Manish Chokhani on where to fiocus in next 2 yrs

In a world of abundant money and liquidity which is being printed, eventually scarcity is valued and that could be a work of art, a rare company or a rare asset like Bitcoin, says Manish Chokhani, Director, Enam Holdings. Would you say that the long-term drivers are intact in Indian market? Is every parameter from market forces to Covid to policy to consumer behaviour, headed in the right direction?Yes, we have the tailwinds because Covid has in a way accelerated trends of the past. If the developed world was already weighed down with its demographics, debt and deflation, these were the battles which were being fought going in and therefore the argument was that miraculously they will turn on a dime and start hiking rates and fight inflation whereas the real fear is about deflation. The fight about immigrants coming in, green cards or hedge funds are now going to change because the jobs are not there and all the older people who are retirees are looking to take more risk in the coming world. So battle lines are being drawn over there. India finally seems to be getting into a regional trade agreement alliance with someone instead of being this thumb sticking out against the rest of the world. If we do become part of these global supply chains, with China plus one kind of game going on and with the changes we are making with PLI, the changes in our taxation systems and ease of doing business, are all trends which can only accelerate. I do not think this is going back. There should be good days in the real economy for people like that. I am not yet venturing to hazard what happens to the multiples over here. In Japan, the multiples have held for 30 years despite being a low growth economy. It is a world I have to get my head around. Do 2% interest rates mean a permanent elevation of PE multiples or is it something which we are entering blindfolded and may live to regret because these prices will eventually have to track earnings. They cannot perpetually keep going up the way they have over the last 12 months. For the next couple of years, what should the investor focus on? Is it intellect and innovation which means focus on Nykaa, Zomato and the Delhivery whenever they go public or is it time to say inflation is back and deep cyclicals and asset owners could make a comeback?There are two kinds of questions. Number one is what will happen and the second is what the majority thinks will happen? Typically what the majority thinks happens first. Traditionally, we have been used to this rotation away from growth to value -- the deep cyclicals and so on and that trade plays out. It is a trade which plays between developed world and emerging markets and then vice versa. It is a trade which plays between financial assets and commodities and then vice versa. But as a lot of the old patterns are about to be breaking down, in a short term of 12 months, you could get the trade which you are alluding to. It is playing out as we speak. But if you think that money will remain abundant and will not dry up, the mere fact that interest rates are going to go up by 50 bps over the next two, three years is not something which is going to make money tight. So in a world of abundant money and liquidity which is being printed, what the world eventually values is scarcity and that scarcity could be a work of art, a rare company. In India, it is Nykaa or Byju’s or something; it could be an asset class which everyone kind of freaks out over like a Bitcoin and valuation completely goes out of the window as everybody wants this scarce asset. I feel that with the amount of money which has been pumped in, the market in some sense has become like an art market rather than a financial market. I want to buy the Hussein painting or the Raza painting at any price and it has no linkage with value in terms of per square foot because you're benchmarking it to somebody else’s price. There is no underlying value in the way we grew up as value investors in cash flow and so on. The same analogy has played out in Bitcoins. A Bitcoin can go to a trillion dollars and even when it crashes, 85% of people do not sell their Bitcoin unlike what they would have done in the financial markets. It does give me a signal that something new is going on, there is a different set of millennial buyers out there who think and behave very differently and like you want the buck in the bag. You want to own a Tesla share and you want to own an Amazon share and you can with Robinhood buy even a quarter share! The market is becoming a voting machine and the voters are changing and they are younger and they do not care for Graham & Dodd and they don’t really care about Warren Buffett. It is people like Cathie Wood and the others. I am not saying it is right or wrong, but this is the market we are operating in now. The dynamics have changed. The ETFs are price agnostic and if you can double the AMC stock in a day, it tells that something is going on. Is this like a bubble which is going to get pricked? But when the bubble gets pricked, the money gets sucked out and that is not happening. So how long does this bubble expand? Does it get bigger and bigger and bigger? I don’t think I can say this will happen or that will happen. But it is certainly a world which is valuing scarcity a lot more than productivity. You have always said that one should try and identify the big pools of profit. Where are the big pools of profit right now?The dilemma in my mind is what is the profit pool or which period to look at? Earlier, I could look out one, two years ahead of the market and pay for that two years forward profit. For example, in the telecom wars you know when it consolidates, people will pay for Bharti two years later. But in the world which we are now living in, if an Amazon can make a loss for 10 years in a row, if a Paytm can make a loss for 10 years in a row and the markets still value it or Flipkart is continuing to make losses for years on end and the market values it, what is the profit pool of the year the market is focussed on, what is the landing point? Howard Marks says we study cycles and you always hesitate to say this time is different but maybe this is a kind of the change, like we went from agriculture to industrial economy to digital economy. There is something going on with these new network effect marketplaces with new pools of capital and with the way vision funds will operate on a $100-billion balance sheet. The rules of the game are certainly changing. At one end, there are vision funds and at the other end, there are Robinhood investors. No one seems to care about profit or profit pools anymore. So let us see how the story plays out. In a traditional sense it is easy. I can say that the profit pools do not change in India. We will somehow muddle our way through, we will get to $5-6 trillion by the time we do the next decade show we will probably be saving more than a trillion dollars. So, financialisation as a theme will play out in India. We have India one, a country of 20 million people and India two which is 200 million people and India three which is a billion people or thereabouts. If you think of consumption patterns, we sell three million cars, six million air conditioners, 12 million refrigerators and 24 million two-wheelers. A value chain of growth has to occur and could we get to six to 12 million cars? China is already at 25 to 27 million cars. There is money to be made with the Indian consumer but it is a very narrow market and until we can see our per capita income rising, we have lost the game. We are behind Bangladesh in per capita income today. But if we can get per capita income up, if we have the strength to take the rupee up and not sell our assets to the foreign world in exchange for buying oil from them which seems a very bizarre trade. If a lot of these things happen, then there are profit pools in consumer, healthcare, IT, financialisation, platform plays and privatisation beneficiaries. People are taking over assets which the government should have run. There is a lot of money to be made over here, no doubt about it. Eventually, you stay focussed on those five, six areas but the playing field in a sense has changed. All the economy lessons are out of the window.

from Economic Times https://bit.ly/3iRPoU6
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