or large ranking stocks are available so i want to buy so that's how we so it is not a decision of selling small caps and buying larger it is the decision of selling specialty capitals and buying large banks trading close to people which is cheap and that will when to implement these graphs will help you in reconfirming your decision this graph should not be used to take an allocation decision of small cap versus speed capacity this graph should be used to validate what otherwise valuations are pushing you they can please move forward thanks a lot sir for explaining it so well uh so my second question is a little bit around macroeconomics um so now we are in a situation where there is persistent inflation in the system everywhere globally and interest rates are rising and are expected to rise further so from a portfolio construction standpoint how do you make sense of such data and how do you decide what kind of implication you it means for your own portfolio see macro is no doubt important but how do we take a view on that see if if in a classroom if you don't know the answer which others know then you should feel bad about it even no one knows the answer and you also don't why should we feel bad so in macro that's see macro one advantage in fund management industries you can speak macro for endless hours without saying anything but when you speak company earnings only five ten minutes you can speak after that you yourself don't know what else to speak second three months later if someone had taken note of it or someone had recorded it will look very hard macro is not like that macro you three months later you will speak some other mac six months later there will be another network so you can take you can speak for about macro without being accountable but you can't speak about a company or a sector without being open so which is the advantage of speaking macro performance or people in the fundamental industry because in macro you can never be precise and you can never vary one of my friend who is in the acquisitions team in johnson johnson universe in johnson johnson every presentation you make okay first to 10 minutes should be recap of your previous presentation whoever it is so no fund manager goes to johnson right because if you go there they will first say okay last time when you came what did you say please can you spend 10 minutes so that you do and you talk you look at most of the fund managers talk about go away the free flow weight or many other matters in the past of the time they write of the time and many times that has not been very helpful in second in sometimes we over generalize methods that's the unfortunate part see for example if is interest rate inflation will they have some impact on the companies we hold in the portfolio they will no doubt about that the extent to which they may have an impact maybe some of us are overestimating some of the surrender still there will be some impact but i don't have any method to know what is likely outcome so if i am not too convinced and there is a good chance i could go wrong then i should be in certain kind of stocks where the impact will be less right but just because globally inflation is rising just because nobody interest rates are very safe doesn't mean it should happen in india the impression people get that we are all highly integrated market and we are highly integrated economy we are not who said we are integrated for example if you ask indian entrepreneurs in the last 10 years which is the year with the highest interest costing that they will say 2013. that's the first year when globally rates went into negatives okay so if you take january 2008 and january 2013 uh thirty year jesus in u.s fell from so what was 10 years jesus yield of india between 2008 and 13. they moved from eight to nine and a half we had our own challenges in 2012 13 on capex we had 40 billion dollars of fccb's which were outstanding since 2007 all came for maturity in 2012 and there was no fccb market and indian corporates were not able to borrow globally those days we used to call about peaks portugal italy greece spain like pags so psg's market was becoming a bad word losing debt was a bad word so indian companies were not able to raise globally so they were borrowing in rupee terms and paying back foreign currency and that added to significant demand for capital so rates went up but in the last three years the rates are falling in india because rba cut rates rbi was cutting rates in 2014 15 16 also but rates will fall why in the last two three years home loan rates have fallen from eight eight and a half to in first time spay did 7.25 everyone thought it's a decent weight now everyone is being 600. because harvey reduced rate more our rates are falling because demand for capital is declined and supply of capital has gone up right in the last three years today if you take sp account balances are all time high current account balances all time term deposit banks all time high pms industry we're in a previous industry take pms industry last three years the avm that they collected from investors is more than what they collected since cebi gave permission to the first pms manager in 1993 so 1993 to 2016 what pms managers it is what they collected last four years that's not any different with mutual funds the total money mutual funds are collected from 16 to 21 is more than what they collected previous 20 years that's not any different with brokers total number of demand accounts that they open last three years is more than what they opened previous 20 years all these is coming from where it is not coming from world times of india's writing times of india wrote that these are all guys who are stuck at home for weight they are no smaller work they are all opening trading accounts and buying and selling stocks and once normalcy comes back these people go back to jobs and activity market decline if that is the case we should have seen declining activity right we actually saw increased activity so where is it coming from so it is not coming from bank of lawsuits it was not coming from other financials so where is this money coming from the money coming from place where it was not properly recorded it is coming from money otherwise that has gone into board this is a money which otherwise you would have gone into real estate so so supply of capital is part of clearly right demand for capital during the same period is it this demand same no take a certified like top bc 500 companies today their debt today in absolute terms is lower but in relative terms it is 1.3 times better now and it used to be three and a half times a beta in 2016. so just in five years that and whatever capex you see everyone says you know pla capex credit corporate credit should grow this foolish way because there is this capex happening determine how much capital is going to go for example tomorrow you want to put up a spinning mill and you want to do a thousand turnover you have to put 800 in capex but if you want to do specialty giving same thousand groups you don't need 800 crores capitals you can do it in 300 photos you want to do 1000 crores turnover in in a um [Music] dairy industry say you make yogurt good do you need a hundred percent over you don't because your asset turnover ratio is less than a month you can do thousand turnover by putting a fixed asset less than that so businesses will the type of investments that goes in determine kind of demand for credit so corporate credit is declining i don't think the demand for capital will push our rates higher but look at the u.s exactly right everyone looks at google and apple's balance sheet and say u.s companies are cash rich if you take s p 500 that that today is uh two and a half three times higher than where it was five years back who's the biggest buyer of utilities in u.s not a institutions the biggest buyer of youtube is in u.s companies which did buybacks and this buybacks were funded with leverage so what i am saying is while the macros are important there is no method to find them of any use in stock thinking that they're not going to use and stop speaking let's not focus too much on time but what we should be aware of is a macros of global markets are different than macro surface and if we get a historical perspective pray if i need to error on the wrong side i would rather hear on the side of interest rates going up but instead of carrying on interstate which means i think it is safer to assume that the indian rates are not going to go even if global rates go indian inflation is not going to be troublesome even if global it's people give too much importance to oil on the impact of oil in inflation like what happened 10 years back when oil price went to 100 high price went to 120 dollars in 2008 uh our forex resources was not even 300 billion now it is double up that and our economy was just one trillion when we had 140 billion item in oil the economy is grown nominal terms more than develop that and uh when fast to 15 billion dollars the domestic household savings was not even half of that now domestic for school savings in equities so if is sell 18 billion dollars and we still don't fall so things change and therefore uh global inference and macros they are important but somehow i get a feeling we are giving disproportionately high amount of time to something which is less important we should be focusing on where is the opportunity if if government tax collection is 43 percent we should not should we not ask the question where is this person coming from how can a country of such a large size grow tax at 43 how do you if you are a government of india you should be asking that question right my tax collection should be going up either my tax rate should be going up which it hasn't our taxable profit should have grown which it hasn't then what is the third only third way your tax collection can be higher these compliance people who have not been paying taxes that's it is there any other way tax collection of a country can grow tax rate is same taxable profit hasn't grown so the only other way is people who earlier did not file tax returns are filing in pay so i mean why that is very critical that item for us right but uh 90 percent of our attention is in global macros not even 10 percent in something which is critically important for us to understand if we get that understanding that will help us probably do these topics macros don't macros are good for allocations which is wealth manager's question for you and me who are into stock picking um it's not that did i answer the question correctly yeah so yeah i mean thank you i got a good perspective thank you so much for the answer uh we can move forward with the next question from shivani shivani is our finbridge student just like ahmed was so shivani you can start with your question very good evening sir it's a pleasure to talk to you thank you thank you actually sir i have three questions i will start with my first question so i wanted to understand how do you use the parameter of promoter holding activities the way they buy or sell the stock to evidence the market valuation of the company um in the last 15 years we have data from 2005. every quarter if you download the list of companies where promoters have increased it for example 31st march got over this week before 21st april all companies have to file shareholding pattern and 21st april just download all the companies where promoter simply state and you don't know whether it is large cap it can small cap you don't know whether it's good company background all you know is he is the list of companies where promoters have increased you log in and buy all the stocks one lakh would be siege and you hold on three years and blindly sell and the balance in 90 days you don't look at market you do your regular day job for our jobs and then june quarter gets over by 21st july download the list of companies you buy one lakh rupees each hold on three years and then blindly sell don't look at market next 90 days you do your regular day job if someone had just done that since 2005 till 2021 you would have made 23.7 percent cat the nearest best performing benchmark is not even half of it and no fund manager i know has done that even if i could not do it why it is so easy but very difficult is you need to trust this system right in march 2020 when kobe happened markets fell 30 everyone became half mbbs and looking at global markets moving vaccine temperature all that how many of us ask the question first who is buying who is selling out of top 500 companies 94 companies are and everyone is shorting data stocks total stocks but the biggest buyer of indian hotels that month was chairman then managing director executive director facilities manager everyone is buying are they not oblivious to what's happening they were also reading newspapers they were also watching same television so what water activity gives you is certainly a great perspective where to look for idea because you had less time you need to move forward and you you may have to do research and you may have to do research on businesses where research reports may not be available so you cannot research 500 companies so which 20 30 companies you should look at promoter buying is a great filter to use but i am not buying indian hotels because promoters out of this list which i told you 23.7 about there were there was 450 plus companies that came into the list in different time intervals maybe out of them eleven percent of the companies would have given negative return which means promoter spot you bought after promoter's spot you held three years and then sold still lost money that would have been your experience in eleven percent of the cases in about fourteen fifteen percent of the cases you would have made single digit return not in cagr actual single digit over a three year period even though you bought after the promotion but in seventy percent of the test cases your irr would have been between 25 and 40 that make sure which means when 93 promoters buy and you buy only 10 and that time comes under the 11 percent of the universe your experience of tracking this would be bad and if i buy 20 companies and that 20 is out of the 70 companies where performance error is great my insider shadow portfolio will have 25 to 40 percent irr which is fortunately that case in incident shadow twice that we did in the past and this time also third time so for us this is only a screener so which means we should not buy because product is buying but promoter buying tells you where to look for ideas why we should ask the question no why in 2020 first quarter the sector with the highest promoter buying was metals and no one was buying metals in 2020 january if you take previous one year three year five year return in metals was negative and that's where promoter buying was dedicated and now we should be asking questions no way in the last three weeks two brothers of gargridge it's not yet evident but there is some kind of disagreement some kind of family settlements the stock is down thirty forty percent really price is lower than where it was five years back so price is lower than five years back firs are sellers mutual funds are sellers and the promoters are working so then we should ask that question no i'm not saying you should go and buy it but because he's acting you should do that yes yes sir i really like the way you answered it so my second question is around see in foreign we see that most of the management are having single digit for them whereas in india it's more than half so will there be any shift in india also the way it is in foreign because of more of the people are participating in the markets you are correct actually it's more to do with legacy it's also to do with the um okay i'll give you one data point uh when war opened in russia the same government closed the stock market i seen stock markets are closed who felt very bad locals are outsiders when indian markets gets closed who will feel very bad part of us will feel bad no markets are closed i can't sell when russian markets closed one question no one asked is who is holding russian stocks eighty percent of the russian stocks were hidden by faas eighty percent of the free float of russian equities are killed by affairs locals don't invest so when russian government closed the stock market local russians never felt the pain because there is more much equities similarly in india if you take before 1991 there was no ipo there is no um private equity there is no venture capital there's no private sector banks so the principal form of financing if you're an entrepreneur in 1970s 80s was to access debt and those days banks used to insist promoters to give personal guarantees even if the company takes a loan in india now it is called bad governance in 1980s 90s it wasn't normal so if you are mukesh money you may own 45 percent of reliance but if reliance is taking a thousand crore date sba will take personal guarantee from occasionally so much of money should say no no no i am only having five percent so if you present with the debt only i should between my guarantee i should not give my guarantee for 100 so what i am saying is many indian companies in the 80s 90s they had to take significant equity because there is no other way to get they were able to get debt capital not equity but is that the case in new generation businesses in india today no you take more what is in promoters taking information what are the main main many businesses that were built in the last 5 10 15 years you will find institutions have been dominant because they participate in this company even before yesterday but that was not the case in 1967 so it is our legacy issue but that legacy issue will run for some time it will run one more generation so i think it will take another um maybe when you become my seat and probably you will find indian chevrolet pattern similar to global yeah yes sir i understood sir and the third question is can you just elaborate the line you spoke in the video that leaders are not always large cap yeah that's very simple industry bank is a large cap but not a leader better india is a leader uh but not a large game because yeah yeah afl asset is fantastic i even is a leader but it's a small cap it's not even mid cap so when regulators define large mid small cap based on relative market capitalizations you will find certain businesses having large capitalizations because that's what determine their presence in the business like insurance industry insurance business requires calculating this it requires certain size of shareholders network it has to be large cap you can't have a small cap [Music] insurance company but new emerging businesses the leader will always be smaller how do you then define leader leader is someone who leads by either brand which gives margin or who leads by innovation and opening up newer geographies viewers so there are certain characteristics always attached to a leader if those characteristics exist even if he is the largest player he may not be leader so one is large cap business leaders sometimes you may find in businesses some guys are large players but they are not leaders they may be following the second game for example um slowly camc was getting into that right actually you see mutual fund was the largest major fund for five years back um but they lost leadership to whom you stand back so what happened jesus is a leader certainly but suddenly in amc game leadership is beginning to change because 10 years back when mutual fund area was nine lakh sixty thousand roads richardson was the hdc was the largest mutual fund but 46 of the mutual fund investors investments came from investors in mumbai 16 came from investors in delhi so 62 percent of mutual fund avm came from 30 pinpoints and india has 20 000 millions so city number 345 they were doing 12 percent so 74 percent of mutual funding came from five cities and all the five cities had leader right but if you take city number 31 to poll of rest of india in 2010 uh it was eight percent of the mutual funding when mitchell finally um was nine lakh sixty percent but today out of 39 lakh votes almost 23 percent comes from city number 31 to fall off rest of india where sva is a leader right so sb then became a leader of amc industry which in fantastic because they were leader of the segment where the industry is explored so leadership is defined not just by the size alone is by usually if he has a strong brand and therefore he has a pricing power he is considered a leader or he has a reach and he is a pioneer he gets into newer job product segments newer territories is taking leadership position so sometimes it happens in a large sector consolidated sector and therefore they are large steps they are doing that in a fragmented sector and they are still leaders but not necessarily large caps yes thank you so much sir i gotta learn not from you thank you next samyak so samyak is a finn plus student uh samik you can ask your question uh very good evening sir and i am glad to be asking my set of questions before you so my first question is in one of your interviews you mentioned that indian demographics and consumption play a very important role when one is analyzing the potential trends so since the indian population is yet to afford the new necessities uh for example consumer developers etc there ought to be a very good scope for demand in such consumer durables and consumer facing companies so in this aspect i had two questions first what are the key drivers required for this consumption story to play out and second do you see any challenge in this consumer consumer demand actually fructifying in future yeah it's a good question and if we get some clarity on this question several investment ideas will flow will follow us um i'm sure you might have read this book peter lynch one up on wall street beating the street if you have not read please leave when i read that book in in 90s i actually felt that these are all books which doesn't work in india and i was right and i used to go around many people saying that see these books never worked in india where he talks about how he goes around with his wife and daughter and observe their shopping and making these things never because i have gone around with my wife and daughter and never got it because the consumption market of india was very very skewed in fact he even delivered a lecture when he was invited to speak in two senators of us in 94-95 after his retirement he didn't send the presentation before him so after he came opened his laptop connected showed his point the whole audience was shell shocked because these are all senators right average age of senators universe is 50 plus and they were all there with their voice and peter lyons after retirement he himself was 60 plus so he was giving a lecture the title of the lecture was rent a girl over a weekend that was the title so he was giving them lectures on how to pick stocks how to do investment basically what he said is the best way to get an investment idea is if you have a wife or daughter please give her a thousand dollars just keep quiet and go along with them whatever we can observe what they're buying how they spend life how where they see value where most of the money goes and that should determine you where the consumption trend is changing and if you do this multiple weekends you'll get a perspective of where is consistency happening there is short-term fad giving away so which you used to do so all that he captured in the book so here what we i now begin to think that the time for ideas of that book is started two three years will actually start what prompted that is when people describe consumption um we always take binary in our mind okay these are all haves these all have not speak these are all rich and then we say everyone is poor that's wrong right let's look at consumption consumer durables um what income size consumer durables come require detailed understanding i think i have a one of our product video where we spent half an hour um in explaining the the household structure see if we take our 140 crore indians we are on an average four and a half people per household so 28 households and if you put them in a scale of one two hundred where one is farmer in bihar and hundred is richest man location now you pick any consumer durables i should be able to tell where is the market what is the major market of buyers for example rolex watch then i will say 100 to 99 because there are only 28 lakh families you can appeal to if you are selling rolex watch right if your diamond ring not 100 to 99 you can go up to 100 to 86 if you're a mattress guy 100 to 93 27 percent of indian households have branded mattresses right if you're a washing machine 100 to 88 your television if your air conditioner 100 to 84. if you're a television set set 100 to 26 right 74 percent of india have television sets right if you are a projector home screen guy hundred to only 74. 26 of india has it's a recent number which is mind blocking to me i can't believe your household which doesn't have a washing machine but have a projector maybe it's a commercial use also is included here so if you can put that number then we will know which consumer durables to buy where i think these most of the industry analysis are going wrong i tell you two ways is when they put consumption number when they extrapolate they extrapolate based on the household income right for example if you are a household of four people and you have 25 000 rupees monthly income and you are the only salary owner so four people household one guy earns 25 000 how many footwear that house will have the natural answer you will get is one per one percent per family member and the salary owner may have two cents so four member household with twenty five thousand rupees will have five foods now if his income doubles to fifty thousand how many foot will if i won't go to ten five will go to more than fifty okay now the 25th rupees stage how many tubes of toothpaste he bought now that his salary has grown from 25 000 a month to 50 000 how many two tubes of toothpaste you will buy same not more right but if family of four with instead of 20 meters would be sell if you sell there was one lakh and his salary becomes two lakhs number of footwear to home is going to double no price per footwear may go number of aware men so different consumption products have different inflection points of that that way it is underestimated by 99 of indians is the role of credit and the role of women in income zone as you know our [Music] employment rate in india everyone focuses unemployment what is unemployment rate people who are unemployed looking for employment is unappropriate if unemployment rate is eight percent what is employment rate that's not hundred minus eight employment rate of india is only 44 which means those who are adults aged between fifteen and sixty eight percent of them are doesn't have a job and looking for a job that is unemployment forty three percent of them work so what about the rest are not looking for a job and they are not working and that if you take women women labor participation is only 16 percent so the 100 women aged between 15 and 16 only 16 of women were 84 percent of the women do not work and are not truthful what is the labor participation rate of men 66 okay which that 66 is closer to global average but 16 is not and actually never participation rate is declining in india in the last five years but that's not what we see when we go around right if you take it industry the women level participation which used to be 20 is now 34. banking and financial services industry which used to be 14 15 is already 40 right but the women-level body specialist declined because the rural women labor participation in poor jobs poorly paid jobs have declined urban rural urban women level participants so labour participation rate as a whole has in for women has declined for two reasons one their gba gross value added has gone up but they are pursuing higher education many of us notice the fact that there are 59 lakh people who graduate out of colleges a year 14 lakh post graduates particularly like undergraduates 60 000 doctors and the number of graduates we produce the last 10 years more than 1947 till 2010 okay what we have produced and more than half of them almost 55 of them are women and if you put in a scale of one two hundred and if you ask now which quainting if you split this one two hundred into five quintiles of twenty percent each which quantum has highest number of graduates everyone will pick 80 to 100 right but the real answer is 60 to 80 right 60 to 80 has more women graduates coming out which is pushing down the salary cost dramatically and tcs 80 of the people salary cost last year was same as 10 years back did we notice when i asked this as a question what do you think is the average salary of state bank of india this is i am second year mba students question um and many people come with many access can you take a guess take total state bank of an annual report total salary expense chairman managing director branch manager zone dgm to the driver in the branch total salary expense divided by total number of employees what do you think is the annual salary cost per person per capita annual income just take a gus 50 000 around per month would be 50 000 per annum would be around 6 to 10 lakhs 6 to 10 x bracket broad bracket okay any other guess on a higher and 12 lakh not more than that right any other guess but you you all haven't come halfway through here it's 21 lakhs what 21 lakhs so state bank of india has 2 lakh 50 000 employees and 53 000 crore salary costs okay it's 21 lakhs average okay icsa bank has only one lakh employees and it has same market cap similar business extremely productive online campus what do you think is the average salary cost of isis six to eight legs eight six six to ten with six to 10 legs brought back thank you another guess around 15 to 20 like okay one more guess 25 to 30 lakhs the real answer is seven lakh eighty percent [Music] okay similar stage bank 40 percent less people but uh not even half the salary but forty thousand forty percent risk people the reason is icc bank salary is a function of demand and supply supply of talent is so high charlie hasn't gone up what is the entry level salary cost of ics bank 2008 under 18 not inflation adjusted actual appointment salary that you see same same in 2008 same industry but in the same time period statement of india salaries have doubled because it is going up along with three percent da each year each pay commission each central because there it's not demand supply based on inflation adjustment so if you take say top okay this is not just bank alone picked up for 80 companies infosys we pro tcs cognizant these are all five large employees of india how much is the salary cost of government between 2010 and 20 average salary here i'm including chairman managing director every global ceo to the entry guy so how much you think the salary growth of top 580 companies between 2010 and let's say the 2010 salary was 10 lakhs per annum how much it has gone to 2020 for 10 years what percentage per annum during this 10 years period shareholders return has grown between 18 20 per annum which salary growth rate in any other guess so the actual growth is not even three percent but the impression we get that most of these senior guys see whose salaries have grown um we use a number in some of these companies called t10b50 we take the top 10 employees we take the bottom 50 employees what factor they are moving from if that factor is 20 or 25 times then it is normal that's india which is very not normal globally but it's okay in india but uh companies there are companies which goes to 100 right which are all highly unequal right fifty percent of the employees in the company yawn not even um uh ten percent of what the top 10 employees you know gives you sense of renewal so what i'm saying is why is it why indian i t company salaries have grown only three percent per annum uh when the revenues have grown fifteen percent chapter is shareholder returns of growth so these companies should not have had a problem paying more but then why they paid three percent for people is supply of people is high how many engineering graduates come out of india close to twenty twenty billion a year how many people i t industry takes each year seven lakh people made here that's it the total i.t employees in india is only 48 lakh people so when you have supply so what i'm trying to say is it is the 60 to 80 which is creating that supply and the demand when consumer demand comes from that 60 to 80 you will find numbers growing that is why number of air conditioners sold in india last five years is more than what got sold in the previous 20 years that's not sign of slowdown right but number of toothpaste sold in india last five years same as the previous 10 years income has grown but that product has grown only 1.5 per annum because it is growing in line with demography population but footwear industry is growing ten times of that because most of the population is coming so probably three years five years from now we will have different product where you will find different that's one second is the role of credit is playing a big role in many of the consumer rules it is not uh availability of credit availability of credit existed five years back also when we had so many nbfcs the attitude to credit is changing if you are a 29 year old home buyer in 2021 your attitude to credit is different than a 44 year old home buyer of 2001 which is india's average can you believe india's average age of a home buyer in 2001 was 44 which means most of these guys were born in 1950s they worked 20 years to save enough money and they borrowed and if you take the last 20 years all the home loans taken in india average tenure is 15 to 20 years but eighty percent of the home loans were closed before year eight fifty percent of the home loans are closed before year six that's what that forty four year old gay will do take it is born in only 90s there are children of post liberalization so when they buy a house they buy three air conditioners all on emi so 31 of air conditioner sold on india last year was an emi and the number of air conditioners sold on emi last year was more than the entire air conditioner industry of google and 14. so credit can double the industry in few years so these two are the ones which gives us enough confidence we should be in consumption side but we should be in the kind of consumption where you mentally put indian consumers in a scale of 1 200 then ask are they 100 to 90 going to become 100 to 80 which means the industry is going to explode which means everything you should start with 100 and if it your mattress where 100 to 93 is going to become 200 to 85 then you should take the box if it is a product which is 100 to 74 and it's not going to because i think in india making money and premium initiation is a lot less possible than making money on penetration so everyone has the less curve right so many of these two piece companies where in the growth phase of the test curve in 1980s 90s so today they are mature hindustan liver is only company with multiple s-curves in multiple products they invest in several products before their existing products get into maturity phase but if you are investing in single consumer durable single product company you should ask the question which length of the rescue you are investing in and if you get someone in the lower end of small growth about to get into high growth which is what air conditioner was in five years back voltas has sold more air conditioned last five years than what they sold ever since they came into ac industry so therefore best time to buy that was five years back maybe now because they are halfway through that they're nowhere near so we should not talk about consumption boom and go and buy um target so let's say you've identified these kind of products these kind of businesses and let's say there are two three listed players in the same so how do you go about um you know uh attributing that possible growth on these players or maybe you know a diversified approach maybe invest in both of them and see how it pans out yeah it's a good question i think this is most underrated skill in india everyone talks about macro industry opportunity but goof upon stock selection because the execution skill set in india is one of the most underrated one which just merely meeting the promoter doesn't help you should observe what he has done towards that does he have the ecosystem does he have the execution skill set does he also share the same beliefs same excitement that we have and that exhibition skill set is hard to crack and it comes with the experience it comes by asking right questions right so you are right you can be right with your correct with your observation of the opportunity um for example if someone came and told you that in the next five years the share prices are going to double which it did if someone had come and told you in 2016 that sensors will go 80 percent small mid caps will go 100 which means share prices in general are 100 and the number of shares traded in market will double which means the turnover will quadruple nsc's one valuation will quarter and then you go and buy out of the top five brokers two brokers which is mutilated wise what you just did this excellent analysis and the poor stock picking you'll be down minus 50. the same time had you bought icc securities you would have done 300 had you bought 0 which was a private company would have done maybe 10 times so same industry on the other hand if i come and told you five four years back that uh see gold jewellery industry is shrinking and [Music] seventy percent of the gold jewelry are bought by people who are in twenties and thirties and parties and today india two third of india is aged below 34 and half of them are women but women in 2030s are not buying as much jewelry as the previous generation bought and therefore total gold jewelry retailed in india believe in 2016 and 21 is going to be 20 lower than 2 1160 okay industry is going to shrink 20 percent in the next five years and if you someone had come and told you and then you went and sold the tata the tanishq in this five years have done three and a half times 340 percent higher revenue than what they did in the previous trip so what they did is in a sinking market they gained market share that's execution skill set and extremely on the opposite side so what you should do is when you do top down view and the only way you can choose which company i should buy within that space is by evaluating the execution skill set of the management nothing else rest of the stuff are important but this is if this does this is like a multiplier of zero if this is zero whatever other skill set you have you multiply you get this is very important thank you so much sir uh thank you sir so from your answer i understood that just plain analysis that consumption is growing it won't lead to plain increase in demand for all the goods across the basket we have to segregate it segregate each and every stat of the industry to justify that which is going to lead the growth uh thank you sir for that answer my second question is regarding the that historically the chances of growing wrong is more in smaller mid caps versus the large large caps so how do you manage the portfolio level risks by investing majorly in such smaller mid cap companies any key research parameter that you look for while investing in such companies actually you are optically right when you go wrong you go wrong for different reasons one is governance related reason second is information asymmetry related if it is governance related reason it is not that corporate governance is poor in small cap great in large caps actually there are only 100 large caps but there are 250 small caps so in absolute terms even if two and a half times higher number of small caps have poor governance issue the it's uniform the same because the base is larger but the challenge is not corporate bonds the challenge is information if something goes wrong in large caps all of us come to the same time but if something goes wrong in small mid caps by the time we come to know it's too late so like in in biology they call this as food chain right which is part of the food chain that you are so in that information chain you should judge which part of the information change in that information chain if you think you are in somewhere near the last you should not play small cap game but if you think you are in somewhere in the tier one not because you know the promoter but because you know where to look for information you have the ecosystem to validate you know the customers vendors suppliers your their electricity bill reading that will if you are nearer to the top you still can go wrong your assessment of business may be wrong your assessment of the promoters future execution skill set will be wrong but information asymmetry is not a risk tree business risk exists in large cap medicare smart but information has symmetry is extra risk you take in smaller companies is not a risk which is a risk if you are in the in the information chain if you are in the bottom not so much in the peak but otherwise i don't think governance has anything to do with scale of the company i can give you hundreds of small caps with the top class governance standards than hundreds of large gaps yes so maybe in interest of time can you pick one per person one important question that you look and then we can address those few questions at greater length would that be a good idea uh surely sir surely sir so samia maybe you can ask one last question at your end which you feel uh sure sir i would take the last one in [Music] uh sorry i have seen your multiple interviews and from from the interaction that currently we are having and that the data crunching what is involved in analysis and how you correlate multiple data points to form a conclusive opinion it it's very evident from your analysis perspective so what i wanted to understand is when we are selecting companies and when uh when we are selecting companies do do you track data points for each and every qualitative factor which is available in your list to justify whether to enter in that uh theme or not actually yeah the data points that we use um we use mostly for carving out those pockets of market to scout for opportunities but we do not take the data bonds beyond that it's usage stops at that it's like leaving the footwear outside the main gate once you come in inside um you need to walk differently right with food the reason is when you let your excitement of the broader data points to influence your individual stock picking what if the governance is not great what if the balance sheet has debt what if the promoters are fighting what if there are so many things that can go wrong so the data point is should say okay india is growing today the demographics of this type urbanization is happening and this is consumer durables is a segment that we should be but within that why not i look at these diction technologies instead of something else it should not be that data true that is why i i don't get into stock picking so i i actually do not do individual stock picking in unified we have fund managers we have analysts and many of these analysts may not use my data points beyond certain extent something else should be driving attack selection see there are only two things which will determine your return as a shareholder right earnings growth of the company and the price you pay for it what are the data's you need to judge which means you are top line growth how much of the top line growth coming from price and volume and then margins which means what is going to drive the markets that will then take you to your customers when the suppliers as well as your competition that in turn will take you to so every company we look uh sometimes our worksheets go to hundreds of feet some businesses we don't we don't require more than 10-15 metrics and we need to see the sensitivity of the worksheet we are okay with volatility like our investors our investors are okay with volatility what they don't like is shock surprise if we put that twice right and i have a 20 30 percent sensitivity and that's in 2032 sensitivity is occurring on the negative side i'm not going to be surprised or shocked i'm not going to sell but if i have one precise number as target and anything outside that number is something which is going to be shocked then i will be a poor investor so to answer your question the data points are important in in helping us it's like a screener it tells you these are all the names you should look at but what you should buy in that is what drives earnings and what price you pay for nothing else their data yes sir thank you understood uh thanks a lot sir for your detailed answer thank you very much um maybe you can ask your question one question any one of the three and then pays dividend so sir so that they think that market gives market will give high valuation if stable dividend is given and when market cap increase sir but on the other end people also said that management should not take decision keeping the stock price in mind and they should focus on long-term operations of business so as an investor by analyzing that management of that company should we judge that the decision of management was fruitful or they are just trying to keep the valuations in high zone um certain decisions are not really black and white in certain context what you take as a decision may be right in different context it may be wrong for example if you come chennai and you marry your elder sister's daughter it is a good customer but if you go not and if you marry your elder sister's daughter is considered bad how can you marry your own sister's daughter but in chennai that's a custom you know my elder sister's daughter is how i should so there are different contexts in to be seen but leveraging to pay this is a bad business idea it can give you an illusion but illusion is certain limited time period you when you that is what most see lehman brothers leveraged and did a buy back eight months before going default did it help it didn't so leveraging in the last 10 years four trillion dollars of debt listed companies have taken in euros to do buybacks so when you leverage and do buyback what are you doing you are increasing the liability you are producing the equity right this pressure earnings are going to grow let's say i run a business and my dvd is 10 rupees and my per share earnings is two dollars but if i take one percent loan 10-year debt right my earnings is 10 my p is 10 but i take one percent debt for 10 years and do buy back 20 percent of the equity all else being equal my pressure earnings have gone up 20 because my debt is only one but i next year all else being equal i take another 20 percent debt and i buy back another 20 percent of the equity when my earnings into a stem so what will be the earnings field of free residual shareholders will go further 20 percent but uh is it a continuously good idea no it works short term but doesn't it puts the business to a greater risk should a volatility come because should a vulnerability come and you want to reverse which means you want to pay back you want to raise equity can you do that we can't so to answer your question this is this may be a good idea to keep one ear pollution but a terrible idea yes thank you sir thank you luv maybe you can ask your question sure is our finbridge student and so was preet thank you uh good evening sir sir i've come across very few people who backed their narratives with data and you are one of them sir and so i like your videos a lot uh sir i just wanted to know your views uh on industries where competition is on price so how do you detect changes in dynamics of such industries like how price was happened in telecom uh between airtel vodafone and uh your jio so uh then these dynamics started changing and then uh recently we started the price is going up so how do you see this dynamics changing um it's tough because again there is no one right wrong answer here let's say um you run a finance company and you have price war your cost of capital is eight percent and you lend one instead of 12 percent he is willing to lend at 11 someone comes and says i will lend you at six percent so what you can do you can choose to keep your rate at 12. i will i also have to come down or you may have to come down you can still choose your rated problem many people will not deal with you but some people who know that six is not sustainable will come to you he'll stay with you your business will come down but you will stay and if you choose not to land you are not going to go bankrupt you will still be around but the guys whose cost is eight who's running at six who's next year his cost is going to go but his logic is if he makes you to believe but if he has access to capital after you leave the industry he can increase the price that's called predatory pricing threaded replacing regulators getting saying that boss this is not fair you can't do it but in india it happens in different form and manner and different businesses telecom it is so obvious and apparent but it happens in several businesses at the time the character will determine what for example one of a large holding was mutual finance for many years if you look at 2014 to 2018. in those five years the same motilal little device these are all guys who built their own nbfc business and they also came to gold finance iaf world finance all this came and you had peer groups like manapura what is the avm growth of the industry in that four years bajaj finance grew 40 percent avm between 2014 and 18. what is the avm growth rate of 5 that's it they were the slowest to growing finance company for four years in a row four years in a row we were the slowest growing people so what happened in that in those four years gold prices so government rbi which earlier allowed only 60 percent of the gold to be given as long increased to 70 then once many banks exhausted they said okay it is now increased to eighty percent for psu banks up to ninety percent right and then people said um you can lend multiple yes so what mutu did they said if i go and lend 80 because my cost of borrowing is only six seven it is falling but uh my loan ticket sizes are small they have 94 lakh customers 35 000 so my cost of delivery of loan is higher so i don't want to know reduce my rates anything lower than 14 15 but thanks for giving him 9 he didn't reduce below 1450 his business growth took a hit so if you are a good loan buyer and if bank is giving at nine and a half and muthu is charging 14 and doesn't want to reduce so what do you do you will shift out okay but if you're a forty thousand rupees loan buyer why are you borrowing forty percent not because you [Music] want to borrow fatigue maybe because you can borrow only forty percent how much you can borrow is a function of how much gold you have and how much the lender is willing to eat so some borrowers may go to a lender who lends most amount of gold for the same gold value i have 10 grams of gold each gram is 5000 it is 10 so what will happen most the desperate borrowers will move to the ps4 then september 2018 happened ilf was defaulted mutual funds shut the door for all indians vs were borrowing short-term money from mutual funds and doing all these long-term loans so they all got trapped so italy is announced in october 2018 we want to reduce the size not voluntarily you have to because you have to pay back but your borrowers are not going to buy back so they were selling their loan book what yield they were selling the loan 14 why mutu raising money of fd everyone felt his inferior way of raising money because it's high cost you have to pay higher interest rate two everyone will come to office you have to have an office application form filling up but if you borrow from mutual funds many mutual funds are getting so much money they are willing to lend temple terms no due diligence they were willing to learn so but still what i'm saying is when people come for competition if you're in a business where you can stay till madness goes that price competition is not it's at best it is going to have an impact for some time but that's the best time to buy that was our largest we went to the maximum level that we could go within the limitations we had but if you are in a business like telecom where you do have that luxury saying that everyone will reduce rate to one rupee but i will still charge four if this one is going to be such businesses which is uh extremely price sensitive and you don't have pricing edge you should not be a shareholder in this business you should accept that as a bad fate and got it sir uh thank you so much for your detailed answer on this part thank you so much thank you uh so moving to last uh the last three questions akash you can ask one sir uh good evening and uh it's my pleasure to learn from you sir my question is regarding uh like tech companies they are very data rich companies and they are willing to sell this data to the biggest or uh better in the market the consumer data so do we see such data vending com companies which will sell consumer data and if yes then how will we value these companies as data is a very subjective thing so how will we see growth or revenue in such companies because we cannot value these companies um no yeah it's completely outside our competence our competence um i haven't done enough work in that to understand uh i am also as confused as as unclear like you and there's no one in unify trying to make any sense out of how do we put validations about five six years back when one of the it company demands its product business um globally product companies in certain platforms are trading at six times seven times eight times sales and india this company was trading almost one time six like any other business but we didn't jump and buy we spent three months six months one year we and the reason why we could spend longer time is because no one is tracking those companies and they were not pressured to move because there are only three four such companies in india and if you see when analysts do a work whenever a new business comes in and analysts begin to do a work he will try to see i'm going to put anyway so much time and if all this time can be used in analyzing 10 companies within that sector we'll be happy to do it if all his analysis is going to be used to evaluate one company or two companies he'll not you will hesitate a lot before beginning because in india the cost of analysis is inversely proportional to the size of the option and what opportunity mentioned if the size of opportunity is large then cost will be level by now many unless you are done and the reason it's not done is the cast of opportunity maybe if there are too many names in this universe someone would have begun to do it but uh to give you a candid answer from outside maybe i'm not equipped to answer that question maybe if we get more [Music] skill sets for people within our team who have adequate skill sets to evaluate that business we should be able to do it but practice we haven't done yet sorry i think but uh one good thing came out of that was if it is out of your circle of competence maybe you should ignore it and focus on something which is in you however it'll have companies even if you start our legacy yes definitely um thank you sir for that part we can move ahead with your question so very good evening and good to have you here so my question is uh how do you manage i mean how did you manage the down period i mean the pre-covered levels where we saw 2018 island office crisis which gave an error to nbfc crisis and there was a liquidity crunch and earlier also in the start of the session you mentioned that the sevi giving a gap on small caps and investing mutual funds and immediately after that it was followed by google and as a fund manager so how did you manage the impulsive nature of the clients and the patients associated with that cooling period and how difficult and challenging it was at that point of time for you to sustain the clients and to get on more funds so i just wanted to know the strategy and what was the mental model behind dealing with those tough times so between 2010 and 20 if you take all the capital we raised the year where we raised the largest money was 2018. and the year where we deployed hundred percent of the money in small midcaps was 20. with benefit of hindsight now we know it was a wonderful decision the reason we could do that is in 2016 november we closed our best performing fund and returned the money and in 2017 in january we told our investors we are closing subscriptions so if you show character and resist the urge not to accept capital in a peak you should be able to confidently stand before the investors but if you play the game in the whole market cycle you have to undergo that pain in the bottom side if you raise money in the peak you would have had some sound reasons to raise money in the peak right so if you keep the scheme open 365 days a year and accept capital throughout the year [Music] and therefore it is up to the investor to decide when to invest why should you be upset when he redeems when he can't take the pressure but if you think it is wrong on this part not to redeem in a market fall then it was also wrong on your part not to accept his money when it was speak that's one second one manages love freedom they want wider canvas when they like an idea they should be willing to move but when they sell they want to sell a subjective idea which is why if i t industry do well you'll find a lot of i.t funds but after it became out of fashion i saw guys holding colgate in like it saying no 25 percent we want to diversify but why did you sell in the first place as an i.t fund if you think it is not a good place to be why don't you return the money back to the investor and then take a money calling it as generic equity fund so when you sell in a in a thematic manner you get the right type of cabinet that's that one we made the mistake we learned from instance so when we do thematic funds for example when i don't do a fund called insider shadow fund where i buy only those companies like promoters increasing uh today if you take top 200 promoters maybe 21 41 promoters maybe already knows this fund and had some kind of engagement investment because i have to go and explain to him the merit of investing in this team because he is himself doing creeping acquisition of his stuff so i go and tell him boss you are doing in your stock like you are doing in your stocks only promoters are doing in their stock why don't you put portion of the money in their ideas based on that but how do i explain this to a foreigner he doesn't know insider in his market promoters are holding only six and a half percent and the promoters are not contrarians in u.s whereas in india their countries so if i go and take money from wealthy nra in u.s and in inside insider shadow fund and my fund is down in a raising market what will he say because last time we did incentive shadow 2012-13 our first year return was lower than small capitals mid cap in that large capitalist any index you take you are lower because in 2013 we were buying commodities sugar textile and none of those businesses did wait for a year but in 2017 even now in our client communications we have the audio the same clients were upset with us that we were selling we were closing that one we had one and a half years more in the team but we closed the fund sold the stocks returned the money back to the ministers and that particular year when we sold that peer return was 72 and because all of that came in short term on those days short-term tax was existed and long-term capital gains was free and clients were agitating saying that boss had you just waited two months it would have become long term i would have saved all the taxes see because you sold we have to pay we said was we are not looking at tax to take a decision if i'm shadowing insiders and insiders are the biggest sellers in market what do you want me to do right in 2012 i sought money from you saying that i'm going to shadow insiders but now incidents are selling so i should sell so the reason why i'm saying is on that fund if i go and buy a company where promoters are selling and digesting so that's what resulted in credibility gap in markets so if you build credibility and walk the top you can handle the inverse respect but you can't handle all investors all the time so we also felt uh handling certain investors they all have inflection points we all think water boils at 100 degree decreases at zero degree i can show you several people who will freeze 30 degrees there are people who want uh oil even at 100 right there are several human beings right so if chennai temperature goes below 24 you will find the people putting mufflers in chennai 24 is like zero whereas [Music] you know people in delhi even at 10 they go out and advise me so different people have different inflection points my clients they can tolerate six months one year under performance some people will check out at if 18 some people will be okay to handle for two years but not longer so i think fortunately our pain in 2019 didn't continue beyond that but one should be prepared at least for one 58 percent of investors in india [Music] redeem before year two if it is negative that's a data point for mutual funds 58 percent of investors in india redeem before second year if the nav is negative and that's a true saying that if you think markets are falling you should not raise money when it begins to fall if you raise money maybe six months to 100 years so that when you raise money you at least have two years time to hand hold in the investors till it becomes bad um so last question from our side uh so like we talked about a lot of macro factors you know and a bit of my micro analysis my question is how much you know time and efforts should ideally one should place on the macro story and then dig deeper into the micro story like because like you said there is always a personality cost and the time taken for the analysis depends on the opportunity size as well inversely proportionated but in terms of macro versus micro story how much percentage efforts or time should one put in macro as compared to micro in your experience or in your opinion [Music] should be used more as eliminator of businesses micro should be used as the ideal tool in selecting the ones you should have a strong reason not to invest in a sector because of macro visa but you will never have a strong reason to buy a business because my group because of my goal therefore maybe i don't know how to put a number but if you look closely most successful investors who really build genuine wealth many times have said if a fed governor comes and whispers in my year the interest rate for the next four meetings my portfolio is not going to change so for a matter macro is less but he will also talk mac but he is not going to let macro to determine what he is going to buy he is going to let micro to determine what is one but his understanding of macro will tell boss i am not going to get into any of the banks in 2006 or 7 or 8. so macro should be used more as a shield in making blunders in avoiding falls and if there will never be black and white there will be some areas of gray impact if it is gray and you don't mind missing an opportunity if you avoid it that's the advantage you only have a fund manager doesn't it if i'm a benchmark defend manager like a nature fund i have to explain what i hold and i have to rationalize why i don't hold certain things if i don't hold reliance i have to explain why i don't really in if i am not a benchmark or if i am a direct equity mr and i have to explain to anyone that why i don't i have to explain what i hold if i don't hold tata alexey and start stock goes up and you have to explain but if i'm um actually you see equity fund or a top 200 fund my benchmark is lifting 50 and 10 of index is relaxed they don't hold relax you have to explain because you are underperformed you are valued in relative places and if you are not underperforming because you do not hold thanks you have to explain so what i'm saying is in in macros when you have certain ideas and you choose to not to invest or avoid and you are wrong it's okay you don't have to explain to anyone why you choose to avoid that sector because you are not 100 sure but you are not confident of staying in that sector so so what i'm saying is macro time it will be lot of time will go into macro maybe five to ten percent of the time lot of time will go but ninety percent of the time your money your attention should be in like it's not that ten percent each day should be formatted maybe out of uh 200 working days uh five days ten days lot of time will go into macro but balance 190 days a lot of times got it sir um so thank you so much i know we are way way overdue the time slot so uh genuinely uh a simple quick thank you won't be enough to be honest to express our gratitude for you i'm so sorry this has been pending for a long time and uh um each each weekend comes i used to think maybe next week and we should know so but i honestly speaking like i've been in touch with genealogy you know the schedule that she had told me i i was simply amazed that you were able to squeeze in a slot for all of us at such short notice in that domain so we were genuinely thankful for you know uh you know taking time out and uh the quality of answers which we're expecting has truly blown the content which this uh session has carried for us so we will quickly note down uh you know after taking a look at recording once again we'll quickly note down up you know the key pointers and we'll put it on for the non-participants so just a word of thanks from our site for taking out time and you know all of us are uh very very uh i i am running out of words i literally am running out of words i have no words to thank you enough sir so uh so just one last thing i i'll quickly press print screen to take a pic for uh you know a quick memory i'll stop