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Let us first talk about that connection between the macros and micros or rather the lack of it because for 2019, the one trend that that one could really spot was the fact that GDP growth really slowed down in India, but the market still managed to post double digit gains in 2019. So there is a sharp disconnect. How are you reading into this?
Amit Jeswani: This is not a surprise. We are going through the largest consolidation ever. If there were 100 real estate builders in every city, we would be left with three or four real estate builders only. We had 16 telecom players four-five years back. Today, we have three telecom players. It is the same story in banks as well. So, India is not a growth market. It is more of a consolidation phase and that is the phase that we are going through.
The stronger players are getting a lot more stronger. The midcap index has not done well. A few large companies are gaining market share from other players. Look at every industry, hotels. One hotel chain Oyo now owns 50% of your rooms. One airline company IndiGo has 50% share of the aviation market. The same trend is seen in every industry. Technology gets scale and big is getting better and that is theme.
In a 4-5% GDP growth environment, it is very difficult for small players to gain market share from larger players. 2020 is going to be a year of consolidation where GDP growth will struggle unless the government comes out with strong measures and you will see this consolidation trend continuing.
Five NBFCs are lending in the market out of 50 in the game. So, these five NBFCs get disproportionate benefits. The same is happening with general insurance. Public sector general insurance companies are busy with crop insurance. If you can bet on these 15-20-30 stocks, my bet is you will do fine in 2020 as well.
Of course, if the government comes with some TARP (Troubled Asset Relief Programme) like in the US, then you might see large midcap and smallcap rallies. But a large portion of your portfolio needs to be allocated till the growth is pretty high. For now, it is in those 20-25 names.
Do you believe that the government has actually taken reins of sections of the market that will perform? First, we had the corporate tax rate cuts and now we are expecting a big boost for the NBFC space in Budget 2020. Today, government announced a Rs 100 lakh crore infrastructure pipeline. So, is it going to be a government-led market rally?
I have burnt my hands being in B2G businesses. It is very difficult to make money in infrastructure companies. It is very difficult to make and retain money in infrastructure stocks. Nobody knows who is the largest infrastructure company in the US or in China or any country for that matter. The business model is such that you cannot get rich and stay rich.
The only four sectors where you can get rich and stay rich is consumer financials, consumer tech, consumer pharma. Just be in these four sectors. This is what we do. 90% of our portfolio are in these four sectors. Financials have 45% weight, consumer tech has 20% weight and consumer pharma and consumer stocks have 15% each. These stocks will keep making money for you in the Indian market. You do not have to go anywhere.
The government came up with Bharatmala also and there was so much hype about it. But what happened? In May 2018 Infrastructure Minister Nitin Gadkari announced a Rs 5-lakh-crore Bharatmala project. But in 2019, only Rs 20,000-crore orders came. In the first 7-8 months, only Rs 10,000 crore of orders have come. So the sector is very volatile for investors like us. We need predictable growth as that is where money is made. It is very difficult making and then holding on to your gains in infrastructure stocks. For me it is a very strong avoid.
In an interview, you had said that the next bull rally is going to be a very clean one. While for the last decade or a bit more, we have been focussed on growth, the next one is going to be led by companies that have clean corporate governance practices and quality management among other things. Do you believe that could take leadership in the next bull rally?
Auto was the leader of the previous bull market. Stocks like Eicher, Maruti made a fortune for investors. We rode that trend. Typically you do not buy the leader of the previous bull market. The previous bull market was led by autos and wholesale NBFCs. Today their performance is subdued. We do not see growth in autos happening very soon. The consumer sentiment is not so good. We would prefer buying other kind of consumer stocks.
Auto is not on our priority list right now but we do not believe that the India opportunity is over. It is a good business going through a downcycle. We will wait for some signs of growth coming in before we buy the auto or auto ancillary pack. Now, we have zero positions to the best of my knowledge in any auto or auto ancillary companies. That is what we are betting on today.
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