The India Opportunity Is Far Bigger Than Most Investors Realize Kuntal Shah

TITLE: The India Opportunity Is Far Bigger Than Most Investors Realize! Ft. Kuntal Shah CHANNEL: Shrishti Sahu DATE: 2026-05-31 ---TRANSCRIPT--- Where do you think we stand as Indian investors and what is the biggest risk that we are underestimating currently in the Indian market?

Almost all smart investors, so-called smart investors are selling. If you look at FI, they are selling. If you look at P investors, they are selling. If you see VCs, they are encashing on IPOs. People who are constantly pessimistic, they’ve not attained much in life. Optimists make money. I have with me today Mr. Kuntal Sha, the founder of Oakland Capital. He’s one of India’s most respected voices in the public markets and the author of widely circulated essays such as the 12 equations of life and miaakalpa. What are the three four biggest mistakes that you are seeing family officers make? When you strip all the veneers of products and facads and structures, the aggregate portfolio of any of family, let me be blunt, looks like a warehouse, a junk warehouse that too. And I can go out in to say they would have been better of just investing large amount of their money in low cost index funds while they hone the skills on the asset classes, the people managing them, finetune their process. In today’s episode, we talk about what are some of the biggest mistakes he’s seen investors make in his three decade career. We also talk about offshore investing from a geographical diversification perspective and also the state and reality of Indian PE and VC investments in India. It was very interesting to hear Kuntal’s thoughts on financials and the IT sector specifically. Like how much should one be exposed to gold? Gold will definitely protect your value of store. It will hedge you against all the currencies and government stabilities. Gold prices will outperform fixed debt in nominal terms. So there is a structural shift that India is seeing and the India opportunity is very much intact. Hi Count, welcome to the India opportunity show. Thank you for making time for this conversation. I’m I’m sure the pleasure is mine and I learned from this interaction. Thank you too kind. You know you’ve spent three decades in the markets but you know let me make me feel old really. But it it also comes with a lot of experience right and you’ve lived through multiple cycles. A lot of people are not able to make sense of the whole situation going on right now especially with the geopolitical front. Um Indian companies are not doing well on currency front. there’s multiple uh compression happening across fi have sold where do you think we stand as Indian investors and what are what is the biggest risk that we are underestimating currently in the Indian markets so uh I think so there are a few question all merged into one so I’ll try to answer the one the way I view it so one thing about the investing is history of the knowledge of history is underrated aspect of investing journey The entire investment field is part art and part science. The science part is all the numbers, accounting, DCF, real DCF, portfolio construction, risk, reward, all that framework which you are aware of. The equally bigger part is the behavioral part and the and the human part because ultimately everything which we as a society are going through today has parallel has happened in the past many years. You know the catalyst might have been different. It could have been uh like today’s AI previous author could have been internet. Previous author could have been telek previous could have been steam engine or automobile. So catalyst might change nuance might change but uh it rhymes. It rhymes and and since the stock market is interplay of human behavior with cycle and money greed, fear, stupidity, biases are all universal facts driving the asset prices. Yeah. So with that it’s very imperative and we this is something I’ve been telling on almost all my shows that u at flame we have something known as library of mistakes. There are two versions of this only in the world. One is in a bro and one is at flame where a very rich body of knowledge of mistakes done in business decision-m and investment decision making is chronicled and when you just go through it glimpses of it you will realize the history rhymes it repeats it’s it’s it’s quite a pattern recog recognizable so if you learn from the mistakes of the others that passion of the thing will be solved coming to the macros which you highlighted of India um this is not the first time India’s gone gone into the same trouble earlier. If you see in ‘92, we had a currency crisis. Uh Dr. Manmun Singh had to pledge gold to get IMF license and a bailout. Yeah. We had to adhere to their condition to reform and open up our market. In fact, prior to 92 there was only Dur Daran. They had to open the media market and you know all these MTV, ZTV and all came up. So entire liberalization of foreign exchange portfolio investors. First portfolio liberalization happened in ‘92 where foreign capital was allowed into Indian markets. Yeah. So uh uh this is not something new. Um uh I think so uh we as a society tend to get complacent when the going is good. Then then we relax our underwriting standard and our reform standards. We we stop worrying about competition. We sometimes get confident that oh India deserves a place in the global capital market. But let’s look at reality. India is just 3% of profit pool of market cap of the good and 3% of the market cap. This is 97% out there which is which is untapped. So if you are looking from a lens of a foreign investor a we are a little more difficult place to do business compared to the rest of the world like say a Cayman Island or a Singapore or you know British Virgin Island or America and so forth. So I think so people probably we are the only country which tax foreign investors even if you invest in USA or UK or something as a foreign investor you are not taxed and tax is one part investors have come in in spite of willingness to pay tax is a process of how the tax gets collected TDS compliance all those things so I’m sure there’s a lot of lowhanging fruits which I think so the current government is seized off and they’ll correct it and that’s why this I feel is a temporary phase which we are going through um What is the single mistake investors are doing at large this time? There are many. First, I feel uh in my history, I don’t think so that the spread of interest rate of India versus the rest of the world has compressed so low. Uh the the the domestic pool of capital is now big. We are good savers, right? And we have gold uh which is a good collateral. So we have we we have a wealth effect right now playing out. Indian household have gold, silver and it’s a it’s done well and financial savings are going through the numbers are all there in front of you. Mutual fund inflows are where I see a sense of discomfort is uh almost all smart investors so-called smart investors are selling. If you look at FI they’re selling. If you look at P investors, they are selling. If you see VCs, they are encashing on IPOs. If you see one promoter, if you see the QIB, QIP and the secondary and the primary fund raise by promoters in their company and their personal stake, it’s quite large. India is one of the fastest growing economies around the world. And if you want to be a part of this growth story, you need to be backing Indian businesses and companies. Whether you already invest in markets or are just starting out your journey, grow is the place to be. Grow gives you a clean, intuitive and simple UI to be able to experience investing better than any other platform. 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So they they they they’ve diversified their holdings away but it is from my bracket is from one slightly overvalued investment to other multiple slightly over valued investment because if you see decompose the earnings of the shareholders dividend is being one reason earnings growth being another reason and the multiple expansion being return especially in midcaps and small caps the earning expansion has been quite noticeable. Yeah right and if you see that’s where the retail froth is also there uh a lot of sips also are going into you know those kind of asset class so so there are pockets of inefficiency developing and and uh I think so the impact cost has been negligible given the selling the blocks get leapt up there’s no impact on the prices follow companies go public and they do two three QIPs in you know two years they just raise the money there’s history of allocation has not been proven. They do M&A. By the way, India Inc. has been doing lot of overseas acquisitions. Yeah, there’s a outflow from the corporate India apart from what you mentioned FI PVC and that is the reason obviously our love for electronics, gold all the commodities and energy is almost price inelastic. We import 800 tons of gold. No matter what the pricing even if it’s 40,000 or is 1 lakh 40,000 our gold imports remain. Yeah. Indian household are cooked to it. Energy is also whether it’s $40 a barrel or $100 a barrel, there’s not much swing. So we import more, we export less, we consume more, we tax less. So currency is bound to be so but if you see macro looks under pressure but our fiscal government finances are in good shape. If you see our subsidy is more direct, there’s low less leakage. uh Indian government has not printed money like the western world after covid the current leadership is very dynamic very hungry very um pro business oriented and I think so it’s just a corrective phase I don’t think so it’s a change in the stance we are talking of different time but I have a very good confidence to believe that in the pressure we’ll rise to the occasion and we’ll deliver the goods and and come back to the game uh I I I have hopes on that that’s good news for everyone watching but you know you mentioned On that front I uh uh sounding bearish looks very intellectual. Uh but if you see the track record of bearish means people who are constantly pessimistic they have not attained much in life. Yeah, it’s optimistic which optimist make money ultimately and and it doesn’t pay to be one can take a rational view of short-term but in long run one has to one has to be aligned that human being as a race will overcome many barriers many things and this two shall pass that that framework of optimism has to be so I’m cautiously optimistic in long run it’s just this temporary time where we were underweight Indian equities in general and we were more overweight offshore invest but that’s a aberration this will pass so there is a structural shift that India is seeing and the India opportunity is very much intact uh yeah in long run if you if you if you extend your timing horizon India has labor India has uh abundance of lot of things we have water we have sun we have energy sources to be tapped we have people who can learn reskill themselves we we have the basic blocks in place uh we have a lot of lowhanging fruits to capitalize on I think So longterm we can’t or we will the best is ahead of us. Let’s put it this way. I love it. I think that’s what a lot of market veterans who’ve come on the platform have also said. But uh Kundal you pointed out something very interesting and that was actually something that I wanted to ask you about the library of mistakes. You interact with some of the wealthiest families in India and you also have the interface with a lot of family offices, right? So you have you are in the know of how family offices are allocating capital, what mistakes they are making. I would love to ask you because you know this show is watched by serious capital allocators and family offices. What are the three four biggest mistakes that you are seeing family officers make? You’re deliberately trying hard to make me unpopular. Not at all. But you know it’s just about I’ve se I’ve met so many family officers and a lot of them started right after co right and a lot of them don’t have the depth and the understanding of how to actually construct portfolios. So this will really help our viewers in a very strategic way. So if you see prior to 1990s India has been a capital stouted country right we are very frugal we are very ROC disciplined we we we our entrepreneurs are very capital disciplined right generally at an aggregate level has punished and and frugalness has been deeply rewarded in Indian markets in equity as well as in the businesses so 30 years compounding has produced some amazing wealth right and many of them doing some basic things you know uh even frugal engineering is an innovation even a new business model is an innovation out there you don’t realize that execution is so challenge prone in India because of its multiple like every 200 km food preferences changes it’s not America that McDonald works in California works in New York here you the taste here and taste in Punea and test in Kapur are totally different. Yeah. So we are a continent actually if you see it by population, preferences, variety and ease of doing business. We have a we are actually a continent. We have Brazil, we have we have huge amount of you know diversity and execution challenges. So any entrepreneur who’s trying to deliver goods at affordable price needs to be applauded number one because it’s a very difficult task. Yeah. Trust me the competition is insane and Indian entrepreneurs are best in the world in spite of all the shortcomings we as a country offer. Let me give you an example. Telkom first time telekcom came 96 97 I don’t know whether you were aware in incoming was 6432 right 36 so odd telekcom operators all made money you fast forward today there’s only one actual entity which is making genuine economic profits brutal but this is a company where time has been the highest so now many of these VCs and PE comes to me and they talk about oh there’s huge time in food delivery there’s huge time in retail I’m wondering have they read the history. There was a huge time in telecom which is there every every human in India has a mobile phone by now it’s reached everybody and yet very few people have made money in this business. So just having a TAM uh doesn’t capture the market structure doesn’t keep capture the competitive intensity doesn’t capture the fierce entrepreneur drive to capture the profit pools out there and and and India Indian companies are good at conglomerates they can they can have fingers in multiple pie and not be world scale in any of them but they are good in execution at ground and so so so dynamics are quite different number M coming back to the specific question of family office it’s a new experiment the professional or entrepreneur who’s made money knowing his business very well he was in control of his business he could ride out the waves he could be he he could let the cycle not impact him move on I don’t think so he has the same framework applied to businesses of other entrepreneurs there he is dealing with information asymmetry he doesn’t know the entrepreneur behind the business. He’s just going by numbers which are not normalized, not seasoned, not not in control of the destiny, not control of the density. So he’s a probably a bad pillion rider, you know, an expert driver being driven by other guy. You know, the doctors say doctor as a patient is a worse patient. True. You know so something similar is happening here in Indian family office where they either encashed a significant portion of their wealth or sold their businesses and and they they are sitting on huge liquid money not knowing what to do. They might be excellent businessmen but business of investing is very different from the business itself right it’s it’s a very nuanced business and it’s very easy to get swayed by false precise sounding frameworks. Yeah. So starting point itself is flawed in the sense what they will typically do they’ll hire a CFO or they will outsource their money to few fund managers. Uh then some wealth manager will come in. I’ve seen a lot of portfolios by the way. So most of the portfolios are constructed like this. Debt and equity as locations is marked out then private and non-private is all marked out by some formula the basis of which is not challenged. And once cast in stone it becomes IC policy never adjusted to the reality sc the opportunities sets are changing dynamically. So for that to happen you need a CIO who’s well versed with all the asset class. If that CIO was good he’s not going to be working for family office because he would be managing money and making much more more. So talent itself is in short supply. So you have a very siloed view of each asset class and no capital source moving into them. There’s a yama capital. then that team would try to maximize the outcome. So even a fixed income will try to not say oh I can tailor the overall risk return profile of the portfolio by just staying invested in liquid names but I can overweight equities and alter my risk profile because each guy has got a mandate which is specific to his asset class also. So then he will look at structured product he will look at costly debt he will look at venture debt punded company burning cash acquiring customer and those debt will be fined. Yeah, I’ve seen those kind of events happening. So when you strip all the veneers of products and facads and structures, the aggregate portfolio of any family of let me be blunt looks like a warehouse, a junk warehouse that too. It’s not a curated museum. It’s too overtly diversified. And I can go out in limb to say they would have been better of just investing large amount of their money in low cost index funds while they hone the skills. Yeah on the asset classes the people managing them finetune the process I think the right process if if I would to be put in their position would be to start very slow keep bulk of the money in safe and liquid instruments like liquidity it would have its own share of volatility but get the basic frameworks and people and team right talent right that’s the first starting point second obviously the way I see it is where in the world it is too required you need to do everything which is fashionable. You need to invest in Swiggy, you need to invest in venture, you need to invest in structured product, you need to invest in arbitrage, you need to invest in listed, you need to for social cocktail conversation back some private equity. Where in the world it is written that you have to do everything and every asset class and can I just point out this is not just the behavior of family offices. I’ve seen HNIs, ultra HNIs, like individual retail investors also do a little bit of angel investing, a little bit of structured fixed income and then venture debt as well. So people it’s actually like retail investors also who are operating like family offices and getting this kind of exposure. So I think so it’s a new new love affair so as to speak of. It’s a new phenomena which is happening. People are experimenting. People are looking at new new thing. It looks it looks curious and fancy uh 2 3% allocation one h you know that kind of a experiment going on uh but beneath it I think so the fundamental process of a family office the way it exists is very flawed uh the talent is missing the basic construct of portfolio itself is wrong if you look at the basic at the heart of investing asset allocation is the single biggest driver of returns now that is art part art part science. Now who takes this asset allocation call? A person who’s not experienced at asset or a wealth manager who gets funded by wealth manager the product manufacturer. So he whose bread I eat his song I’m going to sing right. So every wealth manager has few mantras equity in long run s mutual funds structured products some PMSs some AI some offshore some capital preservation products some experiment on VPCs time time now each of these is viewed as a separate position so mental constructors have 10 12 positions 13 but position are 60 or 70 positions at times one single mutual fund manager have 60 portfolio names with large with the highest rate might be three or 4%. No cash call nothing. So when you strip out and look at the look through portfolio of the any average large family office it’s akin to playing active fees for a passive performance. There’ll be some good apples and there’ll be equally negated by bad apples. The bell curve distribution is alive and kicking. It’s not a skewed. So if you see a typical VC you you’ve seen Silicon Valley type VC investing it doesn’t do this it never it’s it’s focused on large experiments and the experiments which yield result they double down they keep doubling down here it doesn’t happen this way each is looked at as tripled portfolio with a very limited ring fence o and the mandate is to be in all asset classes at all time so when you’ve seen some of these family offices portfolios what is the sense of return or IRRa that you’ve seen in these portfolios it’s less less than the average benchmarks less than 12 14% benchmarks depends on how much you have allocated to each section. Yeah, if you if you just decompose their allocation with the relevant benchmark, they will be underneath at an aggregate level 80 to 90% of them would be. So suppose you have XYZ allocation to XYZ asset class. I’ll give you a simple example. Okay, stay with me. If I had done a 65% Indian index and a 35% NASDAQ index, I would have beaten all the mutual funds and PMS and SI if in India for a long period of time. That’s true. You do investing long enough and you come down to this exact strategy. One rule 25 years if I had just done 35% NASDAQ 65% BC or NS 500 at paying very low churn very effortless no psychologically demanding portfolio a highly liquid portfolio it would have beaten all the active mutual fund managers PNS and AI managers by a huge margin especially in currency because of few facts currency business model of network companies is which you don’t have find you don’t have Google’s and the and the metals of the world listed in India which are global companies so you would have just d this is a real diversification actually why it’s uncorrelated even when you have all the assets in one country it’s a single it’s there is some degree of overlap right your portfolio will do well as the country does but when you have just this massive diversification across time across geography across asset class across this thing the combination product sometimes is far better than the underlying constitution. So just imagine this one powerful asset allocation would have solved 90% of your problems and still yielded a better outcome. So the best thing is to revisit the asset allocation policy the investment philosophy how the portfolio are structured how the asset managers are chosen. This is a first teaming we are at probably if you look at crickets we have started playing state boards right now you know trophy will come cricket test will come IPL will come T20 will come I think so the journey is a 20 year journey where they will learn their mistakes they’ll they’ll make the mistakes they’ll correct it talent will develop incentives are there uh I think so it’s it’s a it’s a it’s a it’s a version works we shouldn’t get alarmed Right. But as a professional, I see a lot of lakunas uh in the way I would do it very differently. Yeah. And that I think so would be more effective in my opinion. How would you do it differently? That was actually what was I was going to ask because you know a lot of what you were saying is actually just simple understanding of markets. Anyone who has deep understanding of markets can arrive at this. But we get so distracted by fancy labels and PE VC funds will tell you that you know we can get you 25 to 30% irr which no one has seen in the Indian markets context for sure but you know people promise that and talk about that promoters are selling to be able to build family offices because they think they can generate more from family offices versus their current businesses right so how does one really wrap their heads around this so first is to know oneself It starts with inner journey before we focus on the outside world. It has to start with inner journey and one has to know one’s temperament. You might have permanent capital, right? You are not leveraged. Your money is you. You can’t be fired. Family you have on the capital unlike a fund manager or a wealth manager who can be fired. So his incentives are very different than yours. You have a something which is under control is permanence of your capital and your temperament and what you want to do and most importantly what you don’t want to do. Now in most of the cases this framework is not defined. You are ready to experiment with anything and everything. The scientific basis of that is not there. The talent to there is there or not is not there. So it’s a like a it’s like a combination of various things which just is so complicated because shi as each moving variable increases the complexity increases exponentially. So my mentor we were just speaking about him prior to the show. Uh he has this dialogue that if you have two moving parts in a business suppose there’s a business like say food where all it matters is volume and margins. The rest like say Nestle. Yeah, Nestle or anybody. So very simple business to understand or cement or you know very very mature business with low obsilence rate very standard mature economics the moving parts are very narrow it’s easy the moment you have too many moving parts the the the the complexity jumps because as the moving part so 2x2 is four right four four combinations but you add three it becomes 3 into 3 into 3 27 add four 64 So, so first thing is to have a negative list of what not to do. M okay I’m newbie into the market. I might be a good business successful entrepreneur but I’m a learner of investing. Yeah, let me start small. Let me understand the market. Let me observe. Let me get my frameworks right. Let’s not put and and have a very bad experience right. Learn from the mistakes of other. Seek out ad advice of what it works and that too from people who are not vested in making money of you taking advisor of well guys or product pusher is not going to help you because you are talking there’s a they are pitching different products every asking the barber do I need the haircut the answer is always going to be yes so you need a person with independent mindset who’s aligned to you he’s in the same boat as you and he’s money making money with you not off you this a very important construct fiduciary a principle to principle conversation not principle to an agent conversation because agent has very low skin in the game and a very high skewed asymmetric output in terms of selling it to you. So you have to be beware of the hidden biases of your ecosystem their capabilities the dues and slowly build out competency and talent in those asset classes. You have to seek out fresh talent which is below the surface most of the time and and learn and then you know start building incentivize them right. Uh family offices have huge advantages. A your capital as a mutual fund or a or a entity which is managing revolving door fund where fund is coming in at wrong time and going out at wrong time. The task is very different. I would be worried about redemption. I would worried about money coming at wrong time. Imagine money is coming at the peak of the bull market where I think money should be taken off the table but the money is coming every day. Yeah. So it creates a psychological dissonance first of all and it numbs you. It freezes you because your heart says X but Y is happening in the ground reality. Family offices are blessed organization because a they are principal. They own the capital. They don’t have a dynamics which the rest of the system faces. Endowment funds have their own dynamics. Ultimately the CIO at endowment is an employee drawing couple of million salaries while he might be taking decisions in billions and let me tell you a narrative which will highlight you. I met a CIO of a $400 billion fund. Two two days of engagement very fine. At the end she asked me what’s your monthly draw down? I said look you started the discussion can you invest for decades I’ve given you my yearly track record audited by the best auditor which you agree to why do you need monthly drawback you’re not leverage you’re not a hedge fund why should draw down matter to you no answer copying pasting something but a lot of these endowment funds are also in a fix right because they have allocations to PE and VC funds in liquid position because the construct is same because of this the famous Harvard guy who is no more he build that you know private equity exposure dampens your volatility obviously it will dampen the volatility because it’s not mark to market it will good if you invest in a private equity market I’m a CIO it will take seven eight years for it to materialize right between a seed investing to a liquidity exit would be or more probably so I’m safe I’m not held accountable it’s not marked to market but the same portfolio if it was listed would be fluctuating like a yo-yo. So two things most of the people will go at lengths to get assured lower return than volatile fixed return in long run. So but you say the same thing you held on you have a long-term capital you stay with me I’ll get you one and a half times return but it will be volatile that is pursued as a negative construct so it all boils down to temporary because they don’t know what drives the asset classes return simple basic thing that people can’t explain what drives the returns people have asked me crypto now crypto has no cash flow how do I explain you what is a fair value of crypto if there’s no cash flow. M people ask me is asset is is gold is an asset is art these are guys having billions of dollars and and they asking art is a isn’t it art a good investment I can display it I can enjoy the fruits and it’s a it’s a it’s a this and it keeps appreciating I said where’s the cash flow what is the definition of asset something which produces tangible cash flow what is the cash flow of art what is the cash flow of gold is currency M it’s a currency of God. It’s not an asset class. People get this basic things wrong. People have come and told me all this is bubble because of money printing. Absolutely wrong. When the currency itself was gold and not printable, there also bubbles have happened. Crashes have happened. 16th century, 17th century, 18th century, 19th century. So when you have this basic financial illiteracy, investing illiteracy and you are playing with billions all these accidents will happen. But coming to gold because you know that is also on top of mind of everyone like how much should one be exposed to gold? You know people who have it regret not having enough of it and people are still asking me you know there was this uncle in my elevator who lives in my building. He was like do should I still buy gold and silver? So I’m asked these questions repeatedly on a regular basis. So it depends on your overall investment construct. Gold will definitely protect your value of store. It will hedge you against all the currencies and government stupidities for sure. Gold prices will outperform fixed debt in nominal means it it will it will protect you against inflation and and government stupidities, reserve currencies, issues, monetary printing, whatever. So it’s a good hedge against war, against illquidity, against inflation to that extent. Can gold deliver you an outsized return like a business kind does? Answer is no because gold has doesn’t generate yield. Business generates dividend yield. Business generates operating cash flow which is redeploy. Reinvestment is happening. It compounds. Gold has no income coming in can’t compound. So it is basically a hedge. It’s a currency. Once you understand the construct then you can fit how much of it fits into your portfolio. Can it be 60 70% of portfolio only at rare times. If you’re going to hold gold for 20 years your returns are going to disappoint you because they will just barely beat the fixed income debt. So it’s a more a tactical asset allocation call rather than a fundamental long-term call. But say if you’re a housewife, you don’t know market, you don’t know the mechanics, you want a very liquid instrument and this is a three. So, so it all depends on the vantage point which which you are coming from. What answer I give you won’t be right for a lady on the street, won’t be right for a central banker, won’t be right for a hedge fund, won’t be right for a family office. There’s no one size fit solution for investment in this field because temperaments are different, expected returns are different. What is your regret minimization framework is different. What you can live with the volatility is so different. What is your opportunity cost of alternatives is so differenti you might be getting some brilliant future meta in your portfolio and PEVC which in my portfolio. I don’t see that kind of optionality portfolio. I see more mature business. Will I sleep well at night? Answer is yes because most of my investment are not going to disappear. They’re going to be here while I’m going to be alive. Many of our companies might just disappear as they do go to. So the power laws drive your returns. You got the the what drives an asset class return itself is misunderstood. Then if your starting point is wrong. Remember we were discussing the sixth equation of the 12 famous equation. Yeah. Kinetic energy is half MV². M is mass. The amount of money you have, billions, trillions, whatever it is, velocity is very high because you have got new money, you don’t know what to do it, you are ready to spend, but if your direction is wrong, God help you. Accident is bound to happen. That’s a great note to ask about you know all this liquidity in the ecosystem. There are people who have come into ESOPs, right? And they have serious liquidity for the first time. Some people are sitting on you know say 50 uh 20 30 50 crores even in their portfolio. So how would you think about asset allocation from that investor’s lens say they are not very sophisticated investors. They are starting out their journey but they want and have the aspiration to build like a sophisticated investor. So let me answer a question in a little oblig. The other day the talk at the family dinner table and friends and family where there was a huge gathering the talk came of wills and succession planning what happens you know we were discussing mobidity and mortality cosaries prevail you know things are not great so the question was asked to me is what if you are not there longer tomorrow what happens to your family money I have 14 people in my household dependent on how I asset allocation and that’s 90% % of their wealth. I’m the second largest investor in my own schemes, right? So I’m in the same boat. My instruction to my video I said okay should something happen to me I would insist that 60 to 65 to at least twothird of it is sparked in liquid ETF across diversification of large c few you know few categories totally non-correlated very different drivers different economics which is basically addresses to the fear of losing principal capital or damaging your lifestyle it gets that fear of loss loss aversion out of the picture and then I said get some competent people to advise on optionality portfolio it could be little more experiential more unproven companies more emerging companies that 33 30% is a optionality portfolio address to eliminate the regret so bottom up stock picking you know bottomup stock picking but but not in traditional sense you would look at companies which are which are more challengers rather than established company. Companies which are gaining market share not the market leader. The companies where value is migrating from an established incumbent or a value chain something yet not proven and not mainstream but has that optionality like a VC that if you invest in sufficiently large number of companies few of them will be so outside the game they can become the core portfolio. So not already in the index but on their way to index. Yeah. So I had so far two lucky episode of companies which I’ve invested in three-digit 100 cr market cap which have become index companies. Please tell us uh and the third one is in making. Okay. uh the the the the it’s not to it’s not to tomtom the returns but it’s to highlight that the winning ingredients the framework was getting the first the management right then the theme right then the asset allocation right and then most important the holding period right market is a very brutal psychological wealth transfer mechanism the volatility, the time beats out all the players who don’t have the conviction. It’s the longer you hold a company, the more better you get to know the company. True. It’s not only just endowment bias. You obviously start owning the company, you start behaving like a owner. Any negative report comes, you start, oh no, this is it is it is psychological. But the problem is also you get to know the the the underlying undercurrents and the theme and the people and the management and how they behave more intimately. Secondly, time is what cooks the business. Time is what cooks the share price too. Yeah. Time is what cooks your conviction too. M so we again the eighth equation of our equation we were talking of what most of the people miss what is future value it’s a it’s a function of three things present value rate of growth and the period of growth now let’s address to each there are many investors who say certain businesses are so good they can be bought at any price the consistent compounders as they are term whatever whatever But imagine if you have paid a perfect price for the asset. Where’s the upside? The blue scenario, blue blue ocean scenario is baked into the price. As an investor, you can make outsiz return only if you there is a wide gap between expectation of the market and your assessment of the business value. If you are agreeing with the market assessment basically then they will say oh I’m a time arbitrageer everybody is at longterm I’m at everybody is at shortterm of the curve I’m long-term but it compounds but compounding of stupid idea is also crucial if you are a price agnostic buyer there’s no way you can deliver outsiz return without using leverage or something like that number one now look at the second thing most of the investor are focused on rate of growth, earnings growth, this growth, that growth, sales growth, volume growth, iittita growth after spending 35 years, I would be happy to take a certain company growing at 17%. rather than for a long period of time than a company which is growing at even 22% but I don’t know whether it will be able to grow beyond five years and you know what is a read Michael Moberson’s paper I think somewhere he’s written that most of the analyst estimate of period of the cap the competitive advantage period what he refers to is off by almost 90%. The base rate effect again Michael has written two or three papers on it is a powerful concept. If a company is very tiny it can grow for two decades at exceptionary rate but then how much you can buy and how much you can hold if the company is reasonably decent market share for it to grow and outgrow the market is a statistical impossibility. Yeah, the base rate mean reversion and that’s why the market are mean reverting. If you see corporate profit as a percentage of GDP mean revers sector profits as a profit of sectors can go out of the line. Semis are today out of line software where out of line income they go out of line temporarily because of shortages. So short abundance and go long on shortages has been a good trade, right? It’s it’s it makes sense but it a short-term trade. It can’t be a permanent buy and hold value. So when you get into this kind of numats then you start appreciating the longevity. So the three companies that you have seen grow from you know before the index now in the index on their way to index were they contra contrarian calls or were they fairly well discovered and that’s when you entered? I got lucky but I could not self sold even if I wanted to because the company got delisted. Oh and and the underlying company became the Sensex company and we got to ride the journey of that uh the company is Barti Telecom. We invested 200 K market cap the holding company of the Barti Telecom in 1998 good and sir there was no buyer. The third is also something similar. The second company is a liquid company which uh which which I think so we got lucky in the sense um their business model was perfect and their execution was perfect. Um this is Bajad Finance. Um been been a shareholders for almost like since 2007. Wow. Yes. Those are great compounding stories. But if you then think about it, you know, there are so many of these com consistent compounders as they are called which are still heavy weights in the index, right? And here we can talk about private banks for example or even the IT companies which are now severely out of fashion. How do you think this these new age IPOs and all the new companies which are coming will change this index mix and how does it get changed because you know in the US this was the case in the ’90s right banking retail FMCG dominated the index in the US in the ’90s and look at the index now like mag 10 or mag 7 rather are driving the pretty much all the returns 30 40% of uh the holding is in if you if you strip them out the US index exactly so then how do you think of the index changing in India and do the compounders who have typically rewarded investors that you’ve been investing in companies uh like you know do they go out of fashion very interesting question I’ll give you slightly nuance answer composition of India index since last 30 years has been fairly stable the same names come up HDFC Reliance BA Tatas the same names prior to that if you go 1970s Modi and all they’re no longer so the creative destruction in US has been much more faster. So, Exxon Mobiles of the world got replaced and G’s of the world got replaced by Microsofts of the world and today uh uh anthropics and SpaceX of the world and the Googles of the world have come. So the the rate of technology change in innovation is very good. Why I feel India it is some time away because if you really look at the Indian even startup ecosystem many of them are business and execution innovation rather than there’s no GLP drug getting discovered in India or there’s no you know fabrication of chips happening in India or there’s no inference engine coming out of India so India because the capital itself is frugal and goes long way in doing traditional business nobody’s invested in a more risky R&D look at this uh look at look at this way if you get 20% ROC in a company running a traditional business with low risk All this aspiration of you know doing R&D and all this come when you have your stomach full India is yet at 2 and a half thousand per capita GDP the moment we will reach $810,000 of capacity all this will come will be more risk takingaking we will really focus on UI UX customer network businesses it will come our time will come but today at the stage of evolution we are is the Our real wealth journey has started in ’90s. Prior to that it was a socialist mind frame. So actually it’s just been a 30-y year old experiment at liberalization and true competition. The next 30 years definitely it will hit by because because by that time our risk capital would have grown. It’s not that we don’t have the entrepreneurs and manpower. It’s just that the system our judicial system our patent system our our doing business everything is different. Yeah, we don’t have a global scale competitor in any field. Do we have number one in chemical business worldwide? No. Why? If your capital is compounding and giving you material things and doing lowrisk product, why would you take a high-risisk bets? In fact, stock market will punish those promoters the moment they start spending. And see, innovation is not risk-free. M it’s not cheap you have to you have to keep it you have to put billions of dollars in the US hundreds of billions of dollars where is that kind of risk capital in India today today open AI started what 10 years back and billionaires wrote check show me that ecosystem so I think so we are we are unnecessarily flagging ourselves because we are still infants in terms of our our our our business journey our true business destiny was 250 years prior to English era where we and China were large GDP producer it was a different economy there then we gave up all of the way Britishers came we lost everything 60 70,000 Britishers ruled us we we never developed post independence we had a very different role model socialist nationalization co India got privatized banks got privatized it was a very different construct socialist construct and we never created the wealth it is only in last 30 years we are seeing the fruits of wealth give it more 30 years and you will see all this develop it’s a I think so uh there is a sequence of evolution right first you learn to crawl then you walk then you run then you fly many people are impatient today like us okay oh I’ve seen the world I have studied in best university I am I was but the ecosystem the institutions have not developed judicial system has not developed uh uh the the the fabric of innovation is not there. It will develop. So then the index companies stay as is the mix. Very short term my answer is yes. Long run answer is no because creative destruction will set in. It’s a uh invisible hand of capital which will keep happening. It’s but in shortterm I don’t see that happening because because uh uh because Indian entrepreneurs are good at execution. You look at you look at birla group you look at Tata group you look at Ramani you look they they mean I don’t see these kind of conglomerates anywhere except few Southeast Asian countries right or some emerging countries like Mexico or something but rest of the world is they are monoline business or ancillary business but global scale we have your local economy where you you can navigate around the local economy you can be in real estate you can be in energy you can be in finance you can be in telecom you can be in retail you can be in all these business at the same time and still continue to jagger and also a it’s diversification b they are seizing the opportunity it’s a very different business construct it’s it’s the way our uh business journey has evolved it’s it will evolve I don’t I’m not too pessimistic I’m sure 30 40 years down the line when we have risk capital when we are cross that $8,000 per capita a lot of innovation will come out of India till then time we will have to settle with more traditional businesses because they are low risk. M so that’s very reassuring for investors to hear for sure. But then when you think about what’s happening in banking or even uh say IT companies, there’s a bloodbath happening, right? Like IT stocks are at the lowest they’ve ever been. Private banks like HDFC, ICICI which used to have significant premiums are also like significantly being sold and FI’s had major exposure to those and those are the companies that are worst hit, right? So how does one think about banking and IT stocks specifically? Let’s look at banking first. We are at $2 and half thousand per capita. This is where we can pay for an EMI. Now India is also there is a developed Mexico there’s a developed Indonesia and there’s a subsar and African countries also. As I told you it’s a continent. So I’m aggregating just for the sake of simplicity. We have appetite for luxury goods and we have appetite for uh protein economy also. We are straddling the diverse range of per capita GDP. If you go to paladium mall in Bombay world looks different. If you go to Nagpur the world is very different. Having said that financial industry captures profit pool of several industries. Number two, in last four years, public sector banks have been recapitalized. Please don’t forget almost 4 to five lakh rupees of capital has been infused by government and the bad debts cycle is over. So they are resurgent. They are competing. They are putting the pressure on the HDFC. Look at HDFC bank. It used to be leader in many fields. Now SBI has taken it over lock and bar. But SBI RO is what they are happy with 1%. M if you ask anybody in private sector at one person they would they would feel it’s a recession and a sad situation. So but if you see really over a long period of time the market share for both deposit and lending has been moving away from PSUs to private sector and that’s not going to change it can change in the favor of PSU if government does what Singapore like did they got the best talent incentivize them DBS is a government company it’s a PSU but still it’s AAA and it’s very innovative very tax heavy so those things are possible given the current construct is very difficult because the person at the top barely has two and a half years or few years that they were and and and things are run still this thing I’ll give you I have a banking account with two PSU banks since last 25 years they know my history they know my civil scores even today in Diwali the banking manager expects some gift from me he’s not trying to cross-ell any product to me because there’s no incentive he’s not going to be rewarded for selling insurance to me or a mutual fund to me or serving me he’s still expecting a Diwali gift from me till that time that culture doesn’t change. Market shares are going to be going. There will be dip. Yeah. Obviously, it’s ultimate commodity industry. It’s ultimate cyclical industry and new entrance have come. Lot of PE money is flowing into the companies. Yeah. Many companies are Yes Bank found investors. Dean housing found shooter. So it’s these are the phase remember there was a time supply had a finance company. It was called LPI finance. Almost every business house in India has tried financial services. Lassen to grow, ITC, you name it. Yeah. So financial industry attracts competition by droves because of the profit pool. It’s one of the largest profit pool globally. This and this is also the latest industry. Yeah. So that’s not going to change. It’s a cyclical country. What you are referring to is a very short end of the cycle where resurgent well- capitalized PSU industry is coming from 10 uh 10 years of loss making and and now delivering profits and given the leverage and the weather their profits are tagic but therein lies the seed of this thing okay future cycle might not play out that way so you have to believe in the role of cycles out there but the bigger problem is and the question which lot of investors are trying to ask is globally the banks trade very cheap. Yeah. One one and a half times local. Why should an Indian but two is also seen as a premium? Two is like a it’s like a it looks like a rich rating. But there are things global banks are very complex animal. Look at JP Morgan. Their treasury in derivatives will be hard to figure out. Very complex underwriting skill cross jurisdiction risk leverage somewhere could blow up. Look at what happened to CSFB live in front of you. Yeah. Look at what happened to bearings. Look at what happened to So very complicated banking. Overbanked in a very regulated industry. Lot of fines. Banks there serve only two constituents. No three. The customers, the employees and the government. They don’t serve shareholders because this three takes away the lion and share of gains. Look at India. We are underbanked. If you strip out the top 500 zip codes, India is relatively unbanked. India is still on its way of journey from 2 and a half th000 to $10,000 journey. Profit pool is there rating der rating is temporary as you rightly pointed out fi where the dominant investor in this sector because if you if you read their India India country weightages they were overweight on financials to yeah like I had Chrisford from Jeff he told me ICICI was one of his favorite stocks but like they’ve removed ICIC so so so they so selling and it’s liquid it’s liquid Yeah. And most of these are promoterless company. So free float is very high. So their weightage index is high. M and there’s a lot of double counting as we ICICIC is there, ICICI AMC is there, ICICI approve is there, there’s a wording company. So there’s a lot of lacunas out there. Yeah. Which never should have happened. But I feel this is temporary. We are best in this thing is going to come. Rating is not not our base case scenario. But this is a sector where you can deploy at 16 17% at scale. Show me how many companies can deploy large sums of money at 16 17% in India if you strip out the top business houses. Very few industries can redeploy it. Yeah. At this scale. So reinvestment being rare the returns will come. But you have to temper down your expectation. Dating is a norm. It won’t it won’t get this four times five times book value ever. But the but the base rate growth if you if you if you buy at one one and a half times a company growing at 16 17% paying 1% I think so it’s it’s a good good alternative to look at so financials are safe when how do you think in pockets like look at gold finance today AU aum is good underlying collateral is rising in value you can lend more so there are pockets of growth today even in the in in the bad industries insurance is definitely going to do We have very poor health coverage. Health costs are ballooning. It’s it’s it’s impericable 20 years down the line some of the large profit pools are going to be in general insurance and in in life insurance. And in India luckily the banks are the ones who owning the insurance companies because of the distribution. So those are there asset management same thing. So they’re capturing lot of profit pools I think. So it’s a temporary phase and if I to be I am not sure and I could be wrong. I reserve that to be wrong but if FI money comes back I think this sector will bounce back quite dramatically. Please remember most of the mutual fund large caps have already at a threshold of 10% in many of these names they can’t buy more. So once the FI comes let let the FI activity on the positive side come and I think so BFSI will be a sector to watch out for at that point. I think they’re right to be wrong. I’m biased of course. Uh uh but I I think everyone in India is biased because the majority of weight in their portfolios is a lot of these financial but your podcast is in public domain and I I I I don’t want to violate disclosure or don’t know I don’t want to misl it the I think so underlying business model will have to change dramatically. M so this tying material cost plus basis is going to go away because people will either insist some outcomes or margin compression is likely to be there for sure because now an agent can do lot of work like writing code quality control customer service support uh there might be some glitches there might be some oddball case of some stupid things happening but if you see directionally the coding and uh the the the the underlying business is post November 22 has undergone a sheh shift change in the business model there will be few winners who will thrive because they will adapt to the new reality and scale but there will be many losers also it’s it’s the question is to figure out who’s on the right side of the innovation shift which is happening right now I’m sure few of them will will be the early adopters and benefit so one of our companies Bajach finance which we see is is a is a gainer of AI revolution. Yeah, their their turnaround times are are decreasing. Their friction cost is decreasing. Their opex is decreasing. Uh they are leveraging the technology to gain market share and lower the cost and improve the service. So there will be tech beneficiaries and there will be tech losers because whenever industry under goes a high change impact change that is a likely outcome. some of our old fashioned model of the companies which is expecting okay I need I will bill you by hours and all they are going to be come under stress for sure um the bigger problem I see is globally a lot of private equity have levered software services company because of stable cash flow they paid 10 12 13 14 times a year beta and borrowed and they’ve assembled huge platforms of you know software services platform bolton on acquisitions you you would have seen that truly if you look at it supply is going to come from them. So drating is also going to come because of the supply. So what was the buyer has become a supplier now private equity and VC fund large ones that had platform cases where they would keep acquiring small small software companies consulting firms this bolt-on acquisition you generate $100 million cash flow you buy 80 you deliver levered and buy 200 that entire activity which you saw in last decade that business model is coming under question because that perceived stability of cash flow on basis of that leverage was taken is getting violated Indian companies are not in See because they are healthy cash but look at where they are deploying the money. They are doing buybacks. They are not investing in in the product side of the business or the innovation side. So this business is under flux for sure. I wish I had a better calibrated answer but I don’t know what their strategy is right now. They are in shock from the con call transcript. They are still highlighting that AI is getting traction blah blah blah. But look at that AI and OpenAI and anthropic are also floating services organization deployed what is now forward deployed engineer into the financial service firm which is the largest buyer of software global year by the way the largest customer practice of all the IT companies is BFSI and and BFSI is early adopter of AI because of the scale and this thing so things are in transit uh one will have to see the how the strategy and the capital allocation at the top leading firms changes if they are not going to change this business model or adapt uh I wouldn’t be buyer anyway we were underweight on it for donkeys years because their growth volume growth is not there we avoided see your margins are already perfection you can’t expand your margin now promoter 3% margin so you can’t negotiate higher margins for that volume growth is absent then what can help FX buybacks but we are we want to as a concentrated aggressive investors we want to have companies whose top line is growing at at least one one and a half times the nominal GDP the top line was also not growing. So all these companies never found part in our portfolio. So my knowledge base on this industry would be far lower than a void investor because because my fundamental filtering only just removed these companies because their core volume growth was absent since a decade. Yeah, it was it was buybacks. It was bolt-on acquisition. We it never the I mean very few software companies have grown organically at a good high rate. Inorganic growth is a very very very hard to pull off and not grow. So we never had any meaningful exposure to it at all. So pardon my ignorance. I I I don’t have No, that’s good to hear. I think you know it gives us a wide range of opinions in terms of you know and the uh audience can take whatever they want from it but you also you know run fairly uh concentrated portfolios right like five six stocks which have majority holding and then a long tale of optionalities. So where are you concentrated today? In which pockets are you seeing the opportunity? Manufacturing BFSI apart manufacturing is a bright spot. Let me give you the logic. India has a labor engineer skills. Engineering are in the youth supply. We can reverse engineer frugally like Chinese did. Yeah. We don’t have economies of scale which China is. But if you look at it today, if you are any major customer, you don’t want to put all your eggs in China like they did. M they want a alternative to China because of the geopolitics because of the diversification also just in time all those philosophies have disappeared after covid where sur where business continuity plans have come to four more than the optimization earlier the world was in optimization like like I would remember automo companies saying oh the tire comes 6 hours before it is assembled and there’s no backlog no inventory those models are changing right now if you We have iron, we have ore, we have coal, we have renewable energy, we have all the building blocks in place for manufacturing. Boom. Also, some amount of value is shifting from atoms to from bits to atoms, from code to you know today if you really look at it, entry price of an engineer in manufacturing is far higher than a software company. Yeah. So market itself is telling you that is happening. So if you see national champions and global champions can emerge out of India in manufacturing space uh because of the fact that even four 5% shift of manufacturing away from China would mean tripling and quadrupling of capacities of Indian companies out there. So so look at this EU FTA trade which we have signed. Now it will take some time to operationalize but EU is a large purchaser of various engineering goods and commodities. India has space expertise in chemicals, in pharma, in machinery, in textile, in basic raw materials. We are frugal. We are more capital efficient than China. We don’t have economies of scale of China but our capital efficiency is there. So Indian I think manufacturing companies will start sacrificing some amount of margins but going for the scale and market will still take it positively because with scale will come longevity of growth market shares and so on so forth. So manufacturing is one area where I think so any particular sectors where you see manufacturing being better than others. Look at renewable energy like uh 10 five years back if you had asked me on this podcast can you see an Indian champion going out of India I would say no way but look at today vari again disclosure it’s a portfolio company and I’m not recommending any of it but it’s in top 10 by volume and it has got a 60 70,000 cr order book from US top 10 US IP are its customer so you have highest pedigree of customer who are paying advance to this company now can this definitely is going to change lot of supply is also coming in so only only in Excel and in analyst recommendation the growth is linear life is nonlinear and ups and downs so don’t hold me responsible 2 years down the line on this show but in long run India will have a good portfolio of the entire electric alternate energy look at the simple thing we just imported ura at double the price right we imported energy, we import basic feed stock, we import everything. If we have to stop this dependency and be independent and really good, we have all the policy and I think so this government is doing great guns. Earlier government used to f focus on subsidizing customer but it was a single time event and a recurring event. This government is focusing on manu manufacturing base. They are protecting the local industry. They are doing the local sourcing norms and they are giving one time incentive to do the capex. Now this capex base is going to serve you for 25 30 years and all those things that will give you the the drive that will give you so you will see champions emerging in multiple manufacturing fields of goods and and and and actual goods. M so I we as a firm look at only three business models services physical goods and network businesses actually we don’t look them as chemicals cement materials like this because all goods and services are one attribute so all your software services and real estate services and advertising services and legal services all have services component they behave differently and there’s all this manufacturing manufacturer you manufacture API, you manufacture machinery the it’s a one club and the third is all this you know network business where each incremental user coming on your network increases the value of the whole network which is what essentially metas of the world and the and the Googles of the world are so in that case I’m very bullish in this middle of the manufacturing we are seeing in pharma we are seeing it in manufacturing we are seeing it in pockets are emerging the profit pool will drive the future growth so Say the same company vary just announced $2 and half billion dollar capex. Now assuming margins will half but asset turns will still the company will create a good IITA and good profit and cash flow. So you’ll see the national champions emerge but trust me this journey is going to be very lumpy. There will be pockets where margins will underwhelm you. Competition will be there. It’s a it’s a natural part of growing up. Yeah. And what about network businesses since you what are the network businesses which are interesting from an India point of view? Sorry I I find there’s none. Yeah, you would have to look offshore. China as its own because they protected western world as its own. I don’t think so in India there’s a business telecom was in a way that value when more people came on cellular network the value of the network went up. But we just don’t have any consumer tech plays that have scaled. We don’t have any network business where what about policy bazard nikas. These are all IT enabled businesses where they are leveraging technology to serve or acquire customers frictionously. These are not network businesses. Yeah, we refer them collo clearly as platform internet blah blah blah. But these are all nomenclature issues. Technically in Zomemetto suppose you are watching match at an IPL time and you order pizza your quality of service deteriorates. Addition of more people ordering through Zomemetto reduces your experience actually. Do you realize that while network business classic definition is more so so imagine you had a fixed line telephone network and mobile came when all your ecosystem moved to mobile it helped you to contact them whenever they want whenever they were in transit. So that was a true true network business. These are all internet enabled businesses. There are net there there obviously a huge amount of tech and business innovation happening but these are not typically a network business where there are marketplaces there are nuances around that there are economies of scale people confuse that but network business is a very different animal it comes from rules which is reed laws metaf’s laws saf law all originating from telecom business yeah and having seen that from within meta I know that it structurally looked Right. But that’s why Meta did smart acquisition. Instagram wonders. Um, all the products that it has, be it reals, be it stories are all like copycats of different products that work. They try to acquire Snap. The the the Meta understands what is network business. Uh they’ve leveraged the advertising business very dramatically. Uh their their constituent and Instagram was a perfect fit. Yeah. The WhatsApp has been a phenomenal acquisition today. they would they could easily monetize WhatsApp very big because the network the whole Indian economy is dependent on WhatsApp. Yeah. Today I’ve seen bank I’ve seen lot of for mean top companies being run on WhatsApp group. Yeah. If you uh there I will I’ll give you a case which I don’t know there was a bankruptcy proceeding and that company was a large bankruptcy company but had Salesforce as a back end. Salesforce just shut them off and the court had to order priority payment to Salesforce over and about secured lender an unsecured tech provider got a priority over banks and every other defaulter because they shut the company down. That’s a that’s a that’s a beauty about some of these businesses and we don’t even realize how much we are dependent on some of these. Imagine if WhatsApp just closes tomorrow. Yeah, we all will be forced to migrate to some other alternative and it will happen. It will happen. And there’s no indispensable unary but it will it presence will be felt its absence will be felt. You might see a telegram or something else come out but it it it won’t it won’t it won’t be end of the world but it will be a genuine problem because that’s a business where more people are on WhatsApp more it helps you. M so countal coming to the last segment uh you know here I would love to ask about mistakes because you know on your 20th year mark you had written Mia kalpa where you highlighted some of your biggest mistakes and you spoke about that so now after 10 years hence what are some new additions to that list oh you reminded me of so actually the title was max miaakalpa max is my biggest mistake not the smallest mistake so that 20th uh 20 years that two decade journey had two basic themes my acts of omission which is still there and my premature selling. I I I acquired a lot of good businesses very early but I sold them prematurely because of one simple reason. I viewed them from my statistical lenses of cheapness little realizing that my opportunity cost and my perceived hurdles rate are different than government of Singapore and a northeast bank and they are the guys who set the price not me. So if they can they are happy with 3% operating yield and I want 6% operating they can pay double the price of mine. So that was one big learning and I hope that learning is very clear. If not I can explain it again. The 30th version has not been drafted because that came after this COVID and I think so I’ve forgotten to write about it. I promised in my last edition my new mistakes would be different than the old ones. So have you on this show without having drafted it can you name one or two that come to mind? I think so I made a mistake in trying to pursue depth of investing versus breadth of investing. So if you want to cover the large surface area you need three things. You need depth which is height equivalent in a normal then you need breadth which is length and you need three dimensions right? I only focus on depth most of the time. The result has been the companies where we invest we tend to have a very decent without sounding arrogant decent handle on what’s happening but the depth comes at a cost of sacrificing the breath and sometimes I felt the world has become a thematic and a macro investor suddenly this theme takes off suddenly and in the basket of themes have delivered better written in fact it’s an insulting uh nonsense you remind me there was a very smart investor Okay. And I’m admitting this mistake. So he took all the all the companies I’ve sold and then asked me the reason to say why I sold. So some would have business dynamics broken. Some would have said government regulation. Some would have said my assessment was wrong. A majority of them had uh overvaluation at that and many of the misses he took what are the stocks I missed and I said I never looked at it. It was act of omission completely. I’ll give you a simple example. I’ve been helping an hospital company turn around since 201 17 18. I understand how hospitals work. I’ve not bought a single hospital stock. What? Okay. Because I just didn’t connect. What you thought hospitals don’t make money? No, I just didn’t pay attention because I was busy doing something else. My partner at needle flagged Nvidia shortage this chip in 21. He said why don’t we invest in this chips and we buy this things. I never bought Nvidia stock. So I’ve been pigeonholing myself without going in deep leading to sometimes paralysis while the breath would have help and cover the death because uh I missed out lot of things I was well placed to capitalize on but this habit of you know more more means you can you can go on infinite amount of things but beyond a point of time it’s a diminishing return so somewhere I think so the biggest mistake in this version which I will write down and hopefully I’ll send it to you. Uh please don’t circulate it. It will it will make me look like an idiot. It will stay on with me. Uh no it will make me look like an idiot. People will stop me from referring to as a decent investor and it will hurt my ego and my not at all. I think the greatest investors make the biggest mistake. But but I think so I’ve heard a lot in exo formation this time again where I should have broadened my coverage and reduced some depth intensity to strike a balance. I think so I went overboard on depth. Thank you for being so candid and vulnerable. Yeah I I think so uh I would have been better off if I had uh look at this. I I wanted to invest offshore but then I applied for mutual fund license and I didn’t set up gift AF and offshore. So I I’ve done a lot of mistakes. Uh I will I will chronicle that but I think so most of them refer to being pigeonhold in few businesses and biases and not failing to see the 360deree picture. I think so I got tunnel visioned. Sometimes the world changes around you and you don’t know. Yeah. the pursuit of the I I became like a specialist in a doctor. See a generalist doctor doesn’t have a value, right? MBBS up fever and cold and diarrhea treat will never be this a successful oncologist and all will make all the money. So I tried to practice this but now when you realize investing is a liberal art a generalist wins. there was no need to become so special into a field where uh you almost become obsessed and paralyzed. Thank you so much. I think you know it’s such a candid and vulnerable note. Um I couldn’t have asked for a better end to this. See this is the beauty about our investing. If I share one mistake and you share one mistake, we both learn. Same thing if I share good idea, you share idea. It’s cumulative additive. uh nowhere in the world this kind of business exit where sharing actually enhances the common kitty and the pie. So yeah, if some people benefit from this knowledge, it’s a good karma. I know I’m sure absolutely and people will thank you for it. We’ll just do a quick rapid fire to end the episode. Um we’ll do one line answers. Cash percentage in your personal portfolio right now around 26%. You’re 26% of cash. It was much higher. We returned some capital. It’s we last two three years we’ve been underway India dramatically. Wow. One sector you would not touch with someone else’s money today where the rate of change is very very high and you can’t see the future very clearly. Uh because I’m not a VC investor. I’m a concentrated investor. Uh and and I wouldn’t touch industries where underlying rate of change. See your holding period has to match. So if it’s a bureau company with very low change of change I would take it but anything where the visibility of rate of change and who’s the winner and I know that theme will do well but you don’t know the winners and losers it would be very hard to deploy third party money at least from my because I am not if I was a ETA for a basket or a thematic investor then happy because then uh winners and losers will be all captured in and you can keep averaging the momentum up. It’s a very different investment style which I don’t follow but somebody else could follow and still have a very good portfolio returns. This wasn’t in my questions but I’ll ask you because 26% in cash is a big thing right for investors what will take what are the three signals that you’ll look at to deploy all of it valuation coming in comfort zone nothing else one sector that is boring and you love it for that reason manufacturing an Indian company you have admired for two decades and still admire I know the answer finance it’s it’s because because I’ve observed at close end it’s just familiarity bias I’m sure there are uh there are companies done there are many companies which have done well it’s just the familiarity it’s a it’s a bias an Indian company everyone loves that you do not I’ll pass you’ll make a monkey out of it I’ll take fifth amendment sure most overrated metric in equity research beta most underrated metric in equity research cash flows the most dangerous word in investing Word or words anything. This time is different structurally. We are in structurally anything with words structurally and this time different they they should be student of history and the main reversion of the cycles. I think so they should read up the history. If you had to put 100% of your net worth into one Indian company for 20 years would you? I wouldn’t do it. Uh I’ve done I’ve done one investment 80 20 80% but no no I wouldn’t do it. Was that bad finance? No, no, no, no, no, not that. Um, it’s it’s not worth the the the concentration is psychologically disturbing. I’ll give you a story of a person. I knew this investor whom I used to looked up when I entered the market. Serial compounder, Ramco multiplication, Infosys multiplication. One day he put all his eggs in one company called Boring. And you have not ever heard of this company? No. This company was a German manufacturing company leader in lot of products. Opthalmic wing one. Suddenly they had a manufacturing defect and the hydrops they produce killed nine people. The German MD took a flight never returned back. Company went into bankruptcy acquired by Nicolas Pyramal which is a pyramal group. He lost 90% of his jobs. Today he’s running motives in USA. No way. Best advice you ever received about the concentration when it worked was a aha when it bfired it was a harakiri. So I don’t want such extremes outcome. Uh as we all don’t want any of these extreme outcomes. So I would say concentration is a double-edged sword. Uh very few people should practice it. people who have permanent capital, temperament to withstand volatility, long-term orientation, ability to take cash call and ability to go deep. If you don’t have any of this, I think so diversification is a better outcome for most of the investors. It’s not everybody’s cup of tea. And last question, best advice you ever received about money or wealth. This came from the mentor we were discussing before this interview. Um, one thing he said is as you grow old, your circle of people and businesses should contract. You should be more choosy about longevity of the relationship, longity of the business, the longevity of promoter orientation and you know just focus more on longevity and and likelihood of that happening. uh earlier you know I had a very different mindset at a at a price everyone catcha because price creates its own it it discounts all the negativities I’ve become more careful of the companies we choose both so our investors are very chosen few the companies we have invested are chosen few we become more selective and again that dotails into deep versus breath this contradiction is looking like to you but it’s a it’s a frame of investing which we are practicing right now. Maybe with the addition of team the breath will take in. We are hiring a mutual fund in principle license has come through. So we will be also expanding so things will take care of itself. I think simplifying the whole and taking the complexity out of the equation is the game of life right not only in investing but it’s the game of life. But thank you so much Kuntal. I think I couldn’t have asked for a better episode with you. We covered literally everything from your frameworks to mistakes and so much vulnerability that you shared everything with. I couldn’t have asked for a better episode. Thank you. Pleasure was mine and if it helps your audience, I’m happy to share my mistakes if somebody learns from it and helps them avoid it. Doesn’t cost me anything. Keeps me grounded. Keeps me keeps me keeps me sane. We can all learn from market veterans. Like we all learn from each other. I’m sure this episode has taught me a few things. I’m going to write this news letter the my my mistake letter. I forgotten actually. Thanks for reminding me. I promise that next 10 years I will write and it will be different set. Yeah, you passed that mark. So you I had written towards the end. Thanks for reminding me. It totally escaped my mind that I’m to write it. Um I think so I should write it. I faster the better. I’ll share the copy with you but please don’t circulate. Thank you so much. Thank you. Thank you. And if you enjoy watching our content, please remember to subscribe to our channel. It really helps us in bringing you better and better content each time. Thank you for watching. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.