From Quality to Compounding: What Really Moves the Market

NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].

Prateek, thank you so much for joining me today.

Thank you, thank you, thank you.

There's lots happening in the markets right now, but let's talk about it through the lens of valuations, because that's something that is concerning people, given the way markets have gone up. And we're very close, almost 2-2.5%, 2.5% from our September 2024 peak. I'm talking about benchmark indices.

So, as someone who is overseeing a fund house, which manages more than 100,000 crores of assets, much more...

Happily, 150,000, yeah.

So, how are you seeing things right now?

Okay, so, primarily there are two ways of making money. One is value investing, where you try and buy something which you think is worth 100 bucks at 50. Now, there is a reason why it is at 50, and you think after you have bought, that reason will change, and in the journey from 50 to 100, we make money.

Now, that is value investing. Today, yes, we think there is hardly any value in the market. Now, the other is growth investing, where one looks at something which has, let's say, earnings of 100 this year, 130 next year, 190 the year after, and so on, and it continues for a long period of time.

And as you go forward, the market reflects growth in the business and values it appropriately, and you make money. We do that kind of investing. Today, when value in the market may be low or there in a small manner only, we think it is time for growth investing, which is what we do.

It is also supported by the fact that you have low inflation, you have interest rates going down globally, dollar is weakening, etc., etc. All of these are tailwinds to growth style of investing. So, de facto, in growth, what happens is, your free cash flow bucket is slightly far off in the future, and the lower discount rate increases the value of it in the present.

So, whenever inflation goes down, interest rates are down, it is conducive, it is tailwind for growth style of investing. So, which is what we think? The next leg, we expect, would be driven by growth.

Actually, value, if you see, last year itself, June, July, there is an index of value by NSE. It has not done much from that. So, yes, growth did well till December, then had a crack in Jan-Feb, it is coming back, but this is where we think there are legs.

So, when you talk about growth, can you define that a little further now? I am not talking about the stock price, because stock price may or may not reflect this over time, or will reflect right now, so we will come to that later. So, how do you define growth?

So, growth, so what are we seeking to do, the objective? Objective is excess returns over index. And, you know, we in our business compete with the index one, we also compete with Pearset, which is the other thing, and there is X amount of excess returns, which over a period of three to four years will make you look good.

So, all of that is in the realm, which is there. So, look at it, index will do earnings growth of around 8 to 12%. You know, nominal growth of the economy will be in the vicinity of 10, something more for listed companies, because listed companies are probably the better of the lot, and then some margin moves up and down.

So, 8 to 12%, maybe 8 to 13% kind of range. 3 to 4 % higher makes a manager look good over a period of three years. So, if all the returns were to be made from excess growth, the growth hurdle one has is 3 to 4 % higher minimum, compounded, not one period, compounded over many years.

And then there has to be some budgeting for error submissions, you know, at least in my mind, I budget for two errors. On a 4% position, it is like 1.6% gone, rounded off to 1.5. Whatever, you make mistakes on the way, and soon enough, when I finish, you will understand why reducing number of mistakes is very, very essential, you know, because it gets so difficult that you start to understand, you know, alpha can be had by making less mistakes. You know, I am giving you the math so that you, and then you budget for valuation correction, and we will dwell on that, and fees, okay?

So, for a 3, 4% start point of alpha, the growth, Kaggle growth in earnings of something that you are looking at, starts at 20, starts at 20, okay? And which is why I am saying, you know, if more than that in the mind itself is very, very narrow spaces, you know, reducing number of errors become that much more important.

So, I was looking at the Reserve Bank's financial stability report. They usually don't comment on equity markets and valuations, but they have said just a few days ago. So, they said, for example, that the Nifty Mid-Cap 100 is expected to grow at about 17% or 17.4%. But according to them, it has to grow at 28 percent to justify the valuation. Similarly, they said Small Cap 100, 17 percent expected growth, but it has to grow at 30 percent to justify valuation. So, that's again a valuation question and not a growth question, I understand that.

But the concern about where things are right now seems to be across the board. Now, which obviously makes the job of stock picking even tougher. So, if I were to now ask you to look back, you know, when you've seen situations where, let's say, valuations are high, you are searching for new growth areas.

So, the example of alpha you've used is, let's say, IT from the 1990s. Okay, if I find something like an IT, then I am set for the next decade perhaps. So, I have two questions there.

So, one is, do you feel that these concerns are maybe justified? Second is, to counter those concerns, you need to find that IT of the 2020s. So, what would that be?

No, so, all concerns are justified. In the marketplace, there is no one view. It's an amalgamation of several views.

Now, let's look at it slightly differently. A large cap index will have earnings growth of, say, 10 to 13 percent, take a number 12 percent. It's trading at 19 times 27, and the world thinks it is fairly valued.

Right, and all the concern is mid and small. Now, like you said, we have been saying this is time for alpha. For alpha, if you are a growth investor, what you need are niches in the market, because growth of the order that we just discussed would be available in niches.

It won't be broad spectrum. So, younger spaces, newer spaces, not there in the index, you know, can grow at a large quantum for several years, is the combo that you want, right? Something like what software did in the 90s, something like what private sector banks did in early 2000s, maybe real estate did briefly, and so on.

So, in the same light, if we see over the last five years, we have got, you know, renewables were not there, electronic manufacturing was not there, EVs were not there, new tech was not there, simply not there, even mutual funds were not there in the marketplace. You know, so, hospital one was there. Now, we have so many.

So, the point is, over the last four, five years, this is the first time in history that we are getting so many new spaces which will have a very large delta of earnings over the index, you know, I gave you the maths, and for several years. So, we say, since there are just so many spaces which are offering that, if you look at our constructs, they reflect all of these new spaces. And we say it is time for alpha.

We take out money from any space which is not expected to do even our minimum. So, that math I shared with you. And hence, if you see our house, it's of our large-cap fund where, you know, it's different.

You see very little of banks, you see very little of staples, you see very little of large-cap IT, no commodities, no eyes, kind of constructs.

So, in that way, you define growth as well. You know, working backwards.

Yes. So, sorry, but just to come to your valuation thing, I started by saying, you know, index does 12% growth, and on 27, 19 times is deemed to be fair.

Now, if we do, so same trend as what RBI has been talking. So, if we do a 10-year DCF, same terminal growth for a company, instead of assuming 12%, if we assume 22%, okay, the valuations become 60% higher. Okay?

So, which is what RBI is doing, de facto reverse DCF, right? How much growth is built into the price? Now, the point is, if a portfolio construct results in a growth trajectory for next period, two years, let's say, which is what we do, of meaningfully higher than this, then should it not result in excess returns for the investors, right?

So, we say 22% gets us to 30P. 30P becomes justifiable versus 19, right? For fees, for errors, etc., you know, round it off to 25. Construct today across our house, if you check out, X of a large cap fund is way in excess of that, way in excess of that. Now, the other thing is don't assume static. See, the way market works is we all do DCFs for a period of time where we assume something nice happening for next two or three years and then we think, okay, the guys will get tired and the next assumptions are lower and then ultimately the economy, you know, burdens the growth and the growth gets even lower, right?

For the same company, you move one year ahead. It's done what you thought it will do. Now the guy is again projecting.

What will you do? Mostly he will again project next three years to be good, okay? And versus theoretical this thing that you should expect discount rate kind of returns, what you get is the growth kind of returns.

So the point is that, you know, growth won't stay high forever. So till it stays high, you be in the stock because this is how the mind works. You know, you perpetuate growth.

Well, everybody knows it is not going to last forever. Till it stays high, till the visibility is high for next two years, next two years, which is what people keep doing, you stay in it. Once you see things going, you know, reducing and there is something else which is good, you get that in.

So it is not, you know, buy and hold forever. There is nothing that works in that manner. So you change, you tune, tune is the word that I keep saying, your portfolios at all points in time.

So is two years, were you using that as a specific number or is that something that you actually follow?

No, so the way we work is first flesh out narrow spaces. The whole team sits, fleshes out narrow spaces where growth will be higher for longer. Once you have got those spaces, then chances are, you know, if you are with the better companies in this space, it will be even better.

So start point is good. Now, when you speak to the management is one way of doing stuff. When you speak to the ecosystem, the analyst, etc., most people work on two years. So in our industry, it becomes like a rolling two years kind of view. So you keep checking that out, keep checking that out.

So and I am going to come to two or three things that you have talked about sequentially. But let me ask you about, you know, sectors that you in some ways got out of. And you said earlier that staples is something that you have not been comfortable with.

Now, I am trying to understand the approach. So let us say all the big consumer goods companies have slowed down. And I think your point is that, you know, how much soap can people use or how much toothpaste can people use.

I mean, they will use, of course, but can we grow and meaningfully grow to satisfy your other requirements? Did you spot it because you were tracking this, you know, on a time-based kind of thing saying, okay, it is 2025, let us see how my FNCG portfolio is doing. Or did you see some other signs that suggested that we were fundamentally slowing down?

Yeah. No, so it is very difficult to spot a thing at the bottom. You know, all of us need two data points for a line to be built and to be established and so on.

I start with broad picture first. Hold the belief that markets follow earnings growth. Okay.

And what kind of a market it is. So if we come from 2000 to now, okay, there was one kind of a period which was there from 2000 to 2008. It was capex driven.

Now consumers were always there. They didn't perform in this period. Growth was led by another kind of companies.

Then there was this period from 2008, you know, Lehman, etc., to COVID where this was a disruption prone period where rest of anything did not perform as well. Consumers doing 12% growth delivered significantly higher than Nifty which did 5% growth in the same period, earnings growth. Markets followed earnings growth.

That part did way better than this thing. Now if you look at numbers from bottom of COVID, the rest of market except consumers is doing way better. In some manner it is like 2000 to 2008.

I am not drawing parallel to sectors but it is capex driven rather than consumption driven and hence we thought this is not a place where you will get growth of the variety that we want. So our benchmark is index and I gave you the math. So suppose in the 8 to 20 period you start with 5 and consumers do a fine job.

You know, consumers, some pharmaceuticals, you know, some of these financials, you are through. Now when the growth of the index is higher and you want to make excess returns for investors, you have to seek out even higher growth and then consumers won't work. There can be a trade but won't compound money.

So we stayed away and happily the team saw it the same way and hence I say if you look at our house, the spaces are very less there, most funds not there.

So I mean I am really trying to bring out the research approach which helps you spot this and maybe people can take away something from that. So let me ask you about a couple of other things. You talked about errors and let me ask you about errors and let me also ask you about the governance question.

So in consumers, we generally have or at least the bigger index companies are all seen as well-governed or good corporate governance for which obviously carries a premium, has always carried a premium in India or Indian market. So is there a trade-off there and second, you talked about errors. So what are the kind of errors that you consider as errors?

No, so error of commission, you pick something and versus your expectation opposite happens. It didn't perform can also hurt you if everything else is performing but something goes wrong and it goes down is a very bad kind of error. Now if it happens because of technical reason like some big guy coming and selling, it's an opportunity but if it goes wrong for, you know, wrong event let me say, then company did something wrong is very bad on us.

And yes, it can go bad for an external reason which can happen, which can happen but if we have thought through our themes well and, you know, the way we tend to look at them is, you know, people wanted, hence the government wants it, hence the globe wants it. So a lot of these things will continue irrespective, okay. That's the desire of the mankind to be that way, you know.

Old people will want something, youngs will want something, clean air is something everybody will want. So, you know, that's how the thought process goes and that minimises risk of many kinds. So try and minimise external errors to that, to the extent possible but they can still happen.

So for example, one country can very easily say, you know, for imports from some other country I'll put a higher duty, you know, very, very true to the context of the day. And it can result in outlook getting bad for your holding, well that is external. Impact may be negative but probably it's not your error, less of your assessment error.

So, but there again we try and minimise, you know, by keeping as much of the portfolio internally focused as possible. So that's the, that's the whole thought.

That's an interesting point, the concept of internal versus external maybe did not look so important till April 2nd or Growth Garden Day.

So, yeah, no, so it happened automatically for us because the higher growth spaces, many of which we spoke about, are driven by internal policies. So any which ways when we looked at the portfolio, 7-8% portfolio may be linked with, let's say the U.S., maybe 10-12% may be dominantly export orientated, otherwise nothing. So, but you spoke of quality and the valuation, this thing.

See, there is a huge thought, okay. Now I gave you the 8 to 20 perspective for a reason also. This was a period when lot of people, to my mind, got confused.

They thought quality makes you money. Quality does not make you money. Growth makes you money.

Quality can preserve valuation. You know, quality is needed, that's the base. But, you know, great quality, you know, diamond is worth so much.

You know, it will compound at probably less than inflation or inflation, greatest quality. It needs to grow, which is our single biggest differential. Growth makes you money.

Growth makes you money. And all of these things, so theoretically I know what people are saying. The growth should be organic to be less risky.

Organic growth is constrained by your ROSI. I get that. But point is, in the past if you see, banks had an, the best of banks had an ROE of 16, 17, 18%.

They grew way faster. What they did right was to raise money in good time. Okay, and then they could do 30% CAGR growth for 10-15 years.

Way in excess of ROE, they are not supposed to do it, right? That is the trick. So, if when the times are good, you fund yourself well, to be able to keep growing very strongly in the next period, markets will reward earnings growth.

This thing about growth, so it's correct, organic growth is constrained by your ROSI. You can't grow faster than your ROSI. You may take some debt for some time, but ultimately you will have to dilute and all of that.

But that assumes perfect valuations. It doesn't happen that way.

Right, so let me sort of ask you a couple of questions where you are trying or one can try and look at things from bottom up rather than top down. So, let's say at this point of time there are four or five sectors that are looking like they break out. You talked about, let's say, renewables or electric vehicles, chips, electronics and so on.

Now, you meet a lot of management or you met a lot of management because I am assuming even if you are not doing that right now, you have a sense of what or who will deliver the growth that you want versus who may not. So, what are some of your first principles in this matter?

So, in investing, a lot of it is backing a person. You know, in spaces which are emerging, I have found myself asked, so there is no track record, everybody is starting at the same line, who is the fastest horse? Okay, you have to back the guy with the highest fire in the belly.

You know, younger the better, but nothing against senior people. But, you know, this is something that I want to do. And people spot it.

So, it happened in electronics. This is a question that was asked to people. But don't tell me valuations.

Tell me who has got maximum fire in the belly. Okay, and of course, not only fire, but you are also putting up a team to deliver it and so it follows. And you back them.

People who are overly aggressive can go wrong. So, you size your bets that way. So, we are high conviction guys.

So, anything that you see in the house will be two and a half to seven and a half percent. But let's say you size at three to four percent and which is the math I gave you. Be prepared to run away if you think, you know, the guy is meeting an accident.

He is an accident prone guy. Which happens, you know, if you are wanting to do too much in a short period of time. If you are able to do it, very good.

You make a lot of money for yourself and for your investors. But there can be instances when you don't. And as managers, we need to take evasive action then.

So, that is one approach. You know, back a guy who is good, who is focused and wants things done. So, clearly and now increasingly you are seeing it across industries.

Even in industries like IT, you know, especially the smaller ones. When a nice guy comes from somewhere else, you know, brings with him relationships. Something happens to the stock, it is happening in banks, you know.

So, person importance is getting more and more visible. Versus earlier thought that you have an institution and institution does this, etc., etc. Yes, that is required.

But a person makes a difference. So, that becomes a very good start point.

And, you know, when… Let me ask a sort of question which links the personal to the organisation. So, as an organisation, now you are managing a fund house.

But do you find that your personal style of investing, which could also evolve, is running parallel with your organisation's? I mean, the second question to that is really how do you form or evolve your personal style of investing? And I don't mean specific stocks.

I mean the overall approach to investing and making money in the markets.

So, growth was always something…

So, that is your bias.

That is my bias, has always been my bias. Yes, when we started to work back then, you know, people will look at P's and at that point in time everything in India was up 10 P. And we would compare with global valuations. And everything global in Europe and U.S. used to be 25, 30 P. And we used to say, God, we are so cheap. You know, we are growing faster. They are supposed to be, you know, doing 2, 3, 4 percent growth.

And yet every company there used to be 2x, 3x of Indian valuations. Now, so, you know, we were… That's reversed now.

That's reversed now. So, what you thought…

Yes.

So, what you thought was weird then, people haven't noticed but has now flipped, you know. So, that has definitely happened. So, when, you know, you could have growth for such low valuations, you could get mixed up between, you know, whether you are a growth value guy or a value guy.

But clearly now, I think it is growth that we see. And more so as, you know, you have seen markets behave, which is why I said, you know, 2000 to 2008 this happened. 8 to 20 this happened.

You see very clear attribution of market performance to growth. It is nothing else. It is nothing else.

Slave. Slave of earnings. So, somebody said this.

Markets are slave of earnings. You know, people say this but they do something else. You know, we say if this is the philosophy.

So, one thing which is not there in the market is to stick to a philosophy like it is the only thing, you know. And so, anybody looks at us from a distance and say this is Motilal. So, this is something we want achieved. You know, which is why I say we are probably the first house in the country attempting it, doing it now for over two years.

We see ourselves as India's first growth in earnings focused managers, sustained growth in earnings focused managers with a belief that markets follow earnings growth. Now, doing something which is also the DNA of the house is very important because everything will go through cycles. There will be good times and bad.

Now, in bad times, if you are doing something which is not the DNA of the house, you are screwed. Because house won't support you. House will point, you know, and the whole purity, whole positioning that you want communicated to the clients goes.

Okay. Happily, we had a very bad period. Jan and Feb, I thought the house stood very strongly behind.

So, I would say that is what it is. You have to be with the DNA of the house.

Right. So, I asked you about, you know, from the bottom. Now, let me go back to the top again. So, when you talk about growth and let's say in your case, your house is betting on growth really fundamentally. So are others, right, whether they are individual investors or mutual fund houses or other types of asset managers. That conviction that growth is going to be there and we will find it has to come from something else, which is let's say more macro, more fundamental, conceptual. So, what are those aspects that give you that longer confidence?

So, for example, after 10 years, will there be ice engine vehicle companies? Will you have dig, dig, dig, dig sound coming when you ride? You know, completely opposite.

It will be silent, right? It will be all electric, right? So, we are okay to look at guys who didn't do too well in let's say the ice age, were very capable but did not succeed, but are succeeding in the EV age.

So, there is a net positive value that is getting created. The most successful guy of the ice age will probably replace itself. Where is the net positive value for us?

Okay, is one manner of thinking. You know, how will the world look 8-10 years hence? There is a pathway.

There will be a lot of people who will start off and not finish. So, you know, we try and look at businesses. Once they start to reduce losses, all become profitable, not at the concept stage.

So, it's one. Second, it's a global thing that you want clean air, you want renewables, there is a climate accord, etc. People have signed it.

There is a roadmap. India, again, is growing, let's say, at whatever rate, but more manufacturing, more ACs, so demand for power increases. The whole ecosystem benefits, which is where renewables come in, right?

There was a longish period of time when, for example, we all said, you know, all the jagda is best sorted sitting at a table and discussing. But now, people understand, if you have a big gun backing, who is better? So, defence spends, which were going down as a percentage of GDP, have started to move up.

So, higher growth, you know, as a percentage of GDP, if something moves up, it is higher growth in that space. Similarly, if, you know, our generation should go out, buy veggies and food from the counter, but if you see kids doing something different, ordering it at home, and it gets delivered quickly enough, that trend is not going to change, you know, and it is a very long runway of growth, very rapid growth for longer. So, this is what it is.

If you think earlier, so, I think we share this, when we have less money, all of us are savers, because our expenses are fixed. You know, there is marriage, which people in our times used to be worried about, child's education, some health issues. So, you know, I have seen people save more when there is a rate cut.

Okay, in poorer parts, it happens. If you look at 2001-2002, one reason attributed to a change in government then was the cut rates, you know, and you got this senior citizen, 25-50 more, etc. Now, it has not happened, because you increase your per capita and your basic roti-kapda-makan get taken care of, then you transform from a saver to an investor.

Okay, if that is happening, then shouldn't capital marketplace do well? Would it not have growth way in excess of the economy itself? You know, in terms of participation, not levels.

So, you look at number of people coming into the capital market, so there are beneficiaries of that, so that could be the back-end infrastructure, it could be mutual funds, it could be brokers, and so on. So, lot of these give you long, and all of these are long period growth. Now, I'll give you one more.

See, we see ourselves as young nation. Now, yes, true, even after 25 years, our average age would be 30-35, but the fastest growing age cohort in this country is over 60. Okay, which is when you again start to look for health support, and we lack it very badly.

I mean, you know, in Bombay you feel it. So, except, let's say, a Gurgaon and a Hyderabad, I think everybody everywhere else feels it. You know, quality health care.

So, would it not grow faster? So, you develop longer period teams. These are super long period teams.

And then, you know, let managers find what they love in this space and make the portfolio.

And I guess that also suggests that you are confident that there will be a good flow of high-quality entrepreneurs, high-quality managers, who will capitalise on these opportunities and then create value for it.

So, we are super lucky to be in a country like India, which to me has just so many entrepreneurs. I'll tell you, I gave you my background. I'm a PSU guy, okay.

I grew up thinking government builds a country. Okay, five-year plans, etc. PSUs build the country.

You know, when I was in the AXA group, it was then the largest money managers in business. They are okay to acquire 100, 150 billion, you are close to a trillion dollars, billion dollar acquisitions are, you know, it's not news, it's usual. But they acquired a 150 million dollar franchise.

Why did they buy it? You know, it took me so much, it's not usual. So, I got to speak to the guy.

Now, he was backing entrepreneurs. He said, entrepreneurs build the country. And he said, you guys are lucky to have so many of them in your country.

And I tell you, I fell off my chair. It was such a huge shock to me, given how I come. So, this is a country which is blessed with entrepreneurs.

It's blessed to have so many hungry people, you know, who, actually if you see people from hinterland, the kind of hunger they have to improve their lives is not fun. So, you have that. And now you have the ecosystem.

Earlier, a company had to allocate resources, people, money, land to do something. Now, just like the West, you can do what you do best. Outsource everything else.

And versus a fixed cost model, which, you know, you have to pump in money. Now, everything can be variable cost model. So, this is a lovely period for all of that to happen.

So, India, I mean, that worry I don't have. If you go abroad and, you know, in the mind, we keep comparing. I shouldn't say it, but look at the experience you have in a counter in an Indian shop, where you have a whole list of things that you want to buy.

And you say, it doesn't look good, leave it, take it out. Even after punching it, the guy or the girl will happily take it off. No problem.

Try doing it abroad. You know, and you get to know. So, lot of times, there is a lot going for us.

With time, as you have money, it will happen. So, the thing is innovation. Now, I was sitting in a Morgan Stanley conference.

And they had this panel of three people who were talking of what they were doing new. And incidentally, all of them US returned. And all of them today working along with IIT Chennai.

Amazing stories. Now, what one guy said was, why I decided to come back to India, that we can do it there, because in the West, most of what was being done was by us. By us.

So, that should never worry you. Provide, you know, and the pot of gold at the end of it. So, effort is one, success is another.

But what drives human being is also the pot of gold at the end of it all. A lot of people are driven by that. You know, you have Ayyan Mas there, you have somebody else there.

Who is the next in India? So, as soon as you get that in the country, this country has everything. There is no tension.

Right. So, now, you are asking…

You can see it in another way. See, how many years we took for the first trillion, second trillion, third trillion. Number of years are decreasing, fourth.

And lot of the new trillion is made by newer businesses. Where the kind of growth that we seek will be present more. So, as this keeps happening, I think our style can have longevity.

It's not that this is for the moment style. You know, for example, we have not spoken of GLP once. You know, which is the big thing.

We have not spoken of AI. There is nothing in the market place. There are many things which are happening which are not there in the market place.

It will happen.

So, as an asset manager of multiple or rather different types of assets, I mean, we've been mostly talking equities and that's what people find interesting obviously. But you also manage multiple…

We are equity focused.

You are equity focused. But you also have, you have hybrids, you have, I mean, you have a very large portfolio of schemes. So, anyway, my question is really, we are at, in terms of mutual fund participation by retail investors, we are at record highs.

In the month of May, for instance, we saw record SIP coming in. So, that shows the consistent flow. Other parts may go up and down.

So, people are really, they've already bought in and the absolute whatever numbers are constantly going up. So, what would you tell investors and what would you say, caution them and how would you advise them? Given that they are already bought into the story of investing through this route and investing with people like you.

But at the same time, there should be some things that they should be still, you know, keeping in their mind and not maybe blindly investing. So, what would you…

No, so, very different. I think if you are long term, then in the long term, everything that you fear will happen. Okay. But yet, you know, yet markets will move up because it's always happened. You know, look at 100 year, 50 year, 30 year, what will happen? Everything will happen.

So, it doesn't matter. Okay. If you are long term. Now, one thing that people end up doing, which they could do differently, is buy too many funds. Okay. So, if you buy too many funds and the funds are long, 80, 100 names, what you're effectively doing is buying the market and paying active management fees for it.

You know, it doesn't add up. You could jolly well buy an index fund and we offer a whole platter of index funds. So, that's it. Okay. So, the other thing that is there in the market and I vehemently disagree is this quest of consistency. You know, what is consistency?

Define consistency to me. It basically means to me that if the index does 10, you have done 12 or you have done 8. 12 people are fine. It can be 15. But don't go below 8 is the usual thought, right? Boss, if you buy two guys who are consistent, you again get the index and you are paying active management fees.

You know, this is probably the wrong desire to my mind. It is not helping you. It is hurting you. We started the conversation saying there are two ways of making one. You know, one is growth style of investing. There is value style of investing.

We believe over time market follows earnings growth and I shared with you what we are trying to do. If it makes sense, I think we are good for 100% of your money. If you can digest volatility, we will be volatile because growth is volatile.

You know, you look at a Nasdaq more like what we do versus an S&P 500. Outcomes of any period for a Nasdaq is better. Journey will be more volatile.

Is us. Suppose you want a smoother ride on your 100 bucks. Not for each fund. We say pair us with the best of value. Okay. And we tell intermediaries that if you think it is period of growth, up our quotient.

If you think it is period of value, up their quotient. The whole conversation changes. At the onset, you are saying both will not work together at the same time. Just think of the difference. Otherwise, what happens? You have 10 funds. These two are not working. We don't know what. Either you give them more time or you change them.

Next period, again there are two which are not working. It doesn't solve anything. Problem is you are making the guy own practically whole of the market. In this manner, it stays tight. We run focused high conviction strategies across the house. You buy mutual funds.

You buy alternates. Whatever. 20 to 35 is the range of names you expect from us except our small cap fund. And some tale of IPOs in a large cap fund. But 20 to 35 by and large is what you get from us. Pair us with the best of value.

Maybe 80 to 100 names. 100, 20, 30 names. Job done. Look up anything. How many names you need to build a good nice rounded portfolio. You will typically get a number less than 50. But here from a 5, 600 you have gotten down to 100, 125. So this is what we really think investors can do differently.

So last question, let me bring you to the present. In your last newsletter, dated July 1st, you said this is a period of consolidation. Now in the context of everything else you said so far, of course this is just a phase. And once tariffs become clear, other things become clear, if they do then we will come back to normalcy and in any case We are definitely more insulated against many of these things compared to other markets. So what does consolidation mean to you at this point and how should investors look at it? Or you could also say they should ignore it completely.

No. So for various reasons, we thought markets can take a breather for some time. We think deals will fall in place because our whole thought is there are two cats fighting.

Third and everybody else should benefit on the margin, right? We are everybody else. Not too worried on that count.

But what has also happened is, so I will tell you. From Feb blows, there was somebody who got in. He is making very good amount of money just now.

Will he want to lighten up a bit? Yes. If you are looking at the present, you say there is a lot of money coming into mutual funds.

Well, it has been declining every month, December onwards. So December was the peak. It has been declining.

You mean the non-SIP fund?

The non-SIP fund. Total in a month. And funds have been investing. So there is less firepower left versus earlier. Third, the supply of paper that you are seeing is very strong.

Yes, very strong. So when it typically happens, you expect markets to move in a narrow range. Now, supply of paper, when it comes, it takes away liquidity.

But suppose the promoter is selling something. Now it comes back after some time into the markets.

It doesn't go into 600 crore real estate.

So some bit, 20-25% you put for real estate. The rest of it comes back into markets. So it is a matter of time.

So markets don't, it sustains but probably will pause let's say for some time. So we spoke of this even in the last newsletter saying less of issues and all of that. So one, one and a half month nicely markets have.

After that, issues will catch up. So issues meaning IPOs, fundraisers will catch up. So which is what we are seeing.

And we make a point that companies where neither the promoters are selling nor the company needs money. All of that combo is good. And the growth is good, should probably stand out.

So if I can supplement the question. And we are going to see a lot of IPOs because we can see people are fighting for DRHPs. And it looks like for the rest of the year if markets are where they are, we will see a steady flow. But your sense is that it will absorb. We have enough supply to absorb the, or rather supply of funds to absorb the supply of paper.

Yeah, so over last two years, domestics have put in 100 plus billion dollars of money into funds. FPIs have been net negative. So think of it, funds make let's say 60-70% of IPO, retail does the rest.

So over the next two years if there is an encore, we can do 130-140 billion dollars of IPOs, fundraisers, whichever way. So that, so the depth in the market has increased that much. Yes, if markets don't do well, a lot of this thing doesn't happen.

But it is also self-fulfilling. People will come in only when there is demand and at a price. Below that price it dries off. So in Jan, Feb, March, there was nothing. It started in June and onwards. So all of it happens at a price and money is an enabler. So that worry we don't have.

Thank you so much.

Thank you, lovely, lovely being here. Thanks so much.