Next 20 yrs India's period, it is for us to lose

Manish Chokhani, Director, Enam Holdings, says “I am not a believer that you make everyone poorer and distribute the poverty. You have to make everyone richer and pull them up. I am hopeful this happens and everything is back on balance. I have no axe to grind, I have no products to sell, no brokerage to run, no mutual fund to sell and I have invested myself. I really think the next 20 years is really India’s period, it is for us to lose.”

You have said that when India’s market cap was not even a trillion dollars, five corporate houses would be building the next couple of trillion dollars for us and that time you were vocal about Reliance.

BATAJ. Yes. We called it.

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Yes. So which are the ones?

Birla, Ambani, Tata, Adani, Jindal are the centrepiece.

Which is the sixth, is the question?

All the Welspuns, the Torrents have explosive opportunities ahead of them. Welspun’s results are out. There is a mega bull market going on in steel, in the oil and gas space in the US, in Saudi where they are present, and in India; in water, because of the Har Ghar Jal project, have pipes going on there. They have acquired Sintex. They will do plastic pipes also to get into your home along with the tanks. So the degrees of freedom expand and if you are conscious about capital allocation and ROI, there is no reason why you cannot be showing 20-25% return on equity on a levered basis, on an expanding opportunity side. So a lot of these companies are going to do extremely well.

But in this tectonic shift, which is now happening towards the manufacturing, infrastructure boom that you are currently seeing all around you, would you write off any sector? Would you say?

It is hard. Like I said, in an up move in our economic cycle at different points, different sectors will show up because we go for rate of change. But if you look through the whole cycle, who is going to be the Steady Eddy? Who will do a 20% type compounding for you, and if multiples re-rate that is really what you want to bet on?

Capture, yeah.

I am starting on a lower multiple base and I am getting the return on equity takeoff.

But that is not IT.

IT is in a structural shift because of what has happened with ChatGPT and AI. And the nimble guys will probably make it, but I mean if you can buy platform companies, you are not going to go to the service companies. They are still great companies with great cash flows, but there is some business re-modelling which needs to be done there.

Similarly, I have been vocal about pharmaceuticals that over the next 5 or 10 years, if you are going to go more and more towards biology and CRISPR technologies, then the old chemistry-based, bomb the illness and get rid of it style is going to change. The old stalwarts in IT and pharma which led our export thrust, morphed towards IT hardware with the EMS guys and automobiles, because we are shown we are competitive with the world, and as manufacturing takes centrestage, the chemical companies actually have a big opportunity to become large.

As they move out of Germany and China, I think a lot of chemical companies will become very large over here. That is as an example of how that is going to change. But again, do not forget financials. Your starting base is not expensive. It is a large segment of the market. And if you can make money on Main Street, you do not need to go into bylaws.

And you can capture all these sectors via financials.

Exactly. If I am bullish on housing, I am capturing it through that. If I am bullish on asset management, I can capture it there. I am bullish on exchanges. I am bullish on lending to consumers as well as to corporates.

Everything via banks.

If you saw the rotation when HDFC and Kotak went flat, it went to the corporate banks. Then it went to the midcap banks which are the IndusInds and the IDFCs. The PSU banks have actually done remarkably well. I know for us, after it has tripled, Canara Bank is still a 5PE multiple, which means when we bought it, it was on a forward 1.5 PE multiple and it is still half a book. And there are others. All are catching up PNB, BOB, Union Bank. People who said, I will never buy PSUs, saw what happened in defence and railway and all of that. And they had to forget that they have an aversion to PSUs.

Is the entire PSU pack, ex-banks a frothy space?

It is. Because normally you want to pay for terminal values which is long-term. If we are already saying we do not know what happens in the election, then maybe policies change.


You are dependent on pretty much one customer. It is not a space I feel comfortable about. Those, in your language, may be tactical traits. But they are not secular to hold for someone who wants to sit for 5 or 10 years.

It is easy when we say financial means private banks whether it is Kotak or whether it is HDFC bank or PSU banks. But is it important to now start thinking beyond that? Paytm technically is financial. It is tech or financial, you can argue. AMC stocks are financials. What else in financials apart from the obvious names?

No, exchanges. They have done very well. We have those and also NSE. I think NSE, when it comes, the whole world and his uncle will want to jump on it. I do not know why our regulator is not allowing them to come out and list because the centrepiece of India’s economic engine is the stock market. And the company has done a remarkably good job of keeping with the volumes which have exploded. I will give you a staggering number. Do you know the value of options outstanding on index in India today? Our market cap is slightly below $4 trillion. The outstandings on the options market, on the indices, are $5.3 trillion.

It is more than this. Mathematically, it is right.

It is staggering what is happening out there. And imagine what is the volume you are able to handle. Imagine the old outcry days when we started in the market, five brokers have to go and capture, stand in the corner and you make the bid and ask. This is the first tech stock of India. It is a tech platform.

And cheap. It is trading at some 20 times one year forward.

And you can buy it, yes, I mean, even probably below that. But when it lists, you will forget all these other guys. Same way, we are all talking of what has happened with Zerodha and Groww and Angel. ICICI is taking its ISEC inside. But these are platform plays. So, payments do not make money. You make money on lending or wealth management or something. Which you have direct plays available. A lot of companies which pass off as tech companies in India are tech enabled. My own business was a tech enabled business, right. We could not have grown our brokerage business if we were not allowed to sell our research to the US.

We could not be couriering them research reports. It was all going through the internet and exploded the market for us. So, tech enabled is really India’s forte. The youngsters who are building these platforms still have to get to what I call user interface. Because if you were to say, if you compare Flipkart with Amazon today, with no disrespect, the Amazon interface is far superior. The Netflix interface is far superior to what even a Zee5 or a Sony can give you. It is another thing that even Prime is pretty sad. But even Tata Neu is struggling with putting out their digital app when you would say TCS should be able to build it. It cannot take them more than six months. So that finessing of user experience is absent. If we are used to movie production values which are from Hollywood, Bollywood or Kollywood or Tollywood or whatever you call them have to catch up. The same thing will apply to our consumer ones as well. It is all happening. The good news is it is all happening.

So, this is the good news. But what is the bear case? What could rub the muskan (smile) off?

There is always a bear case. Like I said, you make money bottom up. You have to find companies from down. But you lose money top down. When unexpected things happen which are outside your range of sight, the out of range of sight surely is this mess which the West has created in the financial space where we have made them like the proverbial Pavlovian dog.

Where you are used to the 0% interest rates and the regime has completely changed. The consumers still have not realised because the pain has been borne by the central banks. You still do not have companies or people holding mortgages in the US crying because they got locked into long term rates. So, while the Silicon Valley banks have blown up. You must think this bond disaster is also sitting inside JP Morgan and Wells Fargo but the bulk of the nonsense is sitting in the central bank.

The central bank is funding the government and the government is abusing its ability to throw money at any problem. They had no business throwing this kind of money post Covid. Sending cheques to people’s homes. And what they have done is they have created a class which is surviving by trading the markets or crypto and stuff like that and not going up to work.

Like when you talk of a Zomato in India, the guy will deliver you whatever you want at Rs 60. You try to get a guy in the US, even at $12 he is not willing to come to work for a DoorDash or a Grubhub. So, there is that fundamental change in the world. This regime change lies ahead of us and it could be painful.

The second is geopolitical which Fareed Zakaria has spoken about – civilizational war. It is a very big term. But if indeed you have now created this block of Russia, China, Iran against the West, events are going to conspire to the breaking up of the seamless globalised world. Capital and goods moved seamlessly. That disruption creates logistical challenges, inflation, interest rate hikes, unexpected shocks. So when you say the smallcap, midcap bubble, you want to be careful because when things go wrong, there is no exit. In the largecaps, we know if I make a mistake, I can be out. In the smallcap you become the co-promoter of the company. So if you are willing to hold for five years, buy those by all means.

But for internal economies like India, we are still safer than the rest of the world.

Look, it is easy to say but as the 5th largest economy going to be the 3rd largest, we will integrate more and more with the world. So, we cannot wish away that our exports have to double from here. We have become the service centres now for all the big four and the consulting firms other than what IT was doing.

If you are going to service them and they have disruption there, that is going to affect you on exports. On imports, if oil prices go up, we are still vulnerable. We still have not converted to the sort of solar and the green world which still lies ahead of us. We may be more resilient, but I do not think we can say we will be unaffected.

The bear case is really external shocks and then of course we have had a K-shape recovery in India. So, while you and I and everyone else seem to be happy, we are buying better cars, bigger cars, bigger homes, the bottom of the pyramid has suffered and inflation has affected them and when you even see the prime minister standing up and saying we are going to give free food to half of India, that is telling you something.

We have to make sure that we can carry the whole country with us and the trickle down actually capitalism is the only mechanism which can deliver it. At least I am not a believer that you make everyone poorer and distribute the poverty. You have to make everyone richer and pull them up. I am hopeful this happens and everything is back on balance. I have no axe to grind, I have no products to sell, no brokerage to run, no mutual fund to sell and I have invested myself. I really think the next 20 years is really India’s period, it is for us to lose.

So, you have always believed in a concept of identifying the profit pool, kamaal and dhamaal. Two more words which Enam always uses, kamaal and dhamaal.

I did not know that, I learnt it from you.

Yes, these are your words, dhamaal ka hone wala hai.

I used to say, skate to where the puck will be.

Yes, we can translate it to English. Yes, that is another thing I learnt from you. Focus on where the puck is going to move. Okay, so profit pool. Let us say IT was a profit pool 20 years ago. Power was a profit pool 10 years ago….

Manish Chokhani: See, the top five profit pools in India, historically were the energy and materials area, IT, banking and TMT which largely was IT, telecoms and then the consumers. All of them put together did not make a lot of money. You add Lever and include even Asian Paints and others, the consumer profit pool is still going to be chased very intensely. I still do not see that they overtake I think the whole material space with what will happen with the housing and construction and infrastructure boom, the absolute number of profit made aggregate is still with the big five like I said.

What you will see coming out of the steel makers, the cement makers, the oil and gas majors is still very large. Banking is going to explode past this. It is a matter of time before SBI and HDFC both will cross $10-10 billion of net profit which today you can only think of Reliance.

But IT, I do not see them now keeping that pace with them. Telecom profit pool is gone. Consumers do not keep that profit pool. These are the two big levers for India will be the materials/ manufacturing space and financials, aggregate.

Roy Walsh

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