Value investing: Kunj Bansal says value investing failed in India in last 10 years

Earlier, investing was about buying gold at the price of silver. Now gold is being bought at the price of a diamond. If long-only sensible money is coming into stocks like D-Mart, Nestle, HUL, are markets telling you something which you are not understanding?


In my limited experience of 25 years, I have realised, especially in the last 10 years I have heard and seen a lot of Indian market gurus, and they obviously caught the global gurus like Warren Buffett and Graham Bell, talk of value investing but clearly in the last 10 years in India value investing has failed and there are reasons for that.

In the last two years when we had issues from IL&FS to corporate governance, three-four big major business houses, promoters failing and a lot of other issues arising out of the changes that have been happening in the economy. The whole process has been going on and a lot of dirty linens are coming out in public. The emphasis has now shifted to quality. Investors are saying give me some corporate governance oriented promoters and ethical management and fundamentals which are acceptable. The growth is still low because the whole economy has not been growing but at least in terms of cash flow, return ratios, working capital management, future reinvestment of capital, if those are there then investors are not looking at valuations for the time being.

The universe because of this increase in criteria for investors to reduce their risk has been shrinking. In the shrinking universe, money that has been coming in is going into the limited number of stocks and that is why valuations have been put on a back burner. Some of them are justifying themselves on the financial parameters. Others are not justifying as much on financial parameters but on qualitative parameters.

What are the lessons to be learnt from D-Mart for those who called it expensive when it went public at Rs 600 and today it stands strongly at Rs 2400?


Yes, so some disclosure upfront that only yesterday we have bought it for some of our clients…

Yesterday? Not at 600.

It has been there for some of them, it has not been there for some of them because you are right I also found the valuation expensive.

Why are you finding it cheaper now?


I am in the market as I said with the 25 years of baggage. You could call it experience but now I find it baggage because I could not tune myself well in time to start looking at these stocks with that kind of expensive valuations. I had to bow down to the market.

Coming back to yesterday, we bought it because it faced a correction after rising 2-3%. Let me add a few things about other retailing stocks. There is D-Mart, V-Mart, Trent and a few other stocks that are doing equally well.

Coming to D-Mart, it is very clear if we look at the financials, almost since listing in an economic scenario wherein the GDP growth rate has been consistently coming down now and there are companies which are reporting barely 10% or single-digit growth., D-Mart is one of the few companies which is reporting growth in high double digits. Of course, in this stock, we have to keep in mind that liquidity is low. So, despite the market cap being high, there are promoters, non-promoter, institutional shareholders who are just holding the stock and not selling it and therefore because of lack of liquidity also there is a little bit of premium that is getting traded for this stock.

At some point in time, somebody would say there is value to the cigarette business and to the FMCG business of Rs 20,000 crore, that point in time for ITC is at Rs 200, Rs 180, or Rs 150?

I will try to think of an answer to that question by looking at ITC’s price movement over the last three years. The value for ITC was at Rs 280? Now I know it was not. Was the value at Rs 260? I know it was not. Was the value at Rs 240? Now I know it was not. So there is no answer to that question.

What has happened after the additional taxation put on ITC in this budget is there is a permanent derating of a few points because after GST came in, a clarification came in the mind of market participants that now in the budget no taxation change negatively or positively can happen, it is only in GST that t can happen. But now the government is using its power to do it in the budget also. As a result market participants are not sure what else can be done to it and that is where the challenges are coming in.

As far as FMCG and other businesses are considered, those are still in the investment phase. The kind of return that other mature companies are earning on their FMCG business, this company has not been able to generate that. Its valuation continues to be driven by cigarettes which besides the taxation, for the health considerations is continuously coming under pressure. And that is where, at least for me, it has been a no investment call for the last few years despite attractive valuations. I do not mind losing out on its outperformance on absolute return if it happens but since I do not have clarity, my view will remain that.

Would you buy liquor companies? United Spirits, Radico have done well of late.

I’ll answer from two points of view and not from the ESG or from the liquor, non-liquor criteria. There is a significant amount of slowdown in terms of their sales growth or degrowth that is coming in. Whole sector continues to remain under multiple regulatory pressures mainly by the state governments, so there are a lot of variables there.

What do you make of the recent trend that we have been observing in some of the pharma names? The domestic market is looking attractive but we have seen this time around concerns in the US market seem to be ebbing; would you agree?


Pharma of late has got segregated into three different spaces in terms of price movement. One is the largecaps; leave aside Dr Reddy which is at a one-year high, but on a five-year basis it is still at a zero return. I am taking these names just to make my point clear and these are not investment or disinvestment recommendations and in some of them, we may or may not be holding some of them. Sun Pharma on a five-year basis is at a negative return. Five years is a long time and if you do not get a positive return and instead get a 50% negative return in a market on a bluechip stock; then what does an investor do? The case with Lupin is largely similar and somewhere in between, there is Cipla.

Overall, the sector has been underperforming for the last three-three and a half years but in the last one-two months, some of the midcaps have started to do well. Divi’s Laboratory, Natco, Torrent Pharma, Strides Pharma, and some MNCs have started to do well.

The issues continue in terms of domestic slowdown, USFDA activism which probably according to their view is rightly so. The issue of the export is there as the market in the US is not growing and in my view this is one of the sectors which is going to get severely affected by coronavirus. There is a sword that has started to hang over this sector and that is where one needs to be clear. A little disclosure, I own Divi’s in my personal capacity.

What else do you own in your personal capacity?

Let me start with some underperformers. Amongst the underperformers, I have been holding on to Max Finance for quite some time although largely I am positive on the insurance space. I have been holding a lot of other insurance, life as well as general, companies. I also hold ICICI Bank, City Union Bank.

You are telling me a fund manager’s portfolio not a personal portfolio?

I am telling my personal portfolio. This is where the problem comes, if I am bullish on some shares in my personal capacity I have to be bullish on those shares for my investors also. Otherwise, I will be doing the biggest injustice.