Merciless Investing by Saurabh Mukherjea from Marcellus

Saurabh Mukherjea’s Portfolio and his TV Interview Notes

Disclaimer — all the data is compiled from the publicly available info. I have not invested in Marcellus PMS. There might be some errors in data, please use your own discretion if you use any information in this article to invest money. There might be some lag when I compile the videos.

Latest Recommendation and Public Push:

• Galaxy Surfactants, AU Small Finance Bank, Aavas Financiers, and Fine Organics.
• You can see some NPA in smaller banks.

Latest Additions:
CCP — HDFC Life
LCP — Fine Organics

First Principles:

• Moat | High Barriers to Entry
• Competitive Management & Good Capital Allocation
• Monopoly & Lack of competition
• Niche in case of Small Companies
• High ROCE and Reinvestments
• Consistent Revenue Growth — Not Cyclicals
• Leverages Technology and Big Data

Shameless Plug — Financial Freedom

My aggressive plan on Financial Freedom: https://medium.com/finance-in-21st-century/aggressive-plan-of-action-for-financial-freedom-e51c6913fc49

Strategy

Growth Investing. Buy quality at any price. PE is irrelevant.

What you should do for the best results?
SIP. The best time to buy CCP is today. Waiting for a dip is not worth it.

Consistent Compounders Portfolio — CCP

HDFC Bank, Bajaj Finance, Kotak Bank
Asian Paints, Berger Paints, and Pidilite
Relaxo & Page Industries
Divis Lab, Abbott, Lal Path — Approx 15–17% of Portfolio
Nestle
HDFC Life

Some companies in advisory portfolios but not in CCP:
Eicher Motors — No demand issues. Some supply-side Issues are there.
Maruti, Escorts, Axis Bank, TCS, InfoEdge

Exited
Marico — Lost conviction on this.
ITC — Suffering from lethargy

Kings of Capital Portfolio — KCP

HDFC Bank, Bajaj Finance, Kotak Bank
ICICI Securities, HDFC AMC
HDFC Life & ICICI Lombard
AU Small Finance Bank & Aavas Financier
City Union Bank
MAS Financial

Exited
DCB Bank

Little Champs Portfolio

Aavas Financiers — Latest Addition
Galaxy Surfactants — Latest Publicized
Alkyl Amines *
Amrutanjan
Fine Organics
Garware Technical Fibres *
GMM Pfaudler *
MAS Financial — Younger Cousin of Bajaj Finance.
Suprajit Engineering
Ultramarine Pigments
V-Mart
Ultramarine Pigments
La Opala
Suprajit Engineering, Lumax Industries, PPAP Auto
Mold Tek Packaging

Exit
— Caplin Points — Cannot make sense of their Capital Allocation anymore.
— DCB Bank
— Music Broadcast
— PPAP Automotive

Little Champs Composition — Official Video

June 10, 2021

Q. Markets are changing very fast.
- It’s evitable to think about why to buy “Optically overpriced” stocks like HDFC Bank etc.
- Confidence in the market is coming back.

Q. How is consumption happening?

Lal Path
- People are doing more tests. Not just COVID but other tests too.

Galaxy Surfactants ***
- Raw material for Personal Care Products
- We have made a large position
- Our consumer Behavior play
- Strong R&D
- Clean Management

How is Insurance Sector changing in the context of HDDFC LIfe and LIC IPO?
- It is becoming more difficult for Weak players to exist
- Financialization of Savings
- Life Insurance, Health Insurance and AMCs — all will be beneficiaries
- HDFC Life — At a very strong juncture.

Where is Growth Momentum now?
- Capex recovery is happening
- Invest in franchises that have pricing power.

Views on coming IPOs?
- Current FY will be the strongest year for IPOs
- Bankers must have done a lot of groundwork for IPOs. Hinted to warren buffet concept that prices are baked in in IPOs i.e. stay away.

Spending Patterns
- Normality will come back

Commodity Stocks
- I ain’t an expert
- I have no FOMO of missing out on rally :) Prefer to stick to my boring stocks — Asian Paints, etc.

Companies where Earnings have grown but markets have not realized yet?HDFC, Kotak Axis, and Bajaj Finance.

May 22, 2021
Debate: Sunil Singhania and Saurabh Mukherjea
Is PE Relevant? Sunil says ‘yes’ but Saurabh says ‘No’, obviously.

Saurabh:
In capital-light businesses, E = FCF whereas in Capital Intensive businesses, E doesn't tell you much. PE doesn't tell you about barriers to entry.
To judge a company: FCF > PE
Capital Light businesses are not mean reverting businesses.

Nov 10, 2020

Why are markets so high?
Fundamental side: Economic recovery has happened.
Sentimental size: 11 Trillion dollars roaming around lead to positivity in psychology.

Political commentary has no impact on trade flow. Biden on Trump — doesn't matter.

Sectors that will benefit:
- Indian IT,
- Defence
- API Manufacturing … Divis Lab, GMM Pfaudler, Alkyl Amines.

Banking
- Epic consolidation will happen.
- Do not buy second-grade banks because they are cheap

Real Estate
- Bad

Oct 13

Banking and IT

It’s a recovery from panic. We are back to Jan 2020 levels.
→ This is not just recovery though, there is an up momentum for the next 6 months as well.

It’s a free lunch for Indian Retailers.
- All the reforms from govt are in a positive direction. Good thing is that all these will matter and compounding on each other.
- It's a honeymoon period which lasts for 2 years every 10 years.

Cement
- It’s expected to go up. Home loans are going down.
- We fail to see which company will do the best i.e which has deep competitive advantages. Hence we stay away.

Pharma & Diagnostics
- Abbott (Domestic Indian Markets) and Divis (Global APIs) are deep moated companies.
- Diagnostics — Dr. LalPath Labs
- Chemical: Alkyl Amines (Product: Ethyl Amines). Lots of smaller players are also there — We are researching.

GMM Pfaudler
- Deeply impressed by Management.
- They bought the parent. The transaction looked well done. They have de-risked themselves.
- They have done OFS at a lower price which is a good sign.
- They could have communicated better but we are not here to judge PR.

Vedanta
- For Metals and Mining, we don’t know how to find competitive advantages. Can’t comment.

Telecom and Airlines
- They grow in the number of customers but not profits. No barrier to entry. High Competition. Hence bad investment.

Oct 7, 2020

These companies have collected huge amounts of data and leveraging that data to grow faster:
Hdfc Life, Asian Paints, Bajaj Finance
Hence, they will generate uber returns in the future and kill competition.

TCS — a super robust company.

Optimistic about Recovery?
Loan demand is coming back.
Small town real estate activity is happening. 3–4 months of the smooth journey is expected.

NBFC
Liquidity is available. The cost of borrowing has come down for all lenders. Financing is available. So looks positive for 3–4 months.

Reliance?
The company deserves respect but I will stay away. Reason — Return on Capital.

Where to look now?
Auto, chemical, and pharma I have highlighted already.
Now, The NEW thing is small-town real estate. Hence, building material space. So, maybe cement, sanitary ware, plywood.

Rural India seems to be flourishing.

Rural is not just agriculture! They lead to an uptick in Maruti, Hero Motocorp. I expect Rural Lending to go up now. ( Indirectly hinting — MAS Financial. Maybe :P ))

Asian Paints > Pidilite

Sept 21, 2020

https://www.youtube.com/watch?v=IIqpNzUNV3o

Q. Why are banks being sold off?
A. It’s classic consolidation in Banking Sector. There is nervousness in the market and we are exploiting it via Kings of Capital PMS. We are averaging down the buy price i.e buying more. HDFC Bank, Kotak Bank, and Bajaj Finance.

Q. Which of the three presents a better opportunity?
A. Consolidation in NBFC is going to be more brutal than Banking. Bajaj Finance has an immense growth runway.

Q. Anything in Pharma?
A. Divis and Abbott are monopoly like franchises.

Q. Are you adding more of GMM Pfaudler?
A. There are not too many Indian companies which are global giant. Has a potential runway unless the Patel family does a misallocation of funds.

Q. Any new themes to invest in?
A. Quasi Urban i.e. Tier3 Tier 4 towns. The availability of easy credit is leading to an upward push in the auto industry.

Q. HCL Tech and TCS. Any expected up-move?
A. We have TCS in some of our advised portfolios. TCS has doubled up the number of employees. We like Infoedge too. It has Zomato and Paisa Bazaar.

Sept 12

Q. Why have Berger Paints if you have Asian Paints? Why not diversify in some other sector?
A. AP is a fortress but Berger knows how to find inefficiencies left by AP. It’s amazon how Berger manages irrespective of the presence of Asian Paints. In fact, AP copies from BP after BP have found vulnerabilities.

Q. Why not start a US-focused fund?
A. We don’t have time to do more research and India has enough opportunities to generate returns.

→ We might close CCP when we reach 2Billion AUM

Q. How do you factor in the Margin of Error?
A. If you are convinced enough, 60–70 PE also looks cheap. Long Term Compounding suppresses the effect of PE valuation. PE ranges from 1/2x to 2x. PE doesn’t go from 1/10 x t0 10x. So, a longer horizon takes care of the Margin of Error.

Q. Asian Paints is getting into Interior Design. Is that good Capital Allocation?A. AP doesn’t increase prices to suffocate competitors. Earlier paint_price:labour::30:70 but now is paint_price:labour::70:30. So, money has moved to labor. Value addition is happening via the service, color consultancy. AP is trying to take better control over the house being renewed by providing various things. Example: Helping Hardware shop to partner with Havells, Somani Ceramics, Kajaria Tiles, etc. Also, labor is not owned by Asian Paints, it partners with 3rd party. So Asian Paints is playing asset-light but all it’s trying to do is “take better control on end customer”. It’s trying to become a facilitator. We have no doubts about their Capital Allocation decisions.

Q. Bajaj Finance. Is the worse over?
A. NPAs can indeed happen. Industry’s worse is still to happen but that will give an opportunity to Bajaj Finance to consolidate further. BF’s capital adequacy ratio is healthy.

Q. Do you deploy money differently if a stock has recently run-up?
A. If the trajectory is upwards, it is better to get in as soon as possible. Also, the oscillations are not too much for our stocks so deploying as soon as possible works. We deploy the money the next day you give it to us.

Investing in the US and China?

We don’t have the skill-set for that yet. Also, we don’t see any lack of headroom for our CCP portfolio to grow which will force us to look for opportunities outside. Microsoft, Google, Facebook, etc have ROE of 20ish %. It’s a fantasy to have FAANG in the portfolio but Relaxo ka Chappal will make more money to you. You are here to make money. We are sitting on a gold mine of compounding machines, so why would we lookout.

ITC

It’s a great company. Our only reason we exited is we have another company HDFC Life is a better compounder. I don’t think they will lose market share and blow up in their capital allocation. It’s just that we think HDFC is a better compounder.

US Elections. Should we book profits?

Our portfolio’s fundamentals don’t depend on US elections and even if there is some volatility, it doesn’t matter. It’s an irrelevant event to us.

How do you decide on allocation?

It depends on our conviction. With time conviction level goes up and down. Today Bajaj is higher than 6–7% because our conviction increased. Factors that move our conviction: Lethargy, Succession Planning. We decreased HDFC Bank a bit because of bad succession planning.

How does CCP perform amongst other PMSes?

We don’t care about relative performance. All we care about is to get absolute returns of 18–20% for a few years period.

Insurance is unpenetrated. Why low allocation?

Although HDFC life does amazing on softer aspects like Capital Allocation, succession planning, etc. Some other companies we think will grow faster in the medium term.

TWRR.

We anyways report our numbers wrt to TWRR so that our marketing material, your actual returns look the same.

Model for Lenders

Sticky liability and conservative asset side. Low cost of money. The cost of liability should be as low as possible. You should be easily able to grow loan book because of surplus capital thanks to high ROE’s and no equity dilution. Low NPAs. Healthy collections. Fast operations and quality customers. Exp — Bajaj Finance, HDFC Bank, and Kotak Bank.

When we top-up in CCP, will you buy alternate stocks?

We will stop taking money when the max AUM is reached. We will not buy alternate stocks. We have done that with LCP.

Impact of KV Kamath’s comment.

The 3 banks that we have are well-capitalized so the restructuring doesn’t worry us.

Weights of stocks in CCP. Why not let the winners run instead of reverting to Model portfolio weights?

It works in DIY approach as we have described in the book. One problem though is volatility as you will lose diversification.

Balancing that we do currently is okay because after selling one winner, we buy another buyer.

Business cycles are shrinking. How do you handle it?

Our portfolio is not Buy and Forget. It’s more of Buy and Keep monitoring.

Are PMS allowed to invest in US Stocks?

No, PMS cannot invest in US stocks. Mutual Funds can invest up to 30–35%.

I have an overlap of direct investment stocks with CCP. What should I do?

Never have exposure to more than 40–50 stocks across all products including PMSes, MFs, and direct investments.

Also, your single stock exposure shouldn’t be too much. You’ll risk diversification.

Should I sit on Cash?

Keep topping on your existing Fund Managers but not add more.

3:07:43

Do all CCP clients have the same stocks and allocation irrespective of the time when they invest?

Stocks are exactly the same for all customers.

For NRIs, some stocks are not allowed because of restrictions like Abbott is not allowed for NRIs

The allocation may differ slightly based on when you invest.

ITC. Should I hold?

If you have only 15 stocks, no. If you have 30–40 stocks, it’s fine.

3:12:05

Capital reinvestment of Nestle is zero. What does that mean?

Nestle paid a massive dividend. But their reinvestment rate is not zero. It’s all healthy.

3:14:17

You don’t look at PE! How!

Price = PE * EPS

PE doesn’t compound but EPS does. So compounding diminishes the effect of PE rating eventually.

Can you please create a mixed PMS approach so that I can invest partially in all three CCP, KCP, and LCP with just 50L in total?

We’ll think about it.

United Spirits

Unites Spirits is not a consistent compounder. Structural Challenge is the involvement of the State. It’s complex. Significant inefficiencies in the ecosystem. We don’t like sectors that are heavily regulated or heavily influenced by State. We like the entire value creation to come out of Management efforts.

3:26:41

Nestle. Low revenue CAGR is concerning.

Earnings CAGR FY17–20 is 25. Between 2012–16, management took some wrong decisions of increasing price as well as Maggi Fiasco happened. Now with Suresh Narayanan, it makes us really confident. Earlier Gora CEOs didn’t take that great decision. But we are confident of the DNA that’s there today.

3:30:10

Reliance. Are you considering?

No, doesn’t clear our filters- ROCE, accounting, etc.

We are looking for healthy returns, low volatility, and not trying to be PMS with the biggest returns.

Not in our top 40 stocks.

3:33:50

Adding 16th stock will not as high quality and it will reduce volatility or risk. Diversification is optimal even with 15 stocks.

3:36:12

Pidilite’s Capital Allocation and Monopoly

They are excellent in Capital Allocation and they are building a new monopoly — waterproofing. Dr. Fixit is the product.

3:38:22

Mutual Funds Vs PMS on expenses.

These are two wrappers over Stocks.

We have negotiated very lower costs for Audit Charges, Trading Charges, Fees. Probably the lowest in the industry.

3:42:50

#stocks <= 40. How to achieve that?

Basically, if you own more than 50–60 stocks, you are basically owning the market, and then paying fees to us doesn’t make sense.

3:47:42

Avenue Supermarts

It’s in our coverage universe. Not in the top 15 yet.

3:48:48

Difference between Ambit CCP and Marcellus CCP.

We don’t compare or benchmark.

3:51:42

Is it a good thing for PMSs to discuss stocks openly?

Nothing to lose. We are telling why we own what we own.

600 man-hours per week go into researching. So, the name of stocks is not important; it’s the process that we want to put out.

Number of stocks for Diversification.

15 works for us given the risk-return tradeoff we have chosen.

3:57:05

GDP and Inflation. Will they not impact CCP.

There is no correlation between Economic Growth and Stock Market growth.

Topup on CCP can be done with a minimum of 5 lakhs.

Should I move my money from Mutual Funds to PMS?

It depends on your conviction.

August 20, 2020

Q: Large and Midcap monopolies are expensive. How to go about markets now?

A: Garware Tech Fibres, GMM Pfaudler, Alkyl Amines is Niches in small-midcap space.

Q: Should we buy high FCF generating companies or shall we bet on which might make a comeback?

A: How will you time entry and exit in cyclicals?

PVR and Indigo are leaders in their respective domains but I see them struggling with FCF. We will stay away.

We are talking to Asian paints, Berger Paints, titan distributors, and consumers. The recovery is fast.

We will keep buying the CCP stocks which are large over a few years to come. But for Little Champs, they are liquid, so we have stopped investing in them and the fund also is closed.

Smart lenders like Bajaj Finance, HDFC Bank, and Kotak Bank have moved towards smaller villages.

How should you bet on companies that focus on Rural to profit from the Rural Boom?

We have invested in Maruti, Eicher Motors, Escorts.

In KCP, we have put some lenders who focus on Rural franchises.

Basically, we are betting on Rural and Auto Boom.

Later, we might look at Building Materials like cement sanitaryware, etc.

Lookout for Financial companies in distress.

As of June 30, 2020

• Optimistic and Bullish
• FII money will come in as soon as Lockdown ends.
• Necessary and sufficient condition of India’s boom — US Recession, Oil Price Drop
• The next 2–3 Years will be years of greatest years of return for the next decade.

Aug 6, 2020

Horizon is 3 years.
All the companies have net cash in their balance sheet. Peers are in very bad shape. 25–30 % EPS Growth is expected.

Alkyl Amines 5:26–5:31
- AA has 200 and Balaji has 25.

Galaxy Surfactants 5:31–5:36

• Focused on only one segment — home. No to industry and agro
• 50–60% market share
• Meets 3 criterias- quality consistency and continuity
• Need to have good relationships with strategic vendors. Else, vendors do hoarding to benefit from volatility
• Speciality product: Shampoo for hairfall, creams — 33% of revenue comes from here.
• Revenue growth is low i.e. 7% because of raw material prices. Margin is improving. EPS growth is double of Revenue growth. ROCE never fell below 20%.
• Market share is steady and growing. Hence stable fundamentals.

Ultramarine Pigments

• Linear Alkyl, Alpha olephine used in Detergent
• Only manufacturers of these in South India.
• Good relationships
• Second business — ultramarine bloom. Prevents warping of the plastic.
• One of the top3 maker in the world. No competition. One from UK and the second from Nubolla -France
• Not an easy manufacturing process.
• Only these 3 have reached 65% yield. All other competitions are at 15% yield.
• Export 50%
• ROCE looks 17% because they hold some stake in some company. But the actual ROE is 40%.
• The only manufacturer of Asia

We are looking for a Niche in various domains. Companies that are moving up the value addition ladder. Complex R&D.

Amrutanjan Healthcare

• Distribution is really strong in Rural & Semi-Urban Areas.
• Market Leader. 28% ROE. 200 Cr Cash
• Got a vendor in place. Bella has a factory in Chennai.
• Contract Manufacturing.
• Has a 3%market share. Lots of headroom
• Rural market. Priced competitively. Playing the price game. Don’t fight in Urban where there is Brand consciousness.

Mold Tek Packaging 5:49

• Paints need just in time inventory.

Auto 5:53

• All companies

Suprajit 6:00

• Lowest cost producer.
• Control cable. Halogen bulbs and lamps. Acquired Phoenix lamps.
• High room for growth.

PPAP

• 60–70% market share
• Specialized plastic is needed.
• Technical collaboration with Japan company in 1988.
• Injection-molded
• Trying to get into Maruti.

Sterling Tools

• A large no of SKUs
• Plant in North India
• Largest supplier of fasteners in North
• Growth will come from:
• A new plant in Karnataka
• Japanese company Medo. Got access to high-end fasteners. Maruti Toyota can get things locally now.
• Medo is the largest supplier of Toyota. Medo took a share in Sterling.

Lumax

• Largest in auto lighting.
• Lumax is gaining high share in LED
• Well Diversified across categories, passenger, two-wheeler
• OEM: Maruti is the main but many more.
• Capex is already there.
• Now non-linear cash flow generation

V-Mart — 6.12

• No entry barrier.
• Just don’t make any mistakes.
• Earlier ran Vishal mega-mart.
• Tier 2 and Tier 3 cities.
• Good Inventory Management. Down from 120 to 80 days because of technology.
• Incentives for top management and store management.
• One warehouse multiple front ends within 150 km.
• Walmart like implementation
• NorthIndian, tier2 and tier3 towns

La Opala — 616

• The tableware market in India is big
• Has set up a scale manufacturing. Now has some competitors though. Borosil Cello. The market itself will increase.
• Customers come and ask for La Opala.
• Invested a lot in automation.
• Low power and fuel cost. Cost-benefit is passed to customers.

Music Broadcast

• Regulatory- There can’t be any new entrants.
• You have to buy an entire spectrum
• License Fees. Lot fo upfront capital and hence high entry barrier.
• Renewal of license is cheap but buying a new license is expensive.
• 250 cr cash
• Good capital allocation
• Other players have beat and are struggling.

DCB

• Like Bajaj finance
• Know for 7–8 years.
• Best run small bank
• They were almost bankrupt in 2008. RBI was running it in 2008. Then Murali was brought in and he is running the bank beautifully.
• Liquidity coverage ratio is high
• Spectacularly good in NPA management. As low as 1- 1.2 %
• Top 5 is less than 5% of the total. Hence granular. Low-cost fund.
• 9% ROE even in Covid.
• Shrinking of SME2 was more than 2/3rd.
• Moratorium will be down like HDFC bank

MAS Financial

• Small-Cap cousin of Bajaj Finance.
• Maintain a very high tier 1 ratio of 30%. Unbelievable
• Never done a primary issue, no dilution. ROE is 25%
• Loan book > ROE => Dilution is not needed.
• Private sector banks have invested suggested that the quality of this company is high.
• April, March — they did not lend any money.
• We doubled on Bajaj Finance in March
• Looking Tasty!
• No dilution in 12 years.

In late July, at 9%

CUB

• Too large for Little Champs

China to India Beneficiaries

• GMM and Alkyl Amines.
• What is important is the barrier to entry.

July 28, 2020

• Spirituality
• Pain + Reflection = Progress — Ray Dalio
• Meditation => Better Investments, Family, Friends, and Happiness — Jason Voss

July 16, 2020

Will the rally continue?
Liquidity is going to be abundant in the time to come. There is plenty of support from FED and RBI. The journey ahead should be smooth and upwards.

Where is the opportunity in this market?
Risk capital and capital is abundant. Strongest Bank, stronger NBFCs and strong firms like Aditya Birla Fashion Retail will keep getting stronger.

Auto and Auto Ancillary Recovering Fast. — Maruti
API => Divis Lab

Healthcare
High ROCEs are difficult in this area.
* Lal PathLab * is the most efficient play in this area.
* Divis Lab * If 5% of API development moves from China to India; India’s growth doubles.
* ICICI Lombard * is one of the 2 quality companies. We recently invested in this. COVID will accelerate Health Insurance.

Cement & Steel
India will grow because of digitalization and tech. VC money is coming for Tech, Science, and Chemistry Cement and steel are old CAPEX engines and are not the growth accelerators of India anymore.

FMCG Rural and Urban Urban demand as slowed down and rural is blooming. Escorts, which makes tractors, is doing amazing.

How will x,y,z companies do?
I don’t care. Our job is to focus on leaders and monopolies and studying their moats.

Platform Companies — IEX, MCX, IndiaMart
They don’t have an earnings engine. No pretty story to be told. No, long term money making probability. They are saved by Regulatory protection. Once they are gone, it’s over for these companies.

June 30, 2020

Essentials: ITC Sales are already back to Normal.
Non Essentials like undergarment: Already 70% of Normal.
Auto is lagging though.
So much monetary support from Institutions => Difficult to stop the rally in the near term.
— We have Maruti in some of our client’s portfolios.

Q: Why are big banks selling shares and raising money when the prices are low?
Answer: Banks are being smart and increasing liquidity to fight against NPAs. Strong Lenders are selling because they are able to. Weaker ones will not be even able to raise capital.

Q. Many stocks have already rallied. Is it okay to bottom fish in broader markets? A. No, I will stick to my stocks like Paints, Adhesives, etc. US consumes a lot of APIs from China. If 5% of it comes to India, Indian production doubles. => Divis Lab and Ecosystem that supplies to it. f

HDFC Vs HDFC Bank => HDFC Bank is a better buy.

HDFC Bank is set to give a guaranteed return of 8–9x in a decade.

May 17, 2020

All over the world, observation is that demand recovers pretty quickly. Labour shortage will be there but not demand shortage. Although labor shortage might be there but CCP companies are not labor-intensive so we are good.

Divis: India will get a bigger slice of the Global API.

May 12, 2020

Q. Where do we stand now?
Oh, I am just buying stocks aggressively.

Look at beaten down economies like China and Italy, the recovery post lockdown is pretty rapid. Cars, washing machines, fridges, Disney land, Airbnb — demands are coming back up pretty sharply.

We love — Kotak, HDFC Bank, Bajaj Finance. They look Tasty and Juicy.

“Bajaj Finance is a big holding of us”

Post-COVID, Auto demand roars back!
What was holding back auto?

• BS6 — We have left that behind.
• Cost of borrowing

COVID itself is a push for auto. The proof is that traffic jams are increasing in China.

Outlook for Indian IT is pretty robust. Currency has given up 9–10% of the value. That will help as well. Visa will be an issue but we anyways WFH.

Sector after sector consolidates to two players accounting for 80% of the market share.

20% of profit generators account for 70% of the profit of the whole Indian Economy.

Bet on the biggest two. Consolidation happens in the time of Crisis.

May 11, 2020

Reliance is making the largest Pivot I have ever seen in my life. How much market will value Reliance-I am not sure. They are decreasing focus on legacy businesses like Oil and Gas and moving more towards tech and Telecom.

Mar 11, 2020

We invest every day.

Cheap oil and cheap money is magic for the Indian Economy. We are least dependent on foreign economies and hence Indian markets need not worry much about what happens outside. Just buy quality companies.

Never think about missing the bus or getting on a bus. The notion that you can time the market is a delusion. Just go ahead and buy.

I would get worried about FII outflows. FIIs have pumped in 12–20B $ every year in India and I don’t think that will not stop in foreseeable times.

April 30, 2020

Market Leaders are gonna consolidate and weaker companies are gonna get crushed. In every sector, one or two players are garnering 80–90% market share.

Making money in the market is a Darwinian exercise. Every crisis strengthens the hand of strong well-run cash generative franchises and weakens the lesser players.

Consistent compounders fall half as others. Relaxo, Asian Paints, Lal Path Labs — will have a super time in the next 12–18 months.

HDFC Bank, Bajaj finance and Kotak Bank are no brainers — Load up on those!

For current times, look at beaten-down stocks. One run below the frontline champions like HDFC Bank is Axis Bank. It can give a superior CAGR post-COVID. It is also flushed with liquidity and strong CASA Franchise.

Strong Areas: IT, Pharma and Auto
Divis will excel because of its API business. Auto Demand can get postponed by 6–12 months. But cheap financing will boost a lot. IT will excel as more work will come seeking for low-cost arbitrage.

Bad Areas — Real Estate, Airlines, Hotels

Every boom in India comes after a US Recession. Us Recession is a necessary and a sufficient condition for the Indian Economy to Boom. Chances of Economic boom in next 2–3 years are extremely high!

April 30

Berger, Titan, and Page are helping their Franchises.

April 7

Once the lockdown ends, we will see a flush of money coming in. We have clients waiting but we can’t take the money because we need physical signatures.

Prices for HDFC Bank, Bajaj Finance, and Kotak are unbelievably attractive.

NBFC Consolidation — Bajaj Finance and LIC HFL will lead.

When asked to comment about PVR and Jubilant: Well run companies in Urban Consumption but uncertain about how habits will turn out.

Investing in India is basically playing growth. If I am playing growth, I cannot not play Financial! Its not rational.

April 28 — Pramod Baggi

Bet on the companies that don’t have existential crisis.

If the price which it is available — is it significantly below out conservative estimates leading to enough Margin of Safety. With a 3–5 year view, we going ahead and buying!

We have made no change in the Consistent Compounders Portfolio.

Only tactical move — Auto.

Cement is a cyclical sector. We don’t know when the recovery will happen.

Q: Specialty Chemicals like Aarti Industry & Alkyl Amines have are bought heavily?
A: Chemicals, in general, do good in India because they do not take too much capital but take more of science and technology and we excel at these. Market share may move from China to India. “We own a few”.

April 23

Q: Are you fully deployed or do you hold cash?
A: We deploy immediately and don’t take any cash calls.

Pharma — Divis, Abbott and Lal Path — 15–17%

Nov 25, 2019

Two years that follow the general elections generally give higher returns.

In the times of recession, just buy Quality Companies and you will make a lot of money.

It pays to be boring irrespective of how excited or depressed is the market. Minimize the risk by going for quality. If you take risks in Indian markets, you will probably go back home in a stretcher.

We are a poor economy with plenty of growth potential. If you increase risk in such a market, you’ll burn your hands. Better is to just stick to quality.

Oct 25, 2019

You better stick to player numbers 1, 2, and 3 in any domain rather than looking for numbers 8 and 9 and look for superior returns.

Speciality Chemical —what to buy?
I will buy if the moat is because of powerful R&D, IP, strong customer relationships with global giants, etc. But, if a stock is up because of a temporary reason like there was a temporary problem in China and hence the company is doing well — that's not a good reason to buy. In such companies where the reason to excel is temporary, you might overpay and overstay. Exit is the hardest thing to do in India.

Look for an extremely high barrier to entry. Look for Monopoly franchises where there is no one to compete.