The Worst Is Over Ravi Dharamshi On India Market Comeback

TITLE: THE WORST IS OVER! Ravi Dharamshi on India’s Market Comeback with Sonia Shenoy CHANNEL: ValueQuest ---TRANSCRIPT--- Hey guys, welcome to the money mindset. There’s uh you know there’s so much happening in the world these days. As of now, as of today, there is a ceasefire um as far as the war situation is concerned. But these are really hard times for humanity, for civilizations, for markets, for the economy. Everyone uh and anyone you speak to doesn’t know where things are headed. But for now, there is a bit of a relief rally. To talk about that and more, I have Ravi Daramshi of Value Quest with me on the show. Uh Ravi has been here before on the money mindset and the last time around we were talking about how volatile the situation is. Little did we know that the markets are going to see such a steep fall especially individual portfolios have had a rough time in the last five six months. Ravi, thank you so much for being on the show.

Thank you. It’s my pleasure to be here. And it’s a tough time for everyone. Luckily, as we speak, there’s a ceasefire going on, but who knows, right, with the taco trade. Yeah. So uh you know uh a lot of people feel that uh it is a very unpredictable situation. Yes, it is very unpredictable situation and when you throw uh President Trump into the equation, it becomes even more unpredictable. But I do believe uh there is if you put a framework around it, it is not uh completely incomprehensible. First let’s understand the motivation why what is US doing and why they are doing it. You know the world is moving away from being a uh uniolar world. What does it mean uniolar? There was one US hgeimon. They were the police inspector. They were the provider of security. They were the consumer. They were the uh part trade partner everything and all we had to do was align with them. But now uh what has happened over the course of last 20 years is because of the globalization policies followed uh the middle America which was very manufacturing oriented has been hollowed out and uh secondly uh the rise of China uh basically. So now we have a rising superpower and a superpower that is kind of plateauing. In that situation what does the plateauing superpower do? they try to g gain uh leverage wherever they can. So if you see uh Venezuela or Iran are the two biggest source of crude oil for China. They US is essentially trying to get a leverage in those areas because whichever nation is going and aligning with China are the ones that are bearing the brunt of uh President Trump’s actions. Now in that scenario and this is all being driven by the fact that US’s debt situation has reached alarming level. If uh they do not bring the debt level down, I think there will be catastrophe at some point of time. Now how do you bring the debt level down? You cannot increase the taxes in US. You cannot uh uh you know basically bring austerity. So the only way out is for them to inflate because inflation is a kind of a tax which does not get noticed very easily. So the policies are all going to be inflationary while keeping the interest rates down. So uh financial repression is what it is called and uh once you see everything through the lens of that that all actions are from the point of view of regaining that strategic advantage rebuilding the manufacturing in US getting that edge over China then these actions will make sense to you not to say that makes it right or wrong but it just gives you uh a framework to understand why it is happening and uh in that Iran fits right uh uh you know in the scheme of things that US wants to control uh the choke points uh that will that will give them a leverage over the rising superpower which is China. Now China has been smart and ahead of the curve for the last 20 years. They have been trying to delever uh away from their dependence on the oil uh by moving towards renewables. energy security and energy independence becomes the biggest theme. Uh and that is exactly what China has been following. So uh and what it also does is it gives them an extra edge in terms of the manufacturing. China is 40% of the world’s manufacturing and uh wars between two nation are won by the manufacturing base. It is not exactly won only by the technology. And if you see what uh in this particular war also between Iran, Israel and uh Iran, sorry, US, Israel and Iran, what they’re trying to do is uh dismantle the manufacturing capability of Iran to uh you know build more missiles, drones or interceptors. So uh the war might happen uh you know at a particular uh point in time or place in time but it is really won in the manufacturing floors on the shop floors where the uh new drones and uh machinery is being produced. So US is trying to rebuild that lost strategic advantage uh while trying to regain some leverage over China. So that’s how I see how the world is panning out today. So now if this rule-based order as we know it has come to an end and now we are moving to uh a situation where whoever has the higher negotiating power is the one who’s surviving whoever has a higher pain tolerance is surviving. How do you as a you know as someone who’s watching the markets across the board equity markets commodity markets uh risky assets how do you approach all of this? So uh it is absolutely clear uh the rulebased order that was there has moved to some sort of a uh negotiation based or transactionbased uh order and uh India will have to find its own feet over here and in that regard it becomes absolutely strategic and important that uh we have our own uh supply chain resilience we have our own domestic market we should have uh energy security and independ dependence uh we should be uh we should become indispensable to our trading partners rather than the other way around. So uh a lot of the focus of the government uh till now has been towards building these resilience but I think with this particular uh crisis that is panning out uh it has once again revealed the vulnerabilities of uh India and I think uh it this will give further push to all these strategic uh sectors like defense, semiconductor, renewables, uh aerospace, space. These are the sectors where India needs to build its competency and uh we are still lagging behind in a lot of things unfortunately. But I think this in my opinion should ideally be the last oil crisis that uh India has to suffer uh after this any subsequent oil shock should not matter to India. Uh we should build our resilience before that. Fair enough. So you know um it’s very clear now that uh energy supply chains have now become geopolitical weapons right in such a situation how ready is India to deal with uh this oil shock and any more in future I mean what is the situation at the moment currently we are not ready at all so uh 85% of our energy imports uh rather our crude requirement is still imported uh however we have started on the journey to changing our energy basket mix and renewables has become 20%. From the capacity point of view, but from the generation point of view, it’s still somewhere between 5 and 10%. So, it’s still a long way to go. We will have to reach a number somewhere between 50 and 70% of our energy mix should be from renewables and that in my opinion is at least a 10 15 year journey. So uh we are long way away from that and that renewables will include not only solar, wind, hydro uh hydrogen, nuclear uh even uh uh you know compressed bio gas ethanol everything is a part of the uh everything has a role to play in an economy like ours. For some nations like say in Europe, wind is a larger part but we are endowed more with sun. So solar becomes naturally the biggest backbone of our uh uh diversification of the energy mix. So one uh we need to move away from crude oil dependence and second we need to move away from import dependence. And on that front, one of the reason if you if you remember last time when we spoke we were talking about renewables and uh everybody in the market was worried about the overupp situation. But if you realize the strategic importance that now in the crisis that you have realized you know it’s good thing that uh at least some of our uh dependence has reduced whether it is in terms of electrification or whether it is in terms of ethanol blending but we are still far away from building that complete resilience. So uh when a sector is so strategic you cannot be so focused on the fact that this sector is making money because it has tariff and non-tariff barriers. Basically there is protectionism which is giving them ability to make money. It is they are fulfilling a nation’s strategic needs. So they need to be allowed to make money so that they can backward integrate and we can have complete dominance over the entire supply chain. Otherwise it would be the same right? Right now we are held hostage in the fossil fuel era we are being held hostage by the OPEC nations or the these choke points and in the renewables era if we don’t get complete control over the supply chain then we will be uh held hostage by the our trading partners like if we are dependent on China for all our uh solar PV module and entire value chain then we will be dependent on them and they can have that leverage over us. So it is important to not give them that leverage and that is why these sectors need to develop within India even though it comes at a little bit extra cost because in econ pure economic terms it would be cheaper to just buy from China and install it but if we do that by saving some money we would be giving away uh a huge strategic leverage to a rival nation. So we should not do that. So uh once you understand that these actions are driven more from the strategic geopolitical strategy point of view then you understand that uh one should not be taking uh an investment call purely based on economics. M no fair point fair point. I want to delve a little deeper into this entire uh space. But before that I also want to understand now with the escalation of crude and the second order impact that it has on the fiscal deficit and on you know balance sheets of companies etc. Um how much of that you think is already priced into the market because the market is down about 15% from the peak. Do you think there is more damage because of the impact of crude? So uh we are right now caught up in a vicious cycle. Uh our because crude has gone up and uh rupee is depreciating because rupees depreciating fi flows are going out because fi flows are going out uh RBI is unable to provide the liquidity to the banking system because banking system is uh liquidity deficit it might hurt growth and and inflation might also rear its head. So we are kind of caught in a vicious cycle and we need to get out of this. Uh coming back to uh this how uh how much impact it can have. I I believe there let’s take three scenarios. One is a scenario where the war ends in next 2 to 4 weeks and when I said 2 to four weeks once these two weeks of ceasefire end and another two to four weeks if at all. Uh we have been 6 weeks into this war. So uh at this point of time uh the kind of inventory we have the availability of feed stock we have the uh the companies we can manage another 4 weeks and maybe this two week ceasefire will help us or allow us to build some more uh of the inventory uh immediately and that I think maybe instead of 2 to 4 weeks might be 4 to 8 weeks. So if that is the scenario that if this entire war ends we reach some kind of an agreement settlement uh in the next 4 to 8 weeks it it will be a transitionary impact it will not be a permanent impact it might impact the FY27 numbers for the government in terms of if you are taking fiscal deficit at 4 or 4.1% it might actually uh sorry 4.3 or 4.4% we might actually end up with something a number closer to maybe 4.6 6 or 4.7%. It will be a shock that we’ll be able to absorb. See uh as compared to 2008 when the crude last time went to $140 we are in a far better situation. One because our economy is now 4x the size. So crude’s sensitivity to the entire GDP has gone down. Uh we used to consume about 190 million barrels. Today we consume about 270 million barrels. And uh today if the crude goes to $140 it would end up being about 2.5% of the GDP which is not bad at that point in time in 2008 when global financial crisis hit it was almost 6 7% of India’s GDP. So as compared to that we are in a better situation. Our banking uh system also the cleanup has happened in the last decade. Uh so the resilience is far higher from the corporate balance sheet, banking system and central government’s balance sheet. Uh but that doesn’t mean it it will not hurt us. It will hurt us for sure. So every $10 rise is about $18 to$20 billion increase in the uh cost for India now. But we are talking about an annual average number. The assumption before this war started for this year uh was probably $6570 in terms of crude price. Now instead of 6570 if the annual average comes to uh let’s say $85 or $90 that’s about 25 to30 bill uh dollar rise and that will mean roughly about 50 to$60 billion kind of an extra additional burden on the central government and that will eat into uh whatever else we were planning for. So uh clearly the fertilizer subsidy is going to go up, food subsidy is going to go up. uh right now we have cut the excise duty and central government is absorbing the cost right now. Uh but if it uh prolongs for a longer period some of that cost might be passed on to the consumer as well and that will start hurting the consumer. uh probably uh so if the scenario one pans out which is 4 to 8 weeks and we are done with the war then I think it will be only a blip and only a temporary thing in India’s uh overall journey but if it prolongs beyond that I think then that is where the challenge really starts coming for India not only in in terms of the balance sheet of central government but also in terms of the raw material availability feed stock availability uh and then we start seeing uh layoffs, production cuts and uh job uh job scenario becoming even far worse than what it is. Many things start happening uh if this prolongs beyond 4 to 8 weeks. That’s that’s my assessment. So my base case at this point is not uh that we will uh have a war that lasts beyond that because this is not a lot of people say you Russia Ukraine war when it started out uh it would probably not last beyond 2 3 weeks but it is all been 4 years now. Uh but uh one thing people don’t understand is that there is no asymmetry over there. It’s not Russia versus Ukraine. It is Russia versus Ukraine plus NATO and that balances the scale a bit and hence the war can prolong. Over here it is an asymmetric uh US plus Israel is like 100 times stronger than Iran. Yes, Iran has kind of opened up uh a new front or everybody’s imagination that you know if you are going to hurt me then I’m going to inflict cost upon the entire region. I’m willing to uh you know take everybody else down with me which kind of gives them some leverage in terms of negotiation but honestly it’s not a sustainable policy. It will it is only a matter of time when if they continue this for long the everybody turns against them and uh then they will not be able to really uh prolong it any prolong it any further. So from that perspective this is a very uh asymmetric war and uh it is in honestly uh nobody’s interest to continue the idea is to get control over the state of hormones. That’s what uh uh as I mentioned earlier in my uh answer that uh this is US trying to gain some strategic advantage over China by getting control over the straight of Hormus. So they can control now they can control where the Venezuela crude goes and now they will be able to control where the Iran crude grow goes as well with that uh China has a little bit of delever as we saw in the trade negotiations also because of the rare earth uh thing China was able to withstand the American pressure. If I was China today, I would be thinking of further diversifying my sources of energy as well and not give that strategic leverage to uh US in terms of uh uh you know how uh the future world pans out and that is why this rush to build over capacity on the renewables front uh so that they diversify their sources of energy. So uh anyway just coming back uh I do believe that uh the scenario one which is 4 to 8 weeks and we reach some kind of an agreement and settlement uh in terms of who will control the state of hormones or who will get some money out of it. If that scenario pans out I think we should be fine with a little bit of pain inflicted upon this year’s number. Okay. So that that’s a very uh exhaustive explanation but very important because you know you talk about the asymmetry when it comes to the war situation and I completely take your point. It doesn’t benefit anyone. Of course it if you look at what’s happening with the US there’s such a cost escalation for them in terms of crude and uh that is something I guess they did not foresee with the with the shutting of the state of so I guess the disproportionate um impact on us is also something that people are feeling in the US itself right and that is not going well for the Trump administration too. So there are only two things which can make President Trump back off. one is uh the popular opinion turns against him uh which which would be the case if the war was to prolong which would be the case if the cost were to go up uh and that matters to him because midterm elections are scheduled for November and uh him retaining control of all the three houses is very important for him otherwise he will not be able to uh uh railroad the kind of uh uh you know executive and executive decisions as well as the legislation that he has putting forth. So it is very important and that is one natural uh timeline that we have to whatever actions that US is taking. They’re trying to achieve something before the midterm election. So he would want to show it as a win over in the Iran war. So it is in his interest also to not prolong this war. But that’s that’s one thing. The second thing is the bond market. What happened? When was the second time when did he back off in the trade uh tariff war that broke out? Where was when the bond yields uh started going above 4.5 4.6%. As I mentioned the core the nuclear uh point of all the genesis of everything is stemming from the fact that US’s debt situation is untenable. Now if uh the interest cost in US rises, bond market can make President Trump do which no other human being can do because that will increase uh the cost for US almost by a trillion dollar in terms of the interest payment and that is what they are essentially all the actions are towards uh bringing the US debt to GDP down but they are trying to pass on those costs to the allies and uh everybody else instead of trying to uh you know take the cost themselves. What what is tariff also? It is tariff is also something that the US consumer will bear or part of it US consumer will bear part of it the trading partner will bear but what US is saying is that the US government will not bear the cost of it. So annually I think before the Supreme Court judgment came I think they had collected some 170 $180 billion and they were on track to collect $250 to $300 billion and if that is a annual number it helps them uh meet their interest obligations and it it basically gives them more breathing space. So my judgment is uh because there are only uh two things which can make him uh back off from whatever he’s trying to achieve. one is the popular opinion and second is the bond market. So can you just explain this bond yield situation to me? I understand why the bond yields and how it would impact the debt but I don’t get how the war situation will uh is correlated with bond yields. No no war situation is not necessarily correlated. Okay fed uh only way there is a second third order derivative effect in the sense that if the prices were to go up in US then Fed will find it difficult to reduce rates and if Fed finds it difficult to reduce rates then the interest cost stays elevated. So along with uh getting control of the uh you know these strategic choke points, US also wants to push uh the costs down their interest cost down and for that it is very important that they keep the inflation in check in US. So there is a temporary episode right now of the crude prices going up uh the gas prices in US going up which is going to play into the inflation which is why Fed has kept that kept itself on hold. But if that was to come down then I think uh that will give more room to Fed to cut interest rate which is the primary objective of President Trump. Okay, fair enough. Coming to our markets, I watched a recent interaction that you had uh on television where you spoke about how you are deploying money in the market now. You are buying in this market. Tell us a little bit about that. Are you putting fresh money to work? If yes, which are the areas that you’re looking to buy into? So first of all, an honest confession. It’s not like we were sitting on a lot of cash. Uh we did not foresee this particular crisis and uh uh but whatever little bit cash we had, we have gone out on a limb and we have told all our clients this is the time to be topping up uh and not the time to be getting worried about uh this situation or worried about the fact that there has been uh underperformance in the last 15 18 months or no returns in the last 15 18 months. This is the time to be put putting money to work. I see this situation as very very uh parallel to what happened in covid. Of course history never repeats itself but it does rhyme. So if you remember in August 2019 uh government announced a corporate tax cut and we went from 35% to effective 25%. That was a huge huge uh indication and uh starting of the profit cycle for uh Indian corporates. However, six eight months into it and we saw COVID hitting in February and we saw lockdown in March which kind of uh you know came as an interruption. Similar thing I see uh happening right now also we had embarked on a GST cut rate uh income tax cut rate uh rate cut uh RBI rate cut. So we were on the verge of reviving the credit growth. Our credit growth which had gone down to 8 9% had come back to 13 15%. So we were on the path of recovery before this West Asia crisis happened. So uh the inflection point had been achieved but then interruption occurs maybe 6 8 months in uh down the line before the uh you know the policy actions can percolate down to the uh ground to the P&L huh to the uh consumer to the corporate balance sheets. So that is how see it. Now you can if you rewind back now in covid the day the uh shutdown was announced was the day the markets bottomed. So from that perspective, this is also a very similar situation uh that uh now that we can all quantify uh how much damage crude can cost, how much uh uh you know raw material supply chain can hurt us, how the balance sheet the markets are a forward discounting mechanism and the moment you can get your arms around uh a particular risk in terms of you’re able to quantify how much it can hurt us, markets have already faced faced that in. So to answer your previous question also, you know, we are down 15%. So we have fully factored in a 4 to 8 week war. What we have not factored in is any prolonging of war. So now uh what we don’t know right now is what the RBI and government’s policy action will be. We have seen a couple of steps. One is excise duty cut and government is saying the initial uh hit I will take. Uh consumers and OMC companies don’t have to bear that. uh what RBI has done is essentially uh control the rupee volatility already from close to 95 we are down to below 93 uh and they have said first impact they were absorbing with the uh you know basically forward short position that they had they were they kept on selling dollars they were keeping the market liquid but that started impacting the banking system uh liquidity so they they then uh cut down on the amount of position that banks can take. Uh earlier 25% of the net worth they could take in the dollar pos uh you know arbitrage positions now they have cut it down to $100 million. So basically what they are doing is they are saying that our limit of bearing the losses has been reached. Now corporates need the banks need to bear a little bit of cost and their balance sheet are strong. They can absorb some of the cost. The estimates varied between 1,500 to 4,000 crores in terms of how much hit uh banks will have to take because of this unwinding of position in the dollar. But what we have achieved is that rupee dollar has become stable. Now the next logical step is if we want this ver vicious cycle to become a virtuous cycle, we need to attract foreign flows. I don’t think now it is a choice anymore. uh till now uh sorry to say but this government has been a little standoffish towards uh we we don’t need uh foreign flows we have domestic flows but now we have reached a situation where I don’t think we can have that kind of an attitude anymore and which is a good thing which is a good outcome of this crisis it all participants are important and fiis used to own 1/4 of India’s Indian equities today that 25% is down to 15% 10 uh in almost 10 percentage points drop in the equity holdings from foreigners is not a very desirable thing. Yes, the domestic liquidity has absorbed a lot of it and uh we have been cushioned to that extent but we do need the foreign money to come in and and not only in equities but in bond market in terms of NRI money in terms of FDI we need all sources of money and only and only when we uh allow free movement of uh rupee and dollar will uh you know the our rating can actually go to a higher level because we have to become fully convertible. If we stay a closed economy and if we don’t have that uh courage to open up then we will still we will still be crying that our why is our rating on the lower side as compared to some of the European nations which are facing a default situation. It is purely because we are not fully convertible and only once we become fully convertible will the ratings uh agencies upgrade us to a invest you know much higher level. So from that perspective I believe that today it is uh impossible to ignore foreign flows. In fact we need to lay down red carpet for them. Now I don’t know what steps government will take towards that. Uh it could be an FCNR bond which was a 2013 playbook or it could be that we actually level the playing field for foreigners by cutting the long-term capital gains for foreigners or we completely get rid of LTCG. also I don’t my base case is not that that will happen but if it was to happen even if it was to for a temporary period of 2 3 5 years that would attract a lot of uh capital and that will start the uh virtuous cycle. So we will get out of this uh uh you know the mess that we keep getting into every time there is a external uh oil shock. So it is important that we start attracting capital flows and so the next thing so we know the crisis but now we don’t know is what the steps government will take and that is where the opportunity lies. Now if you combine the fact that before that before that I just wanted to ask you a couple of points that you made here right one is we need to attract foreign flows at the moment. What do you think uh the government needs to do three or four things or rather what do you how do you think the markets or economy needs to shape up for more foreign flows to come in because it’s been a very very dry spell right the last one year there’s been huge pull out of money from foreign investors rightfully so given valuation slow growth you know other markets looking better all of that what do you think is the need of the hour now no so as I mentioned all sources of capital we need to attract so we need to provide the foreign capital with the first level playing field. Uh today any foreign investor investing in any country in the world does not face long-term capital gains. Yes, we try to distinguish that if the domestic investor is playing paying why is the foreign investor not paying but world over that is the case. Now whether right or wrong that’s what our competition is. If we don’t provide them with a level playing field the that money will go elsewhere. So that is number one. We need to be at least on par with the other emerging markets if not better than them if you want to attract capital flows. Uh second we need to get the diaspora money. So last time we attracted some $34 billion in a 3mon time frame when we announced the FCNRB bonds something similar this time can draw hundred billion also. Uh essentially what we need to do is take the rupee volatility out of the equation. uh if you can say that these will this will be the interest and if there is any rupee depreciation I will bear the cost or there is sovereign guarantee for it then that will attract a lot of capital and if you give uh that investor an ability to leverage so then people uh you know 6 7% and if it is leveraged 3x you can earn 18% risk-free or with the backing of government sovereignty that will attract a lot of money into the Indian uh economy Uh third we need to open up at various sectors in terms of FDI. We have already done that but I think more can be done over there as well and lot of it through the automatic route. Uh we have seen some uh you know five six deals being announced but they have all been only in the financial sector. I think far more uh can be done to attract capital at various sector level. So open up, lay down and last but not the least essentially make it easy for the capital to come in as well as go out. Do not uh have that approach of you know trying to control be that fear is coming from our past vulnerabilities that every time we have seen money going out it has led to some sort of a crisis. If we truly want to have uh a currency which is a regional currency if not uh you know world currency then we need to uh start having that courage to let the rupee float on its own demand and supply. So uh there are many things and I mean these are I’m talking only about the playbooks which have been used. I’m sure government can think far more innovatively uh and come up with uh uh ways to attract this capital. But the important thing is that that need is absolutely there to attract that capital. Okay. Okay. Fair point. You’ve made a lot of interesting points. Um a two-part question on what your view is now on the market. One, do you think we’ve made a bottom in the first week of April? I know it’s very hard to call a bottom, but do you think given the entire situation, has the market hit a bottom that we hit in the first week of April? And two, going forward, do you think it’s still going to be a painful singledigit uh growth for this market over the next 12 to 18 months or are you looking at you know a sharper recovery like something like a V-shaped recovery? So you know what uh I the way I would look at it is first of all uh I was talking to you just before this show that uh you know we become experts at new new subjects every uh few months because world throws at us various things uh from the point of view of when has market bottomed. So we do track some uh statistics you know every time there has been episodes of foreign outflows uh the maximum uh happened in the time of global financial crisis. Now we had our uh GDP at that point of time time was uh $1 trillion market cap was $1.5 trillion. uh we saw outflow of roughly about 15 to 20 billion which is roughly between uh 1% of the market cap to uh 1.2% of the market cap. So that and it was about 4 to 5% of the foreign ownership. So if you now look at it from September 24 we have seen about outflows of $45 billion. The starting point market cap of India was $5.5 trillion and we have seen outflows of $45 billion which is.9% of the market cap and that is roughly about 5% of the uh holding of foreign investors. So now this is an outflow which is uh almost equivalent to the global financial crisis that we have seen. every time there has been episode of sharp rupee depreciation, it has turned out to be actually the right time for the foreign investor to invest in India. uh uh uh so just to put it in perspective 2013 global financial crisis or 2009 March 2009 when uh the final global financial crisis finally ended where the backs stop was given in terms of uh sovereign guarantees for the corporates that is when the markets bottomed something similar is going to happen I mean I have no idea what steps government will take but government will take some steps now I have what I’ve read in the paper is we are going to give 2 and a half lakh crores worth of credit guarantee scheme. Now if that along with that other steps will be taken to stem the outflow to attract flows to uh so now uh from a riskreward perspective from 3 to 5 years Indian markets are not uh expensive uh Indian markets are factoring in a low growth challenging economic situation. So uh the riskreward is in your favor. Now nobody can predict uh how soon you will make that return but if history is any judge it uh the returns will be of course it will be based on what actions government and RBI take but uh they tend to be front-ended so what we expect to happen in 5 years usually end up happening in 2 to 3 years I believe now the ground is getting laid for the next uh big run uh but you know just to play devil’s advocate here uh in the earlier situations right you would also So factor in domestic growth, consumption growth. But there there as well there’s an issue now with the way AI is taking over jobs and the job losses that we’re seeing. Even consumption is something that could get hit. I was reading in the papers a couple of days ago that the real estate sector has gotten very badly hit because not just of the war situation but also because of how AI has taken up jobs in places like say Bangalore for example. I’m in 100% agreement with you over there. I think the consumption story is delayed by 12 to 18 months. But I don’t think it is dead. It is delayed. It is not dead. Uh why uh is it delayed? One for the fact that AI is disrupting. Uh let me give you some back of the envelope calculation in terms of what I believe can happen over the course of next 3 to four years. Uh about 7 million people are employed by IT services company BO plus GCC combined. uh the kind of productivity gains that we are seeing uh because of AI in BO tends to be between 60 and 80%. So mean some job that was done by 10 people can now be done by two to three people and the kind of productivity gains that we are seeing in IT services some job that could have been done by 10 people now can be done by uh four to five people. So that’s 40 to 50% productivity improvement. Now uh the job losses might not be exactly equal to the uh productivity improvement. You know some people get uh uh retrained in some other way or there is some bench that the companies will continue to have. Uh so and there will be slightly faster growth in the AI related services. So uh but still if you take half of that that would mean that uh at least 15 to 20% of the workforce can possibly lose their job over the course of next uh 3 to 5 years. That means about million to million and a half people losing their jobs. that is going to have uh an impact on second derivative order impact will be on the consumption especially in uh cities like Bangalore, Pune, Gura, Navi, Mumbai where there is high concentration of this migrant workforce because these are uh they might be small percentage of the overall consumer of India but they are the high spender uh high propensity discretionary spend uh cohort and that for sure is going to impact uh the consumption especially the urban consumption. Uh but what we are probably not uh able to gauge at this point of time is which other sectors might come up and actually compensate for the job losses that might happen. So on the one hand IT uh consultants uh sorry IT workforce might find it difficult to retain their job in IT services company but now every company might become an IT company. you know even a small company like ours we are employing two three uh people who can understand AI can understand it so that we can do a lot of things inhouse instead of uh doing out uh you know outsource thing so that uh will provide some alternative employment to others also and it will lead to huge productivity improvement and if you go by the history you know uh productivity improvement does not necessarily lead to reduction in the workforce leads to increase in the workload. Uh earlier we used to travel by horse cars, we started traveling by cars, we we started flying by planes. It did not lead to it in it led to more and more work only eventually. But there will be a transition period. There will be a 3 4 year transition period where a certain segment of the workforce will find it difficult and that will impact the interim period of the consumption. So it is delayed. But from the consumption story point of view, I think 12 18 months down the line, we will see 8th pay commission coming into effect. Uh and we will in my opinion we will see private sector capex cycle pick up this year. So the biggest driver for the consumption is going to be that we need to see private sector capex cycle pick up and uh we were already seeing signs of that because we need to create jobs uh and job growth and wage growth are a more durable uh you know factors in consumption sustaining. Once people have that security about jobs and the fact they know that the company is doing well and they will get promoted or they’ll get more money is when the propensity to consume increases and that I will will come with the private sector capex cycle. Private sector capex cycle and real estate are the two real estate is essentially household capex. So these are the two uh things that we need to pick up. Private sector capex cycle will pick up a little bit this year but the big pickup will happen next year is what I believe and real estate this year also might be a slow year but from next year onwards I do believe with the interest rates being low and uh job coming back we will see some pickup over there as well again at this point of time it remains a little bit of a hope fluid but and it all depends on how long this war lasts because uh We have the trade agreements in place right now. So the one thing that was missing in the last four five years boom uh as compared to the previous boom of 2003 to8 was the global tailwinds. we need to have a global uh time period where you know business can be the focus rather than or the geopolitics and what now that we have plugged into the global uh free trade agreements uh I think if we get a 2 three year period or maybe longer where we become part we get access to the preferred access to some of these uh developed market that would essentially kickstart a new cycle as well. So I remain hopeful that uh that should happen and that will uh negate some of the disruptive uh things that AI might bring about and over a medium-term and a long-term period I think AI is going to help us uh leapfrog a lot of technologies and it will unleash a huge productivity gain in India’s economy. So from a longerterm perspective I remain bullish. AI is uh but in the short run I think there is a when I say short run in the next 3 5 year period there is a transition uh period and that can we need to come up with alternatives for the IT workforce. Okay fair enough. I really enjoyed picking your brains in the last one hour but I’ve run out of time. Uh so finally I’m going to do a quick rapid fire with you just before we end. Uh some quick questions. Six questions very quickly. Uh if you had to buy, sell or hold this market at this point, what would you do? Buy only thing is it’s a three to five year view. Who knows what’s going to happen in three months? Great. If you have 1 lak rupees to invest right now, where would you invest it between equities, gold or keep it in an FD? I am I have and will always remain an equities person. gold still remains uh so maybe for somebody like a housewife who don’t understand equities or do not have that confidence to continue with their SIPs in such turbulent times equities uh I mean sorry gold can be an option but uh otherwise equities I would put 100 always I have all in last 25 years I I’ve always been either 100% invested or 90% invested in equities never been less than that what is the sector of the next one year a one year is too short a period but I believe we spoke about some of the themes which will get reinforced so the medium-term and long-term implication of this crisis is that we will have to become energy secure energy independent we’ll have to plug into the global supply chain we need to relever our economy we need to kickstart our private sector capex cycle so any sector that plays into this are the ones to be invested in and I will never give a one-year view. It’s my next 3 to 5 years view. I think we are on the cusp of starting the next uh return generating cycle. Uh the how intense that cycle is and how long that lasts will depend on the subsequent steps being taken by government and RBI. So for the next 3 to 5 years the sectors would be. So I mean so for example the large private sector capex cycle where is the capex happening? data centers, semiconductors, uh electronic manufacturing, renewables, these are the sectors where all the capex is happening. Now, uh financial deleveraging, corporate balance sheets is deleveraged. So, financials, whether it is the large private sector banks or the NBFCs, then uh which are the uh strategic sectors like defense, aerospace, space where we need to gain uh you know or semiconductor. These are the areas where we need to uh become uh on par with the world in terms of technology. So I think this is where the focus is going to be. Okay. Gold and silver are both down 20% from the peak. Do you see a further fall in these asset classes? See uh if slightly elaborate answer, not a rapid fire one, but US wants to bring manufacturing back. They want to become competitive in manufacturing. If they want to do that, they need a weak dollar. If they need a weak dollar, then gold and silver are an anti-doll play and it will benefit because of that. So yes, one should uh there was a I put a tweet out about 2 3 months back that gold and silver will not go up, but that was more an interim thing because there was a literal uh you know uh almost one-way kind of move in gold and silver. Silver crossed $50 which was the previous all-time high and it went to $120 in a m matter of months. That kind of rise cannot be sustained. So after a period of correction consolidation, I do believe gold’s trajectory uh largely in dollar terms will remain up because uh US government wants a weak dollar. Fair enough. Okay. And final question, any book recommendations, anything that you, you know, always tell investors to read, not the usual suspects which we know of, but anything new that you’re reading? No. So, uh, I think, uh, lot of this context and framework that we are using to understand what’s happening in the world. Uh, we have read books like chip war. We have read books like prisoners of geography. uh these are the ones that are providing us the context on what is happening and why it is happening. So one will one can never predict what the next event will be. But if you have that framework of mind to understand then it will it it help you rationalize or think rationally in terms of why it is happening even though you and our job as investor is not to really predict the next event but to assess the riskreward and uh once you understand that odds are in your favor then you have to start looking uh understand which way the tailwinds are going to develop and which way the wind is going to blow so that you can uh position your portfolio according accordingly. So those are some of the books that I have read in recent past and have really helped me in understanding what’s happening in the world. Thank you Ravi as always. It was really a pleasure speaking to you and hopefully I’ll get to chat with you a lot more in due course. But thank you so much for being on the show. Thank you. My pleasure.