Tech playing out in a big way worldwide; RIL India’s best bet: Enam Holdings

Buy things which are scarce and rare and will make profits on a sustainable basis, says Manish Chokhani, Director.

I really want to try and understand from you, what is happening in the world right now?
I wish I knew the answer. The legendary Charlie Munger phrased something which I think Jack Welch had originally said: if you are not confused by what is going on, you do not really understand anything. So that is really the kind of the world we are living in. Old timers like me grew up learning basic economics. We draw the law of gravity and financial markets from interest rates and thereby from currencies. But interest rates are now being manipulated by the central banks and the world and being artificially kept at low levels. For the first time in my life, I have started seeing the Federal Reserve going and buying even junk bonds. I thought I had seen the ultimate when Japan and other central banks started buying equities but this is clearly a new world with new economics going on. So let us see how this plays out.

What is going to unfold next? How does the rule of investing change in this kind of market?
Yes, that is the bet the world markets are taking right now. Interest rates are low and therefore the reciprocal of interest rates are PE multiples and therefore PE multiples can literally go to the sky. I am reminded of Japan in 1987 when interest rates were at 0-1%. There the PE multiples were taken as an assumption that it should be 100. Now the difference is when interest rates go down because of productivity gains, you get high PE multiples and companies can still make ROEs. But when interest rates are kept low the way they are today, they keep zombie companies alive. Ultimately earnings do not come through.

Therefore, my fear is that while we are enjoying this global upsurge in stock valuations, it is possible that we are going to go through a Japanification of the world. As you know, Japan’s stock market has not crossed its peak since 1987 and the economy is basically stagnated. It has gone sideways and there has been deterioration in standards of living. I think the developed world is kind of okay to accept it because they have built out their infrastructure, everyone has got their home and their cars. So even if they are stagnated, they are okay. I just wonder how India is playing this game and why we are allowing our currency to depreciate; why we are taking higher interest rates and why we are unable to get our export engine going despite a 90% devaluation of the rupee in the last 12 years. So those are the kinds of thoughts that I worry about. Having said that, I know you will ask me at the end of the show what do you do? You still end up buying things which are scarce and rare and which will make profits on a sustainable basis and I am sure as we get along, we will get to that.

How would you divide the world into permanent damage, temporary and new opportunities?
Covid is not something new. The world has been getting a continuous series of shocks; whether it is geopolitical or technology disruption or this time on the health front. What each of this is doing is in a way accelerating trends which were already there; it is not something that is going to be completely new. Of course, it will wake up governments like ours in India to the fact that we need to have more healthcare. We cannot have 15,000 doctors for Indian citizens.

For example, when China came on the Ladakh border, we after ordering 36 Rafale jets now suddenly realise we can order 33 more overnight from Russia. Reactive things will happen but the underlying trends which were there of demographics and of technology disrupting is only going to accelerate. Therefore markets have been voting for the overseas market. It is very easy to follow what I refer to as the FAANG, MANG stocks.

As the world gets more and more digitised, more and more the world starts playing that out. You have also seen that play out in India where Reliance has virtually doubled between March lows and where we are today. It has been very similar in the US where Amazon alone has gone from $1,900 to $2,900. So things like that are going to play out on a more accelerated basis and if you just step back and think of where the big money is made in the world historically and kind of even going forward, you always buy low unit value repetitive purchase consumer products. You always buy the leading technologies which come out and which disrupt things and you always buy the financials. The fourth biggest area which used to be energy is also ripe for disruption and our very own Reliance here has shown the way they are preparing for that world; where we go away from a petroleum future to may be a more renewable future, thereby kind of reinventing yourself. So I think these would be the four or five big baskets of how things will play out and we can go deeper into each one as you choose.