Another Tryst With Destiny
October 16, 2018

In 2002, I joined young Edelweiss at a young age of 25, when it was a young and fledgling organization, its networth was approximately INR 22 crs, PAT was around INR 1 cr and the Nifty was 1180 . Today, I’m 42, and Edelweiss’s net worth has grown to INR 8200 crs & PAT is INR 890 crs (CAGR of ~50%) and the Nifty is at 10450 (CAGR of ~14%).

What a journey of growth it has been; and now after almost 17 years of fulfilling journey of building high quality businesses, I am embarking on yet Another Tryst with Destiny.

This journey called Edelweiss has been no less than a dream & a thrill ride. It has been full of challenges, excitement, successes, setbacks, satisfaction and most importantly of growth. In this period I have grown as a Professional, as a Manager, as a Leader and more importantly as a Human Being. Edelweiss has become second home & nature to me. Leaving this has been a big decision and has taken a lot of time, courage and Introspection.

The thought of life without Edelweiss is slowing sinking, but even if you know what’s coming, you’re never prepared for how it feels! (just like market corrections )

– First of all, I want to thank and express my deep gratitude to Rashesh for all he has for me in this journey. Rashesh has always been kind enough to throw opportunities my way and keep faith in me despite all my follies & shortcomings. I have been extremely privileged and lucky to get his unending support and conviction. My journey wouldn’t have been the same without it. A Big THANK YOU.

– A big thank you to the entire senior leadership team, many of you have been my long standing partners in crime. A BIG heartfelt thanks for cheering when I succeeded, for supporting when I failed, for guiding when I was lost and for holding my hand when I needed you. Many of you have been also guiding factor in shaping my career.

– A big thank you to my team on whose capable shoulders I always stood tall and smart. It is said one can accomplish anything if you have a capable and motivated team. I have been more than lucky to have this combination in the team over the years; which has built and delivered such a high quality bouquet of businesses. I have countless examples of customers complementing the motivation and drive of the team. Among other things, this has made me most proud. I will miss you guys a lot. A Big thank you to all of you for supporting me, tolerating me, standing by me and making me look successful.

– In this journey I am sure I would have hurt or been inappropriate or impatient with many of you, sometimes driven by my task orientation or at times arrogance; I apologize for it from bottom of my heart for those moments and behaviors.

– To all Edelites, you guys rock. An organization is what its people are, and so is true for Edelweiss. You guys make Edelweiss truly distinct and enviable.

Edelweiss is a very fine institution and it takes work of many lifetimes to build such a high quality and ambitious organization. I am confident that it will grow by leaps and bounds under Rashesh’s leadership supported by an exceptionally talented & motivated team. While I will miss this first hand, I will always be proud to see it grow and prosper. My best wishes to Organization and to each and every one of you. I shall always pray to the Almighty for your growth, success and prosperity.

I am moving on to pursue my entrepreneurial passion – my Another Tryst with Destiny, with the confidence that I will continue to enjoy your support, trust, conviction and blessings.

I shall be active on social media and shall continue sharing my thoughts with all of you.

#BeUnlimited in your ambition, enjoy every moment of life, take good care of your health & family.

I would like to end with a beautiful Song by ABBA which me and my daughters often sing together:

I have a dream, a song to sing
To help me cope with anything
If you see the wonder of a fairy tale
You can take the future even if you fail
I believe in angels
Something good in everything I see
I believe in angels
When I know the time is right for me
I’ll cross the stream, I have a dream

I have a dream, a fantasy
To help me through reality
And my destination makes it worth the while
Pushing through the darkness still another mile
I believe in angels
Something good in everything I see
I believe in angels
When I know the time is right for me
I’ll cross the stream, I have a dream
I’ll cross the stream, I have a dream

I have a dream, a song to sing
To help me cope with anything
If you see the wonder of a fairy tale
You can take the future even if you fail
I believe in angels
Something good in everything I see
I believe in angels
When I know the time is right for me
I’ll cross the stream, I have a dream
I’ll cross the stream, I have a dream

Best Regards,

General Global Markets Governance Markets
Stock market fluctuations: India’s structural story is just beginning to play out; we are still at inflection point: FirstPost Article
August 31, 2018

I am writing this article at a time when the markets are hitting an all-time high every few days. Veterans warn us that in times of excessive optimism one should take a more cautious and thoughtful view. However, for myriad reasons (enunciated below), I feel that the best for the markets is still to come and that India’s structural story is just beginning to play out. From a 5 to 7-year perspective, we are still at the inflection point.

First, let’s look at the economic recovery from the numerous reforms that were undertaken in the last few years namely the Goods and Services Tax (GST), Real Estate Regulatory Act (RERA), Insolvency and Bankruptcy Code (IBC) among others. After the initial teething issues — which are characteristic of reforms — the worst is behind us and the economy is largely on the recovery trajectory.

Investment cycle which is crucial to sustaining economic growth has also begun to pick up. Recently, the Reserve Bank of India (RBI) released data on the Capacity Utilization of domestic companies, which has risen to 75 percent in the March quarter — the highest in the last two years. This is a clear signal of an uptick in economic activity and will have a big impact on the profitability of the corporate sector. Demand-led growth will also encourage expansion plans, as is visible from the pick-up in bank credit.

One of the biggest strength of our economy (and something I am particularly enthused about) is our consumption power. As India transforms into a $5 trillion economy over the next eight years, our growth will be more inward-looking domestic demand and services-led (akin to the US in the 1980’s).

India has a potent combination of right demographics and rising per capita incomes; this holds immense promise for consumption-related sectors, both staple and discretionary. As discretionary spends increase, low-cost financing options shall also continue to do well, backed by aspirational purchasing. This bodes well for FMCG, modern trade retailers, healthcare, NBFCs among others.

The other encouraging trend is the structural and diversified rise in Indian exports. Numerous tailwinds like the depreciating rupee, intensification of trade wars between the US and China, revival in demand from the European Union and most importantly, rebalancing of Chinese economy – are reviving the Indian manufacturing led exports.

Along with these catalysts, one must also be mindful of the risks that prevail in the macroeconomic milieu. The revival of the economy faces headwinds, primarily from a rising current account deficit (on the backdrop of a rising trade deficit) given the rising depreciation of the dollar and rising crude prices.

Second, on the political front, this year, we shall witness four state elections and this is also the penultimate year to the run-up of the general elections. Hence, we could see some volatility. Lastly, the global tightening of liquidity in developed markets is putting pressure on emerging markets currencies, bonds and capital flows. However, the external risks are unequivocal for all emerging markets though India is relatively better placed than other markets but, is not isolated from global shocks.

In summation, I feel India’s economy holds tremendous potential over the next decade especially given the three-pronged growth drivers of investments, consumption, exports and the best way to play these themes is to have a long-term horizon and to take advantage of the short-term volatility. This, however, is easier said than done. As is often observed in markets, it is the patience and the behavioral aspects that one needs to master to do well in equities and to use compounding to one’s advantage.

Let me illustrate this with a simple example. Since, inception in 1979, the Sensex has given a 16 percent compounded return annually. To put this into perspective Rs 1,0000 invested in 1979 would be worth a whopping Rs 33 lakhs today. If you started a bit late and invested in 1991 you would still have Rs 20 lakhs; if you began in 2,000 it would be worth Rs 10 lakhs and if you were a really late bloomer, and began investing in 2008 you would still have Rs 4 lakhs!

While this may seem impressive in hindsight, the key thing to note is that one would have had to be awfully patient and would have to sit tight, even in the face of recessions and temporary negativity. To do it successfully is simple, but it is not easy. In this context the words of the famous Peter Lynch serve as the pole star, “My best stock has been the third year, fourth year, the fifth year I have owned them. It’s not the third week, fourth week. People want their money very rapidly, It doesn’t happen.”


Rise of risk, will Federal Reserve come to the rescue: ET Article
June 11, 2018

Since early 2016, the global economy has been in a so-called goldilocks situation of easy liquidity, low inflation and accelerating global growth — a near-perfect backdrop for risk assets to perform. No surprises, therefore, that EM assets and commodities had the best two-year run since 2011. However calm in markets often breeds complacency or as famous economist Hyman Minsky taught — “stability breeds instability”. Despite the calm of last 2 years, it is worth emphasising that the global environment is still characterised by elevated debt levels and central banks are slowly but surely normalising the ultra-accommodative conditions.Untimely US fiscal stimulus may spoil goldilocks set-up

Specifically, it is important to evaluate the possible implication of US fiscal stimulus recently passed by Washington. Traditionally, the US fiscal stimulus happens amid business cycle downturns when Fed is cutting interest rates and this combination is a big boon to emerging markets as it improves their exports and lowers interest rates. However, this time the situation is much more complicated as US fiscal stimulus is occurring at a time when the US economy is close to full employment, inflation is close to target and Fed is raising rates. This is an historical anomaly. One way to think about the situation is to ask who will absorb the rising supply of US treasuries amid US fiscal stimulus?US treasuries supply to rise… who will buy?

Generally speaking, US Fed, EM central banks and global private sector (insurance, pension funds etc globally) are three large buyers of US treasuries. Among these, it is clear that the Fed will actually add to the supply of Treasuries as it normalises its balance sheet. Indeed, the combined supply of US Treasuries (US government + Fed) could ramp up from under $700 billion in 2017 to over $1.5 trillion by 2019. If so, can the EM central banks do the needful? Unlikely, because the EM surpluses today are not even a shadow of what they used to be during 2005-2008 when EM surpluses kept US bond yields under check despite sustained monetary tightening by the US Fed (remember Greenspan’s famous “bond market conundrum”?).

In other words, the combined official sector (Fed and EM central banks) is not positioned to absorb the expanding supply of US treasuries. If so, the global private sector will have to ramp up the purchases of US bonds. And history shows that this happens when private participants perceive higher risk in their portfolios e.g. during crisis-like situation (e.g. around China’s RMB devaluation episode, amid European debt crisis and so on). In such scenarios, US yields surely fall but it is a fall driven by global rush towards safety of US Treasuries and therefore no comfort for EM assets. Even if US yields fall, EM rates could still remain elevated/move higher amid this rush to safety. Recall the situation that played out in 2015 when China was persistently losing reserves amid capital flight (selling US treasuries) and yet US bond yields fell by nearly 100bps but that fall in US yields was no comfort for EMs as the fall in US yields was a reflection of global private sector rushing toward safety of US treasuries amid mounting China risk.

EM dynamic more akin to 1990s than 2000s

No surprises therefore that we have seen involuntary rise in interest rates in EM, much ahead of their growth cycle. In recent months, bond yields in EMs have risen 70-80bps, a few central banks — Turkey, Indonesia — have been forced to hike rates amid pressure on exchange rates (EM FX down 8-10% from their peak). Now, one may ask, how come Fed’s tightening cycle of 2004-2007 was so peaceful for EMs (indeed EM saw full-fledged upswing in business cycle and asset prices)? It was so because the Fed and EM monetary cycles (and business cycles) were fully aligned. Growth and rates fell together and rose together.

Indeed, the history which is more instructive for our current situation is Fed’s tightening cycle in 1990s (not 2000s), which proved quite troublesome for EMs (the Mexico crisis in 1994, the Asian Financial Crisis in 1997) precisely because EMs were not in a position to match US rates higher. Put differently, the global economy is basically facing two misalignments. One is the mismatch between US fiscal and monetary policies — the former is adding stimulus, the latter is withdrawing (this will tend to push rates higher); and second, US monetary cycle and EM monetary cycle (which would tend to push dollar higher). Left to itself, this dynamic will pose serious challenge to macroeconomic management in EMs.

What is the way out?

The Fed backing off from aggressive rate hikes will be one such development. This in turn could be led by unexpected fall in US inflation (or sharp fall in oil prices) and/or softer than expected incoming economic data from the US. Also if EM situation deteriorates, Fed could certainly reassess the situation as has happened so often in history.

Interviews Markets
Rising probability of of global risk-off biggest threat to Markets: Business Standard Interview
June 4, 2018

You expected around 10-15% return from the markets in calendar year 2018 (CY18) when we spoke last in February. Is there any change to these estimates?

I have maintained that 2018 will be a year of Micro improvements and Macro risks. I feel that that is panning out, the numerous structural reforms undertaken over the past years(GST/RERA) is behind us and we are now seeing a largely broad based recovery.
While domestic fundamentals are strong, global concerns with regards liquidity and balance sheet tightening of the Fed & ECB are areas of concern. Further, the rising Oil prices, Trumps trade wars and more recently the Italy issue are all developments that have contributed to the volatility of the markets. That being said, I am still bullish on India’s prospect of being a story of the decade and the opportunity it offers to create significant wealth, despite all challenges & risks.

How insulated is India from these risks?

A rising probability of global risk-off is the biggest risk to the markets which could get triggered from any of the factors like Trade war, Fed tightening or European Situation. Markets gets jittery whenever these signs develop. USD getting stronger also has huge implications for the already leveraged EMs (India included) in terms of cost of capital as well as capital availability. On the domestic front, given that this year is a precursor to the election year, one could lots noise which keep markets jittery.

The weights of India and Brazil markets could be capped on MSCI Indexes. What are the implications for the Indian markets?

MSCI currently has an exposure to Indian market to the tune of $35-38Bn via the MSCI EM Index. Application of capping factor to India will surely dent the flows that track India via the Emerging Markets Index. On one side China A share inclusion in the EM basket will gradually take China’s wt in MSCI EM higher and on the other hand use of capping factor on India will further reduce the wt of India in the EM Basket. We believe if such capping factor is introduced then MSCI EM Index will be highly dominated by China Wt and will not reflect the true picture of Emerging Markets.

What are your key takeaways from the March 2018 quarter earnings season?

I think by and large, the results have been on the good side, indicating a demand recovery in the economy. The mid-teens growth of YoY PAT in Commodities and Domestic Investment sectors and with FMCG, Domestic Auto companies, retail lending banks, NBFCs posting good results it is safe to say there was a broad based recovery. It was heartening to see a green shoots in rural economy with FMCG and Two wheelers posting good numbers. Margins seem to be getting better in IT, whereas in the Consumer Durables space, demand is muted, and an increase in input prices is putting pressure on margins.

What are your sector preferences from one year’s perspective?

We are quite positive on IT, BFSI, Infra and Consumption. Also, quite positive on private capex. I think this is one overlooked theme in the markets. Green shoots are finally visible after a long hiatus of over half a decade and hence this is one sector investors should watch out for. Most corporates across sectors have started equipping themselves for growth as their capacity utilization is rising. Power and Utilities is another sector that is broadly neglected by the market, but I feel this too could be a good contra bet.

Has the outcome of the recent elections in Karnataka made foreign and retail investors in India cautious on the possibility of a hung mandate in the general elections scheduled for 2019?

I think that it is still premature to comment on the General Election outcome, and one State’s outcome does not constitute a trend. Further, the market recovery post results has clearly indicated that the Market has treated this as a one off event. However, generally speaking there could be volatility in the year, as is usually seen in the run up to major elections. There will be lots of noise in next one year around politics which will keep market nervous.

General Governance Interviews Markets
How your mental biases can stop you from becoming rich: ET Wealth Article
May 14, 2018

As a child, coming from a middle class family, I frequently used to wonder what it took to be rich. It was not until I read Predictably Irrational by Dan Ariely and Secrets of Millionaire Mind by T. Harv that I discovered how becoming rich was more about one’s mindset than anything else.

We often imbibe certain principles from our families, social circles, etc. which unknowingly deter us from developing the mindset needed for wealth creation. Find out if any of these cognitive biases are preventing you from getting rich.

Do you strive to make your money work for you?

I saw my family members work hard, sometimes more than 14 hours a day. However, it was surprising to see the same dedication missing when it came to managing their hard-earned money. Most people, including accomplished professionals, do not focus on making their money work at all. Unless you approach investing your hard-earned money with the same passion and dedication with which you earn it, you will not be financially independent.

One of the ways I do this is by asking myself: ‘Is this the best investment I can make with my money?’ This simple question will drive you towards the most effective investment option. Remember, you can only work 8-12 hours a day, but your investments work round the clock. Warren Buffett has put it aptly: “If you don’t find a way to make money while you sleep, you will have to work till you die.”

Investing is about risk and reward, not just risk

When most people think about investing, they think of the risks involved and the possibility of losing money. Generating returns is an afterthought. While there is nothing wrong with assessing investment risks, there is a difference between risk consciousness and risk averseness. Risk consciousness is about minimising the risk for a given reward. Risk averseness is just the fear of losing money.

In wealth creation or investing, the interplay of risk and reward is very important. People tend to go back to being risk averse, if they lose money in a particular investment. Their subsequent actions are defined by their previous experience. But whether you play poker or invest, when you lose money, it doesn’t necessarily mean that you made a bad bet or investment. Whatever the asset class you choose—equities, real estate, gold—be cognizant of why you are investing in it. Look at what is the upside—how much you can earn, with how much certainty and how you can minimise the uncertainty. This is called taking calculated risks. As Buffet says, “Real risk comes from not knowing what you are doing.”

Do you focus on increasing earnings, or just cutting costs?

Our Indian culture teaches us to control our expenses. It’s a great thing. But the moment we are faced with a sudden expense, our first reaction is to cut back on spendings. While this might help temporarily, it is not a sustainable solution. Why not look at increasing the family income? Find something that you are good at and see if you can monetise it.

Something that you can do in your spare time for which people are willing to pay. More than the end result, it is such a mindset that needs to be cultivated. Most successful people build multiple sustainable income streams, whereas the others are largely dependent on income from salary, and look at improving their savings by curtailing their expenses.

Do you focus on saving for goals or financial independence?

Human beings have a commendable ability to work single-mindedly and tirelessly to realise specific goals. Our savings mentality is events based and the aim is not financial independence by a certain age—which will also take care of the most important events in one’s life be it children’s education, marriage, etc. When there are emotional aspects playing in financial decisions, the decisions will always be sub-optimal .

A marriage 20 years down the line is a goal that may be met by putting in money every month into a savings kitty but, if the goal is financial independence, say, by the age of 45, then this cannot be achieved by a linear growth in income and savings. You will have to find alternative ways, including upgrading yourself to earn more, finding better investment opportunities and, most importantly, orienting yourself to wealth creation and not just wealth preservation. As Michelangelo said: “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”


Why well priced acquisitions are important; why catastrophes could bring out Berkshire’s inherent strength in the Insurance business; and how market vagaries can create long term value: My learnings from Buffett’s Annual Letter to Shareholders
March 13, 2018

Every year around late February, I wait for Buffett’s Annual Letter to shareholders. Though unfortunately, I have not been a shareholder of Berkshire Hathaway; what I have gained from reading the letters has been priceless. I strongly feel that his letter is amongst the finest pieces of Investment (and finance) literature that is written.


This is the first year I decided to pen down my thoughts (although a bit late) on the annual letter (which incidentally is the shortest one in recent times), and what it teaches us about investing and about Buffett himself.


Like every year, the letter begins with Berkshire’s year wise performance since inception along with the corresponding performance of the S&P 500 – the benchmark index. Berkshire’s compounded returns since inception (1965-till date) have been 20.9% which comprehensively outperforms the index which grew at 9.9%.


Two aspects about the performance are remarkable- first Berkshire has grown at a compounded rate of ~21% annually over a 57 year period well above the benchmark is in itself phenomenal. Such consistency (with such a massive AUM) over a prolonged period undoubtedly make Buffett and Munger the best money managers in the world.


Second, a 21% return would in effect be much higher in equivalent Indian terms -mind you in the last 25 years the 10 year US T-Bill has historically yielded half of what the Indian T-Bill returns ie 4.42% vis a vis 8.13% (since credit is relatively scarce in a developing country such as India compared its developed counterpart- the US.)


The letter broadly details 4 aspects- Acquisitions, Insurance, Investments and Active vs Passive Investing, which I shall touch upon sequentially, and finally I shall give my 2 cents on traits that make Buffett not only an outstanding money manager, but also an astute and businessman.


The first theme is that of acquisitions: to quote


In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.


That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.”


Now Buffett and Munger are value investors in the true sense of the term, but what really stands out is their conviction of buying cheap the very basic principle of investing- which is particularly difficult to adhere to in times of euphoria and their aversion to leverage.


Discussion on merits and demerits of leverage is usually an academic one, but the point to note here is that the best money managers stick by their principles – even at the risk of underperforming in the short term in order to “sleep well at night.”


Conviction, discipline and sticking to what you know are the cornerstones of successful investing and Berkshire is an embodiment of this.


The letter highlights many notable acquisitions, with Pilot Flying J being the largest. Given Berkshire’s AUM they are compelled to make big tickets investments, but one common underlying theme in all of them is that the companies, is that the size of the opportunity relative to the sector and consequently their growth prospects remains invariably vast.


The second theme is Insurance, which has been an engine for Berkshire’s growth over the last 50 odd years. While, Buffett’s often stated “float income” and “underwriting profits” enable him to hold billions of dollars, and “get paid for holding them” (and this has in effect facilitated Berkshires growth over the decades) this year’s discussion gives a unique insight as to why structurally Berkshire is one of the best possible insurance company by sheer design and offers an unparalleled competitive advantage in the industry.


The reasoning is as follows: last year US suffered a black-swan event of 3 hurricanes hitting them- namely at Florida, Puerto Rico and Texas. The cumulative loss arising from these hurricanes is about USD 100 bn, and Berkshire’s losses amount to USD 3 bn. This accounts for less than 1% of Berkshire’s net worth, whereas other insurance companies suffered losses in net worth ranging from 7-15%.

The probability of a mega-catastrophe hitting the US is 2% and the estimated damage is far more in such a scenario, and is pegged at USD 400 bn. In such a situation, Berkshire is likely to face a loss of the order of USD 12 bn. A loss of such a magnitude would place most US Property and Casualty insurers out of business; but Berkshire, by the virtue of being a mammoth diversified conglomerate is likely to earn far more than that amount through its non-insurance businesses in any given year. This explains why the large insurers come only to Berkshire for reinsurance of such claims.


This is a classic example of a moat that they have successfully created over the years, and one which leads to a virtuous cycle of business for their insurance business.


The investing section once again highlights the principles of successful investing, for Berkshire stocks are not a ticker but interest in businesses, and over time if the businesses do well, it is likely that they will do well. The theory is aptly substantiated with a snapshot of Berkshires largest holdings, which were investments made using the same principles- among these are behemoths ranging from Apple Inc, Bank of America, Coca Cola, and General Motors amongst numerous others.


Over the years Berkshires top fifteen investments have grown 2.3x, but this has not been in absence of stock market vagaries.


The four major dips in US stock market history (crash of 1973 caused by a dramatic rise in oil prices and downfall of Heath government, Black Monday- the crash of 1980s, the dot-com bubble of 2000s and finally the sub-prime crisis of 2008) and the percentage correction in Berkshire shares have ranged from 37% to as much as 59%. Infact, this is one of Buffett’s strongest reasoning against leverage and to highlight how wildly and unpredictably stock markets can sway, which when taken advantage of can provide outsized returns.



As Buffett poetically puts it-

“Stocks surge and swoon, seemingly untethered to any year-to-year buildup in their underlying value. Over time, however, Ben Graham’s oft-quoted maxim proves true: “In the short run, the market is a voting machine; in the long run, however, it becomes a weighing machine.”


When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt. That’s the time to heed these lines from Kipling’s If:


“If you can keep your head when all about you are losing theirs . . .

If you can wait and not be tired by waiting . . .

If you can think – and not make thoughts your aim . . .

If you can trust yourself when all men doubt you . . .

Yours is the Earth and everything that’s in it.”


The last section talks about how active fund management (with high fees) can underperform an Index over a long period. The key insight being that inactivity can sometimes be economically more lucrative than activity– an often underappreciated facet of investing.


While Berkshire’s story continues to be an epitome of superior money management, there are some traits that make Buffett not only an exceptionally good money manager, but an equally great businessman. Chief among them is his outstanding marketing acumen.


The last couple of pages describes the itinerary of annual meeting, a skillful and imaginative initiative to exhibit the sheer diversity and the magnitude of Berkshires investments. Each of which are on display at the meetings, ranging from a live stream on Yahoo (a recent investment in 2016) to a special shareholder discount on GEICO insurance a display of books authored by them. Buffett light heartedly and wittily runs us through all that is on offer, adding a touch of his famed frugality by suggesting to fly to Kansas City (instead of Nebraska) to save on flight fares.


One of the other aspects is Buffett’s well thought out succession planning- where Ajit Jain and Greg Abel are elevated as Vice Chairmen to look at the insurance and non-insurance businesses respectively. While Todd Combs and Ted Weschler independently handle the investment fund (collectively managing USD 25 bn) as Munger and Charlie continue to manage the rest of the investment operations.


Another fact I have often noted in his letters is his ability to get the best leaders to do the job and his conviction to stand by them in trying times. This year he emphasizes that in spite of an unusual year in the insurance business, some of the best brains in the industry are running it. All of this not only enables him to invest his money efficiently in companies but also ensures that these companies (Berkshire included) are in able hands.


Yet again the Oracle of Omaha has taught us noteworthy lessons on life, and this year again I have savored the letter.

I would like to end with one of the lines which left the maximum impact on me was towards the end of the letter, where he states:


“There is no one more important to us than the shareholder of limited means who trusts us with a substantial portion of his or her savings. As I run the company day-to-day – and as I write this letter – that is the shareholder whose image is in my mind.”


And over the last 50 odd years they have successfully done just that.

Earnings to grow in mid-teens for first time in 7 years: ET Interview
February 12, 2018

Q. What do you think of the ongoing market fall post-Budget? What is your outlook?

After a fantastic year in 2017, there was a panic-buying-like situation unfolding in January. With the cost of capital going up, concerns about its sustainability have been around. When markets are positioned like this and most people are on the same side of the market, even a small development or event can lead to a sharp correction. This is what has happened. As we move to FY19, I think FY19 should see a mid-teen earnings growth, probably for the first time since FY12.

Q. Has the LTCG tax had an impact on the markets?

I don’t think so. LTCG, with the grandfathering clause, is not the reason for the current meltdown. The size of opportunity in India is just so huge that given the upside, LTCG is unlikely to discourage investors. Also, while markets such as Singapore and Hong Kong do not tax capital gains from equities, other developing markets such as Brazil, China and South Africa do levy this tax. Over five years, India is likely is likely to outperform other emerging markets (EMs), but this year, given macro headwinds and many elections, I think we might perform on par with other EMs.

Q. How much do you expect the Sensex to fall from the current levels? How comfortable are you on the market valuations?

It is always difficult to predict the extent of a liquidity led move on the upside and especially on the downside. It will depend a lot on global factors. I think lots of investors will find markets attractive around 9,800-10,000 levels of Nifty. I do not see this as a harbinger of a big meltdown. Nifty earnings (per share) are expected to be in the range of ₹580-600, which means it’s trading in the range of 17-18 times which is not expensive given the growth ahead of us.

Q. Do you think India Inc will rebound in Q4? Which sectors will lead the revival?

We saw good earnings growth in Q3 and this shall only get stronger in Q4. Metals, private banks and consumer (staples and discretionary) shall lead the revival. However, as we move to FY19, I expect earnings growth to be more broad-based. Last year, several distressed sectors like pharma, telecom and banks had taken a toll on earnings growth; excluding these, earnings grew approximately 15%. I believe, this negative contribution will now turn positive and a broad-based earnings growth is anticipated.

Q. What are the top macro themes that will play out over the next few years?

Among the long-run themes, there are four big changes which I am very bullish on. First, is the grey revolution embarked upon by this government. Over the next few years, we are going to see significant increase in spending on roads, railways, metros, etc. and affordable housing. One should certainly have exposure to companies in this space. Second theme is financialisation of savings. Today, there is an equity cult being developed among Indian households, and they are finally realising the importance of having financial savings, rather than physical. Third, is the fact that rural economy is on the mend mainly due to government support. The recent budget adds to my thesis that government realises the importance of developing the rural economy. It is only a matter of time before the rural consumption engine starts picking up. Fourth is the fact that global growth is picking up in a broadbased manner for the first time since the global financial crisis. This should help improve IT sector earnings – A sector which has massively underperformed and is trading on cheap valuations.

Q. Can you tell us about your upcoming Conference and the theme for this year?

This is the 13th Edelweiss India Conference 2018 and this year’s theme is ‘India 2025: Another Tryst with Destiny’. We believe India will make this tryst in 2025, when it becomes a $5 trillion economy, the third largest in the world. In the conference we are exploring the various themes and trends of opportunity over the next eight years. Our endeavor is to gaze into the crystal ball at the macro themes that will shape the India of tomorrow. We will have over 150 corporates and over 200 Institutional investors both domestic and foreign, deliberating on these opportunities.


General Governance Markets Politics Regulations
Budget 2018: Expect capex push through rural and infra spending : ET Article
January 30, 2018

Over the past couple of years, the significance of the Union Budget has slowly but surely diminished. Paradoxical as it may seem, this is good news. Let me enunciate why it is so.

Past governments have made major policy initiatives in the Budget, but this government has been legislating structural reforms all year round. Last year saw the Goods and Services Tax (GST) and the much-needed Real Estate Regulation Act (RERA) becoming a reality.

Further, indirect tax is now under the purview of the GST Council and not going see any change in the Budget. It is in the context of these factors that I feel that the significance of the Budget is going to be diminished.

As this is the last full Budget of the NDA government in the runup to the 2019 general elections, I would anticipate a slight spike on the expenditure front (as has historically been the case). At the same time, I don’t expect the government to breach its fiscal deficit target at 3 per cent of GDP as recommended under the Fiscal Responsibility and Budget Management (FRBM) Act; so it is most likely that the government starts looking for alternative funding sources.

Key beneficiaries on the expenditure front are likely to be the rural economy – especially since agriculture growth is estimated to have slowed down to 2.1 per cent (more than 50 per cent) from the last financial year and in the aftermath of the Gujarat election results, the governments proclivity for the rural economy is likely to be high.

One thing I have always maintained is this government’s serious intent to structurally mend the rural economy. This is manifested by the crop insurance scheme and productivity accretive measures like soil health cards, DBT of fertiliser subsidy and huge investments in irrigation among others. Therefore, I believe rural sector will continue be one of the key focus areas of the Budget.

In continuation to last year’s reforms and in line with the larger strategic vision of this government, infrastructure and affordable housing shall both also be a cynosure on the expenditure front. India is in the midst of its second grey revolution – an era of massive infrastructure capacity creation and the government is likely to continue expenditure on key Infrastructure projects.

Affordable housing shall also continue getting attention with more fund allocations to credit-linked interest subsidy schemes (CLSS) for housing loans, in line with the government’s objective of Housing for All by 2022.

On the revenue front, I expect a further rationalisation of direct tax rates – both corporate as well as individuals.

Indirect taxation as highlighted earlier is now under the purview of the GST Council, so the major scope for manoeuvring fund inflows would be on the non-tax revenues. Various ministries have conveyed that they will look at monetising their assets and not solely rely on budgetary support for their investments.

This is a trend which is likely to sustain over the longer term. Collectively, in the last financial year the government raised Rs 52,500 crore in this financial year through myriad divestment avenues, including listing of insurance PSUs and the CPSE and Bharat 22 ETFs. This goes on to show that non-tax revenue can generate good traction, if thought through well.

As the tailwind of oil prices gradually diminishes, and private capex growth remains relatively muted, the government will need to aggressively push forward on capital expenditure to boost the economy and induce private capex.

The government is likely to execute this through rural and infrastructure spending measures; which on the revenue side are most likely incrementally going to be funded through non-tax revenue.

In summation, I anticipate the Budget to be a fiscally responsible one with structurally sound policy announcements, striking a nuanced balance between populism and realism.


General Global Markets Governance Markets Politics Regulations
Outlook 2018: Year of Micro Improvements & Macro Risks
January 2, 2018

2017: The year of structural strengthening and buoyant markets

Unpredictability is the second nature of markets. 2017 kicked off against the backdrop of sudden uncertainty triggered by demonetisation and Donald Trump’s unexpected victory. No surprise, therefore, that most expected modest returns from equities globally. Yet, what we ended up with is significantly divergent. It’s a well acknowledged fact that Bull markets are built on the wall of worries and this was so true in 2017. We saw a global rally in equities.

Back home, just as we were recovering from the demonetisation impact, two more structural reforms—GST and RERA—took a toll on growth for a quarter, creating wide-spread scepticism around the much elusive earnings growth. A bit of cheer did come in from sovereign rating upgrade of India by Moody’s—its first upgrade in past 14 years.

Though the rally in the Indian market was attributed to local tailwinds, the realty is perhaps more nuanced. Nifty crossed the 10,000 mark, delivering 28% return, so did most EMs. Indian MFs received unprecedented local flows into markets, thanks to TINA factor for investors and an expanding SIP cult. However, despite the strong domestic flows, India outperformed other EMs by mere 1% in local currency terms. This is rather insignificant in light of robust structural reforms that are underway in the country. Hence, it is reasonable to say that India was very much part of the global rally; but, this also sets base for the future.

So, what’s in store as we move into 2018?

2018: A year of strengthening infrastructure capex, mending rural economy, global tailwinds and broad-based earnings growth

Fundamentally, I believe, 2018 is commencing on a strong foundation. As we move into the year, 4 broad themes will be at play—robust spending on infrastructure, uptick in private capex, significant mend in rural economy and sustained global recovery. All these are bound to reflect in broad-based earnings improvement.

  • Strong thrust on infrastructure capex and Affordable Housing: Grey Revolution in the making
    India is going through its second Grey Revolution—an era of massive infrastructure capacity creation, with vast planned expenditure on a wide spectrum of infrastructure activities encompassing roads, railways, urban transportation (especially Metros), ports and Affordable Housing. According to estimates, India will spend ~INR50lakh crore on infrastructure till 2022. Spending of such magnitude entails humungous economic impact as it touches almost every industry—Steel, Cement, Construction, Financials— and the job market as well.
    With the government sharpening focus on Housing For All by 2022 and major initiatives on Affordable Housing, this space continues to be a multi-year growth driver, including in 2018. Given politicians’ proclivity to these themes, especially closer to elections, and 2019 being a general election year, I believe these will gain prominence in the coming year. This bodes well for all players in this space.
  • Rural economy on serious mend; post Gujarat results, love for the rural sector is overflowing
    One thing I have written about in the past is the government’s serious intent to mend the rural economy structurally. This has been manifested in crop insurance and productivity improvement initiatives like soil health cards, fertilizer reforms, and huge investments in irrigation, among others. Most importantly, the government, post Gujarat election, is likely to get aggressive on MSP hikes and import duty protection. These augur well for rural consumption and agri-focused & rural infrastructure businesses.
  • Private capex to gain momentum gradually
    Corporate India’s perception of growth prospects has undergone significant transformation over the past 12 months. Most corporates across sectors have started equipping themselves for growth as their capacity utilisation is rising. Green shoots are visible and are likely to accelerate in 2018. Agreed, massive capex, a la 2003-07 with lax underwriting by the banking system, is unlikely. However, I am not complaining; rather, I am happy as, it will be slow, but sustainable.
  • Strong global growth
    Global economies, especially developed markets, are doing well. US, the fount of global growth, seems to be set to clock yet another spectacular year. Though, this could create a bit of risk for EMs (which I have discussed in the risk section ahead), it will be beneficial for Indian IT companies. US tax cuts will also spur discretionary spending in IT. I believe, depreciating INR outlook with increased IT spending augurs well for Indian IT and the job market.
  • Broad-based earnings growth
    On the earnings front, I believe, the worst is over and disruptions due to painful, but much-needed reforms, (demonetisation, GST, RERA) are starting to fade. Thus, base for a broad-based earnings growth has been built. Last year, several distressed sectors like Pharma, Telecom and Banks had taken a toll on earnings growth; excluding these, earnings grew approximately 15%. I believe, this negative contribution will now turn positive and a broad-based earnings growth is anticipated. FY19 Nifty EPS is likely to be in the INR590-610 range, which, in my view, is impressive.
  • Market outlook: Year of earnings growth, not rerating
    So what does this imply for the market? 2017 delivered 28% returns, almost two-thirds of which were due to rerating and only one-third due to earnings growth. This is likely to reverse in 2018. I predict 18-20% returns, largely spurred by earnings growth. There is widespread scepticism on earnings growth. The market always under estimates operating leverage impact. However, I remain a firm believer in its pick up in 2018 and an even more sharp uptick in 2019.

Potential risks – Expect macro induced volatility
Under the risks category I reiterate the usual suspects bandied around—geo political, political and Key-Men. They will be relevant, but more unusual risks to watch out for are as follows:

  • US is growing spectacularly and the momentum is likely to sustain. In cognizance of this, Fed is normalising its ultra-loose monetary conditions. At the same time, the US current account deficit (CAD) could be a potential blind spot. It’s pertinent to note that US CAD is the fount of USD flows to the rest of the world, especially EMs.
  • Historically, Fed easing has been able to widen US CAD, thus driving global liquidity. However, this time, Fed is normalising the monetary policy when the US CAD is either stable or may even narrow further given sustained weakness in USD in the past 2 years. And, this stable/narrowing US CAD and tightening monetary conditions in the US are unfolding at a juncture when leverage of EMs is at an all-time high, led by China. US tax cuts leading to reverse flow can only accentuate it further. USD getting stronger also has huge implications for the already leveraged EMs in terms of cost of capital as well as capital availability. Predicting the timing & its impact on the market is almost impossible, but this risk is worth bearing in mind.
  • Locally, risks worth noting are humungous leverage (close to USD30bn) and high optimism in the market. Both are dangerous even in a structural bull market. Any minuscule change in liquidity can send markets in a tizzy. This has happened in every bull cycle and one has to be mindful of it. I am almost certain we will see this during 2018 as well in some magnitude.
  • While domestic flows seem to be quite strong, one should not underestimate paper supply planned in 2018, despite the record fund raise of approx USD 20bn in 2017. There is similar and more planned; while these issuances offer great opportunities, it worth bearing in mind the risks associated.
  • Lastly, several important state legislative assembly elections are lined up in 2018. And, it being the penultimate year in the run up to General Elections, the government could be compelled to take a few populist measures such as loosening fiscal deficit, which could be bad for interest rates. More dangerous in rising global rates environment.

INR outlook
While domestic fundamentals are strong, global concerns with regards liquidity and balance sheet tightening of the Fed & ECB may be areas of concern. However, these risks notwithstanding, I anticipate a slight depreciative bias—INR hovering around 65-67 level; but, a lot depends on what happens in China.

In Summary,

I continue to remain very bullish on India’s prospect of being a story of the decade and the opportunity it offers to create significant wealth, despite all challenges & risks. 2018 will be year of improving Micros and somewhat risky Macros. So Finally, how do we play?

• Stay invested, be careful of leverage. Embrace for volatility. Businesses and companies will do well but we will see macro induced volatility. Better Micros but somewhat risky Macro
• Play the Grey Revolution, Rural Mend and operating leverage themes
• Financial Services and Unorganised to Organised themes continues to be multi-year opportunity
• Buy Indian IT, Pharma & Telecom services as contra plays. IT offers good hedge as well against Macro risks
• Buy Real Estate stocks, not real estate

I would like to end by quoting celebrated American investment consultant Charles Ellis:

‘Market timing’ is unappealing to long-term investors. As in hunting deer or fishing for rainbow trout, investors have learned the importance of‘being there’ and using patient persistence—so they are there when opportunity knocks.

Hence, I reiterate my faith in the virtue of patience and importance of stock selection rather than trying to time the market. Volatility is risk but can be a friend to the prepared.

With this, wishing you a happy and prosperous 2018. Happy investing. 

General Governance Interviews Markets Politics
India’s Rating Upgrade: Strong endorsement of structural reforms : ET Article
November 21, 2017

Good governance is the art of finding a balance between what is popular and what is progressive.

In the past few months, we have seen a lot of hue and cry surrounding the triple tsunami of demonetisation, GST and RERA, leading to an apparent stagnation of growth rates, stifling of trade and commerce, and an abject growth in employment, making acche din seem like a distant reality, and more of an empty pre-election rhetoric.

In this negative environment, a pleasant piece of news suddenly emerged out of nowhere: India’s sovereign rating was upgraded by Moody’s to Baa2 (Investment Grade – Stable Outlook). Local currency senior unsecured rating was also upgraded to Baa2 from Baa3 and the short-term local currency rating to P-2 from P-3. These were first such reratings after a hiatus of 13 years.

The rationale behind this upgrade is the strong acknowledgement and endorsement of structural reforms that have taken place in the last three years, which are slowly but surely fructifying. The deep rooted and far sighted reforms of financial inclusion, direct benefit transfer of subsidies- aimed at getting the bottom quartile into the banking system and tackling subsidy pilferages coupled with demonetization and GST implementation for reducing informality of the economy and simplifying trade impediments have significantly strengthened the economy. Finally, PSU recapitalization which is aimed at tackling the overhang of non-performing assets (NPAs) in the banking system is another booster shot.

Surely, a lot of these reforms have caused teething issues- but that is the nature of reforms- they are seldom pleasant when implemented. What however has been noteworthy is that the government has not been in two-minds while taking non-populist measures which have an overarching widespread longer term benefit.

At times, when we look at the short term perspective we tend to get obfuscated by the transient pessimism and end up overlooking the larger picture- and it is there that the paradigm shift takes place. Let me contextualize this with a couple of global examples, wherein leaders embarked on a long term journey of structural reforms- namely the era of
Reaganomics in the US (under Presidency of Ronald Regan from 1981-1989) and that of Thatcherism in the UK (under the Prime Ministership of Margret Thatcher from 1979-1990) both of which initially met with discontent but in the longer run reset their respective economies on robust growth paths.
The first example is that of Roland Regan, who came to Power at the White House in 1981, inheriting an economy laden with stagflation (high unemployment and Inflation) and a rising fiscal deficit. Reaganomics was based on four pillars of economic policy, which were to reduce the growth of government spending, reduce the federal income tax and capital gains tax, reduce government regulation, and tighten the money supply in order to reduce inflation.

Reagan along with Federal Reserve Chairman Paul Volker tightened monetary policies and raised interest rates (from 11% in ’79 to 20% in ’81). Despite massive pessimism and protests he remained unwavering in his actions ultimately pulling out the economy from the quagmire of stagflation. He also reversed the Socialist overreach of the state, by ending price controls and scaling back tax rates, incentivizing entrepreneurship and deregulating industries of long term strategic importance.

The inflation rate fell to under 3% towards the end of his tenure, real (inflation adjusted) rate of growth in federal spending fell 2.5% under Ronald Reagan(from 4% of the previous administration). While GDP growth rate was over 3% significantly higher than the previous administration.

The second such example is that of Margret Thatcher who was sworn in as the PM of Britain in 1979. Britain was at that time a shadow of the former superpower it used to be. Post World War II, the country’s economic policy shifted decisively left of centre, following the Keynesian model of full employment. Industries were nationalized and there was a massive welfare build up.

Thatcherism was aimed at reversing this phenomenon- which met with widespread resentment and criticism. Undeterred, she kept monetary policy tight, and cut back on fiscal expenditure. She also went on to become the pioneer of privatization, divesting stake in public sector behemoths like British Telecom, British Gas, British Airways, Rolls Royce among others, encouraging the public to invest these companies as a drive of ‘power back to the people’. Further, the relentless pursuit of discouraging unionization ensured smoother functioning of economic activity. Economic growth was significantly higher in her tenure with GDP per capita growth crossing 3% in the Thatcherism era.

Today India stands at the cusp of such a journey of economic strengthening. The reforms undertaken though not convenient at this time are recalibrating the economy on multiple facets, be it formalization, inclusion or NPA resolution among others. This rating upgrade is a global endorsement that reforms are in the right direction and that the changes are far reaching and long lasting rather than superficial window dressing and hence, this upgrade aids in vindicating the government’s reform agenda.

There comes a time in every decisive leaders tenure where there is a trade-off to be made between conviction and consensus. That decision, backed by execution and able administration sets a Nation on the path to prosperity- acche din- for the long haul. Afterall, it is aptly said: change is painful at first, messy in the middle, but gorgeous in the end.