And welcome to the core report special edition, I am in conversation with Sanjeev Prasad of Kotak Institutional Equity. Sanjeev, thank you so much for joining me.

My pleasure.

So, and thank you for visiting our studio in Mumbai, I know you are based in Singapore usually.

No, not at all.

So, I am picking up on three reports and you are quite a prolific report writer. So, on September 29th, you wrote a report called Despair, Euphoria and Hope in the Same Market. I will come to the details a little later, but it really talks about large caps versus mid caps and small caps.

On 11th of October, you wrote a report called Two Markets, One Crowd, where again you looked at primary and secondary markets and you talked about smaller IPOs giving higher returns.

And then on the 12th of October, which is more recently, you talked about investing one on one and endless pointless discussions, which is I think a good time or point to pick up our discussion on, why are we having these endless pointless discussions and what does that reflect fundamentally about where the market is or where it is going.

No, this is more on the point that there is too much conversation taking place on price movements, not so much on the more relevant point of investing, which is really whether there is value in the stock or not. So, what has happened in last three, four years, I am noting this peculiar trend of analysts, investors, everybody getting obsessed by trying to explain price movements and trying to forecast stock prices. You know, stock prices move, they have their own life, they will move for lots of reasons, but somehow there is this tendency or this belief that we should be able to provide explanation for every stock price movement and be in a position to forecast stock prices.

Unfortunately, because of that, the most important thing in investing is ultimately whether there is value in the stock or not with respect to the current price of the stock. So, discussion has moved away from value to entirely on price. Now, why that has happened?

It has happened because you have seen a big shift in the profile of investors in the country. On the one side, you have domestic investors, which are largely retail investors now, because there is no institutional money in the country, you know, it is largely all retail money.

And they are price agnostic buyers in the sense, every month they will put some money, anyway from 30,000 crores to 50,000 crores goes into the mutual fund every month.

And they are buyers at every price point, so they don't care about valuation or value or anything like that. I mean, they are just willing to invest for a long period of time, which is probably the right thing to do from an investment perspective or investment horizon perspective.

And then you have other set of investors, which are now what I would call the short-term momentum hedge fund type investors, whose focus is really again on where is the price going to move next.

So, that according to their position, they are so long or short, you know, again, they also don't care that much about whether there is value in the stock or not. So, we have largely a set of investors, which are now dominating the investment industry, which does not really focus on value.

So, the whole discourse has now moved entirely to price and people trying to explain what happened to the price movement and what will happen next, rather than trying to figure out does it make sense to invest at current levels or not, which is where I wrote the report.

Okay. And when you talk about price, are you referring to any particular category of stocks or this is across the market? Across the board, I would say.

But as I said, you know, there is not much discussion on what is the value in the stock versus what is the price. See, price will keep on moving up and down, right, depending on whatever is the underlying sentiment in the market, sometimes it will be massive euphoria or it could be despair. And at this point in time, you also have a combination of both euphoria and despair in the market at the same time.

You have a lot of euphoria in the mid-cap and small-cap stocks and you have complete despair in the large-cap because they have not performed for a long time. Now, why do stock prices keep on moving up and down, you know, because every news flow or every expected news gets priced in very quickly, right. But somehow there is a tendency that we should try and explain this, what has happened.

Earnings don't change much. Earnings will change, you know, once in a quarter when the company reports results or whenever there is some important development or event taking place in the industry or sector or the company, which results in the earnings change. So earnings more or less, you know, sort of don't change for weeks, I would say.

Prices keep on moving up and down. And why do prices keep on moving up and down? Because of the underlying sentiment, sometimes you become too greedy, you are willing to pay a much higher price for the same earnings stream, sometimes you are very sure, fearful because of whatever the news flow may be there at that point in time and you are willing to pay a much lower multiple for the same earnings stream.

Earnings stream is more or less the same, expected earnings have not changed. What has changed is my, you know, psychology or behaviour or sentiment, call it whatever, the P in other words. So cost of equity is nothing but P in other words, right, you know, inverse of that in a way.

So when things are bad, people are willing to pay a higher and higher P, sorry, when things are good, people are willing to pay higher and higher P, when things are bad, they are willing to cut the P.

Okay, so let me pick up on one thing you made, you said that there is no institutional investment in India. So can you expand that and what does that mean for the way the market behaves?

What I mean by that is all retail money, right, the source of money ultimately is all retail households.

But this was not always the case. Pretty much always the case, yeah. So when you say, for example, let's say your asset, okay, maybe you are separating asset management companies from…

So asset management companies are there and the source of money is all retail money. Now…

But your LIC and so on and so forth?

I mean that's also retail money. Effectively, okay. It is all household savings, right, financial savings, which goes into the stock market.

Now do keep in mind the fact that the investment community, which is the mutual fund or the life insurance or the general insurance companies, they are, obviously they are doing stock selection, they are doing sector selection, all that stuff, but they are not doing any timing selection. Money is coming and they have to invest. They have no other option.

They cannot be sitting on cash, right, you know. So in a way, they are also being dictated by what the retail investor is telling them to do. Every month I will give you 40,000 crores on an average plus minus.

It is your job to invest in some sector or some, you know, stock. So there is nothing like timing of the market anymore, which is where I was referring, you know, in a way, in very crude terms, it is like a pipeline. Money goes in from the one side, money goes out of the other side.

Obviously there is some discretion in being employed by the investment management industry in terms of stock selection, industry selection, all that stuff, but, you know, whether you like the value or not, whether you like the price or not, you still have to invest by the way at that time.

For example, a lot of money was coming in 2024, let us say from March to March of 2024 to September 24, market went up a lot around the general election time, lot of euphoria in the market, all that stuff, where the valuations, okay, clearly not, market was trading at very high valuations at that time, on all sorts of expectations, but money kept on coming in.

Now if you had the ability to say, okay, do not give me money now, I do not find much value in the market, I would like to wait, I do not think the investment community can take that call in India.

We will have to willingly invest in the market irrespective of the fact whether they like the valuations or not at any given point in time, which is the point I am making that there is no institutional money in that sense.

Okay, so, be that as it may, given that this is a bug or rather a feature in the market, where does that leave us in terms of where we are located right now in let us say October 2026 versus where we are going and how investors are continuing to pour in funds, expecting that things will go somewhere.

So the good news is now valuations are becoming a lot more palatable, if you look at the broader market, it is down to like 18 times on a one year forward now, there is a 50-50 index I think, not broader market, the broader market may be slightly higher about 20-21 times when I am let us say looking at the NIFTY 500 index.

This is obviously correct a lot, if you look at NIFTY 50, it used to be 20-23 times one year forward when things were at the fairly euphoric stage, currently 18 times, valuation is looking a lot more reasonable to start with. If you further slice it by sectors, I think you have deep value now in some of the sectors like I would say the banks, also I would say in commodities and to some extent in telecom also, I would say reasonable valuation over there and attractive valuation.

Then you have I would say IT services and consumer needs which are broadly in the fair category I would say and these things used to be fairly expensive, let us say 6 months or 12 months back. So, from there we have seen a massive correction in the stock prices.

So, at least valuation has become a lot more acceptable, pretty much across the board I would say, barring parts of the investment industry, when I say investment that is basically combination of capital goods, defence, city names, electronic names, industrials and so on and so forth.

A lot of growth over there, a lot of excitement around future growth and so on and so forth, so people are obviously willing to pay much higher multiples over there, but if you exclude that part of the market, I think valuation has become fairly attractive. So, if one is looking at investing at current level, I think there is reasonable probability that one could make good returns from here.

Got it. So, that is the secondary market part of it and I will come back to that including the sectors that you have spoken of. You have also in your reports talked about the IPOs and how people have made money, but only in short bursts, so to speak.

What does that reflect in terms of and you also said that there is no flow between IPOs and secondary markets or secondary markets and IPOs and therefore one should not look at that.

But tell us about how you have seen this space, one is the flow of capital, if so, between these two worlds and how have IPOs delivered for investors and are they in some ways functioning like an independent universe or a parallel universe?

No, not really. So, first of all, the first point to make is, look, first of all, there is never any money in the market, in the secondary market and this is the fundamental flaw which I have tried to explain to so many people that please stop looking at flows. Now, what I mean by that is, at every price point, there has to be a buyer and a seller to complete a trade, otherwise a trade will not happen, right, which means somebody buys, somebody sells.

Let's say I am a buyer, I give my cash to you Govind, I get your shares, so nothing has changed. The net amount of cash is zero, net amount of stock is zero, so nothing has changed. But why do stock prices move up and down?

I am expecting stock prices to go up significantly higher from here, therefore I am willing to buy. You are probably expecting, oh, stock price is not going to go up too much, so you are willing to sell. That's all it is.

But that doesn't mean that the act of selling or buying is changing the stock price. What is changing the stock price is that at a given point in time, the combined expectation is that the stock price will go up, based on a combination of either earnings looking good, which is fundamental, or some positive news flow, development, something else which may happen, which could take the price earnings in simple terms, be it multiple or not, yeah. So if there is no money in the secondary market to start with, why do we focus on flows so much?

At the start of the month, you have this huge conversation going around, how much money is going to come into the mutual fund industry in this particular month, what is the cash levels in the asset management industry, and so on and so forth. One simple way to appreciate it is, does the number of shares in secondary market change of any company, just because of the transaction? It doesn't, right?

Number of outstanding shares of a company always has to be the same, it doesn't change. So why are you so obsessed with it? Because there is a very simple explanation, stock price is going up, why is it going up?

Oh, people are buying. Hello, people are selling also at the same time, so how is that an explanation? The stock price is going down, no people are selling, that's the pat answer I get, which I find is very first level thinking, right?

Why are people selling on a combined basis, that is what you need to think about, right? There has to be some expectation change that has to happen, which is making people reset the price to a lower level. Now coming to the primary market, obviously, you know, it has to come out of new money, because there is new money going into a company, let's say, with primary issuance, off of a sale, again, it is money going from a set of investors to the promoter who is selling, let's say.

So these two markets in a way are different, but obviously, they are connected to the valuation route, and sentiment and so on and so forth, and the valuation in the secondary market will ultimately determine the valuation in the primary market also. So there are a lot of concerns around the fact that, oh, there is too much of primary issuance, you know, that will start weighing on sentiment in the secondary market. But if you put the numbers in the context of how much money is getting raised in India every year, versus what is the household saving in the country, I mean, this is like nothing absolutely.

If you look at the amount of issuance as a percent in the market cap of the country, it is about 3-4% every year. What is the big deal? Even if you look at numbers this year, the amount of total money which is going to be raised is not very different from what we have seen in calendar 24 and calendar 25, by the way.

So why is the sudden concern coming?

It is relatively very high.

Not really. It is the same number, more or less.

No. What I mean is, compared to, let us say, previous years, you are right, I mean, maybe in the last couple of years, we have seen similar raisings.

Similar only, I think.

But these are very high compared to any time in the past.

Yeah, but again, as a percent in the market cap, these are not very big numbers. You know, 10-12 billion dollars in a country like India with a household financial savings, if you see, it is like nothing absolutely. We are talking about, let us say, on a $4 trillion economy, 10% plus minus household financial savings, you see, on a gross basis.

We are talking about, you know, $400 billion of financial savings. Again, $10 billion or $12 billion of IPO, how does it matter really? People invest if they find the valuation to be attractive of a company which is coming to the IPO market.

That is about it. Okay.

So you are saying the absolute flows should not be looked at, but then one should maybe look at the quality of the companies that are…

Yeah, absolutely.

And there are two sets of investors obviously. Many are looking for the pop on listing and others could stay on a little longer.

Yeah, yeah.

But very few are actually investing in the true long term. I mean, there is no right or wrong, but…

Yeah, I mean, you know, each person's investment horizon is going to be very different, you know, and so on and so forth. So you can't be a judge of that. But ultimately, what is driving this behaviour?

It is, you know, what kind of listing returns one is expecting. If you see listing returns in calendar 23 and 24 were very high, by the way. If I remember correctly, calendar 24, it was as high as about 30%, weighted average across all IPOs in that year.

Calendar 24 is all about 20%. So obviously, with that kind of listing returns, everybody now wants to, you know, try his or her luck in the IPO market, right? But obviously, from there, returns have actually come down.

Last two years, if you look at calendar 25 and first nine months of calendar 26, it's mostly around 11-12% listing returns only. One month returns are actually higher, thankfully. So somebody has held on, has actually made slightly more money.

The other interesting thing is, which is similar to what is happening in the secondary market, is the returns for the small cap and mid cap listings are higher than the returns of the large caps, yeah.

So if you look at this year in particular, again, if I remember the numbers correctly, the average return for the small cap listings, I'm talking about less than 500 rows each one, that was about 15%. For the mid caps, it was more like, it was a decent number again.

But for the large caps, only about 4%, by the way.

So this is the Hyundai's and all that, the really big…

Hyundai's happened earlier, but yeah, I mean, if you look at since then, many of the large caps have actually given no returns. So in a way, that explains the mood of the market, much more positive towards the mid caps and small caps now, compared to the large caps. And that is affecting both in the primary market and in the secondary market.

I mean, that was the broader point of view. And what does that say about the underlying quality or nature of the companies? Because Hyundai and LG, I mean, these are big brands, not to pick the Korean companies, but there are so many big IPOs, typically from big companies and well-known franchises.

Whereas many of the small cap and mid cap companies are essentially unknown.

I completely agree. Whether the amount of due diligence has been done or not, I have no idea, to be honest with you. At least in case of large caps and at least the quality mid caps, you will have a good set of bankers who will do a lot of due diligence.

You will have proper investor education exercise being done by the larger brokers. There will be a lot of exchange, pull and push between the investors and the issuers. So there will be some landing on the price.

But I don't know what really happens on the small cap side. You know, price is decided on what basis. Expectation, obviously, that you will make money.

So there are a lot of investors who are simply willing to put money because they have looked at the past returns, which looks good. Okay, let's put in some money into the IPO.

So if you were to take a step back and look at investing in this time or in these times, in these, let's say, tumultuous times, what would you say? I mean, in terms of where one could invest, where one should invest and whether capital markets or equity markets are really the place to be putting your money in?

In the long term, absolutely. No question about that. You know, the only thing is, you have to look at every stock very differently, whether there is value in the stock compared to the price.

It's a very simple thing in the stock market, which unfortunately many people have forgotten You know, price is what you have to pay. Value is what you will get. So you have to be very clear, you know, what am I paying and what am I getting?

As long as you think that the value I am getting is significantly higher than the price I am willing to pay, look at the stock. But unfortunately, what has happened is, as we were discussing earlier, the value part people have forgotten. So people are just willing to pay a price or something with the expectation that it will go up.

That's all.

Which goes back to the point that you made in the beginning. So no, my question is, you know, there is a finite pool of capital, which of course is growing with incomes and so on. As we look ahead, as a country, as an economy that's growing at, let's say, 8% or a little less or more, depending on who you ask, do you feel that this allocation of capital towards financial markets is optimal?

Should we be investing more? Should we be looking at more asset classes? I am just trying to get a sense on a top-down view before we come back to the bottom-up view.

Well, if you look at it from a closed economy perspective, then it doesn't really matter, right? You know, because, as I said, if we can remarkably buy, somebody will sell. It's not as if things will change over there.

So I don't know whether that's any other way of looking at it, what's the right amount of capital. But if you ask me differently, yes, you know, there should be a thriving equity market. What is the job of the equity market ultimately?

There are two roles ultimately. One is the pricing of capital in the secondary market and then the raising of capital. So as long as these two basic functions are being met, the price is not something crazy, it's okay.

Ultimately, as I said, the price point is the combined wisdom of the market at any given point in time. And as long as the primary market is functioning in terms of raising capital for further investment, it's great. The only issue is, again, which we highlighted in the report, if you look at the last five, six years now, the money which is raised in the primary market, in the IPOs, only 25%, actually less than that, is going into new plant and machinery.

Almost 50% of money is actually going for retirement of debt, working capital, capital enhancement, balance sheet spending, basically. So that is the issue over here. There are two issues.

One is the offer for sale part has a very large portion of the overall IPO now.

60-70%.

That is the first thing, which means it has basically now become an exit mechanism for holders, whether it could be the promoters or PE investors or management or whosoever.

And the second part is, even if you look at the use of the proceeds, it's not as if it's going into new plant and machinery, etc. So if you look at the data, last two years in fact, that is calendar 25 and calendar 26, 24% has only gone for new plant and machinery.

Everything else is retirement of debt and working capital and all that stuff.

So I was asking Pranav Haldia of Prime Database this question, and his point was that, despite that, stock prices have done well. As in, even in companies where there's been large offer for sales, so it did not necessarily mean that the companies are fundamentally better or anything.

Correct. What matters is whether the IPO is priced correctly with respect to whatever the fair value or intrinsic value of that company. And the peculiar thing we are seeing also is, it seems like the pricing in the primary market seems to be a lot more sensible now, compared to what we are seeing in the secondary market.

So you are seeing a lot of people who are willing to invest more in the primary market, because A, they are getting things slightly priced more appropriately, I would say, or some investors could be simply looking at the pop, basically, which is your typical retail investors. If you look at, interestingly, the FBI behaviour is also very interesting in that way. So overall they have sold about $30 billion, but if you look at the primary market, they have actually put in money, about $7-8 billion or so, whereas they have sold about $38-39 billion in the secondary market.

So it looks like the primary market, at least the issuers seem to be coming at what looks like a right price slash valuation, I would say.

But that doesn't say anything necessarily about the companies themselves, who are going IPO. Does it mean that these are newer, better quality crop of companies that are now coming into the financial markets?

Hard to say, going to generalise, but the good thing is, obviously, I have seen a bunch of good quality companies which have got listed very different business models. So you have one, the consumer tech company, starting a listing of Eternal Nykaa, 3-4 years back. Even now you are seeing very good quality companies coming into the market, which are high growth companies with very smart management, doing the right things, etc.

So the financials have still time to go to catch up?

Yes, but I think they are playing a very large hand, which is where the market is willing to pay a very large price, relative to the immediate earnings. But people are looking at earnings 4-5-7 days down the line, so that's fine. Then you have a set of companies, which are more in, I would say, the manufacturing space.

Again, a lot of good quality companies have come over there, which is actually a big thing for India. Domestic manufacturing is a huge thing, very powerful one. And that is where the role of the capital market has to probably be a lot more, in terms of raising money for manufacturing.

Given the fact that you still have a lot of companies, which are in the unlisted space, the government has given a lot of money for PLI? Yes, PLI 1, PLI 2, Silicon 1, Silicon 2, a lot of new companies are being built as of now. They will come to the market over the next 3-4-5 years, as and when they are of a suitable size and scale.

So as long as money is being raised for future investment, future growth of the country, that's great, I think.

Yes, and I am going to come to companies and your views on them, and I will explain that in a moment. But the other thing that I hear when I talk to fund managers, for example, or some fund managers and analysts, is that there is a whole set of companies, many of them are large caps, whose time is over. They are nice guys, they are good companies, they are well run, but their time is over.

And sometimes you have to accept that their time is over. And maybe that correlates to the fact that the IPO flows, I have seen these newer generation companies, who are coming in and moving quite fast, though their earnings might be a little while away.

So I don't know whether time is over, because the difference is, the larger companies obviously grow slower compared to the smaller companies. Assuming the smaller companies are reasonably well run, the time is sufficiently large, they will probably grow faster, given their low base, that's common sense. And we are seeing that.

If you look at IT services, for example, the tier 1 IT names are expected to grow in the next 3-4 years, about 4-5% top line growth.

That is rupee or dollar terms?

Dollar terms. If you look at the tier 2, tier 3 IT services companies, more the niche players, they are growing at anywhere 7-8%, even 11-12% growth. So the market is willing to pay a high multiple for those companies.

If you look at the larger companies in tier 1 IT services companies, they are all at about 15P now, after they have bounced back from the lows, 15P plus minus. The range is more like 15 to 18P now. If you look at the tier 2, tier 3 IT services companies, they are more in the range of 30P plus minus.

So the market is willing to pay higher growth, I mean higher P for higher growth. If you look at the earnings of the various indices by caps also, if you look at the Nifty 50 index for example, last year growth has been pretty horrible, which is why the market actually struggled. If you look at FY25, it was only 6%, FY26 was about 8%, so nothing to write home about.

And then this year we are looking at about 70-80%, next year will be about 13-14%. If you look at the Nifty Midcap 150 index, take out HPCL over there, because that distorts earnings like anything, because the numbers can be anything depending on how much money it's making or how much money it's losing on the marketing side. The numbers are consistent about 20% actually, earnings growth.

FY25, FY26, both were roughly 20%. This year if you exclude HPCL, because it will have very large losses, it would be more like 20-23%. Next year again we are going back to about 20%, that is FY20-20.

So again, why are the smaller companies going faster, or the midcap companies going faster? The simple thing is they are playing out new narratives, new themes, which could be the capital goods, CDMO, defence, electricity, electronics, which we have been talking about, the whole domestic manufacturing theme.

Because these are smaller companies, because they are new sectors, which are emerging, I mean we didn't have an EMF industry until recently.

Obviously the companies will be small, but they will grow over time. We have several CDMO companies which have come up, I mean there used to be one TVZ at one point in time, I mean even now it is obviously a fantastic company, growing very fast. But look at the number of CDMO companies which are proliferating now, because they are getting huge orders from the big pharma majors now.

Same thing I am seeing in the speciality chemicals industry, where the China plus one strategy is starting to play out. So the midcap, small cap companies, they seem to be playing on the newer themes, where the base is low, but the camp could be reasonably large over period of time.

I will include the consumer tech companies also, over here, all the consumer retailing.

And that also suggests in some ways that the older larger companies are not innovating enough, and not able to maybe move into these areas.

See this is like normal history, or economics I would say, because you are in more mature industries to start with. If you look at the composition of India's Nifty, look at the composition of let's say the top US companies, it's so vastly different. You have all the hyperscalers, AI companies, chip manufacturers, and so on and so forth.

We don't even have those businesses. Five years down the line, few companies will emerge in India also. There are two big chip manufacturing companies being built even as we speak.

But what do we have? We have basically the older industries, in the Nifty midcap index if you look at. Banks obviously, its lending will always remain, but it's not a new industry in that sense.

Whether you like it or not, they cannot grow significantly beyond the normal GDP growth. They better not also, whether that will have implications three, four years down the line. Then you will have commodity businesses, oil and gas, cement type companies.

It's not as if these companies are toast or anything, they are over, which is a very harsh statement to make, but obviously they will grow slower because they are operating in mature industries. The midcap, small cap companies are operating in newer industries. Which explains the different growth rate.

Excitement levels are obviously much lower over here. Excitement levels are far higher in the midcap, small cap. It's all linked to the growth dynamics of these industries or companies.

And that was the title of your September 29th, in a way. I don't know if you are referring exactly to this, but you talked about despair and euphoria in the same market.

See, the problem over here is not growth. The problem for the large caps is they are still growing, it's not as if they are not growing. But the people are simply not willing to look at them anymore.

I mean, I'm looking at some extreme cases, like for example, if you look at Owing DC, which you talked about, your dad used to work over there. It's like amazing, the companies will deliver about 55 rupees EPS in FY 2028. It's only $75 a barrel fruit price.

I'm not even taking the current fruit price. Which means the stock is available at 4.5 PE by the way, and still no interest there. The stock price is lower than what it used to be before the Iran-US war.

Fruit price is up significantly, the stock has actually come down. What is the market worried about? The market is worried about the government imposing some sort of a windfall tax or something like that.

But under law, the government cannot do that now. It is very clear. There is an Oil Regulation Development Act of 2025, which makes it very clear the government cannot change economic benefit now for the same company.

But nobody is willing to believe that. People are still very fearful, based on past history, that the government will come and do something, which will hurt the profitability and profits of ONGC. We are seeing such extreme cases now where people are not even willing to look at companies.

HDFC Bank is a very classic example. The fact that it is trading at Rs.7, you take out the value of its non-banking businesses, that would be roughly Rs.120 or so. Which means it is available at less than Rs.600. Next year it will do about Rs.60 EPS, the standalone bank. So it will be available at 10P, no interest. Why? Because people are worried about post-managerial flows.

That too has happened, which is unfortunately continuing to some extent. Constant change in management, worries about management change, some negative news flow here and there. But the fact of the matter is, the bank is still growing at, if you look at the ROE, it is still developing 14% ROE, despite all its so-called worries, challenges, the bank is still developing 40% ROE.

So why should a bank be growing at 14% ROE without really any concerns around asset quality or anything like that, despite all its challenges, be trading at 10P? That's what it is. There are so many such examples now in the market, especially in the large scale.

It is just lack of interest. People have stopped caring only about them.

Or they are looking for more exciting, newer things, which is also natural.

You can't have this large gap between what should be the fair value for the company and the price.

So if I am interpreting right, what you would tell your clients or investors is that you need to keep your exposure to large gaps as well in addition to doing...

Absolutely. I have a simple style of investing. Does the stock make value at current price or not?

Forget all the noise, narrative or not. As I keep saying, what am I willing to pay for what I am going to get? It is as simple as that.

Ultimately, I am going to the shop and buying something. Somebody is telling you some overpriced stuff, why are you interested? You are interested because somebody else will buy the overpriced stuff from you.

That's a bizarre way of investing. What happens if the guy changes his mind tomorrow? How can you predict the mood of the entire market?

A lot of investing is happening simply because of the greater full theory. Somebody will come and buy at a higher price from me.

And you are saying that, is this a characteristic of a bearish market or is this a characteristic of a market at all times?

It is a peculiar thing because we have a bear and bull market in the same market to be honest with you. If you look at the middle small cap indices, they haven't done too badly. If you look at 3 year returns of a mid cap or small cap index, 40% plus minus.

Which in a 3 year basis is nothing great but still about 12% CAGR. If you look at the large cap index, 50% index, that's done about 50% return in 3 years. 4% return which is lower than what you would make in a bank deposit FD.

But that's what it is. You have a bear market and to some extent a reasonable market. I wouldn't fully call it a bull market in that sense because at least things have become a lot less euphoric compared to what it was in June to September of 24 when I was really scratching my head as to what is going on over here.

A couple more questions. You talk to a lot of management and promoters, CEOs. What's your sense been in your conversations in the last few months or let's say since the war started.

Not to peg it to the war or the impact of it but in general, what's your sense?

I don't unfortunately get the opportunity now to talk to too many of the promoters and management but obviously I have a fair sense based on my team who constantly interacts with companies. The mood on the ground is very positive I would say among companies. You can see that.

If you look at credit cycle is clearly picking up. If you look at industrial credit running at 20% and it's pretty much broad based, very across the board whether it's chemicals, whether it is engineering, whether it is metals and of course power. Solid investment being done by companies over there.

If I look at their views on growth and margin pressures not too much for it to be honest with you. There was some concern in March, April when the Iran-US war first broke out on worries around availability of raw materials, availability of energy and so on and so forth. But those issues have been addressed now.

So now it's a question of margins and I think Indian companies are pretty good at managing margins over time.

Oil flow through the Persian Gulf is now higher than what it was before. So obviously the price and the flows of crude have disconnected from each other.

Interesting. I think the companies are a lot more confident about doing things. Obviously the fact that government is willing to provide a lot of support in the form of various PLI schemes is making the company more confident.

To some extent some risk capital is put in by the government. Come to think of it that way. Either a recurring basis for giving 3-5% or a top line or some part of the initial capital in the form of capital subsidy or whatever, some risk capital is put in by the government.

Which is what is encouraging companies to take that leap of faith. Start investing in new sectors. Otherwise if you look at 3-4 years back where was EMS, where was solar PV module manufacturing.

Battery is still not there but incrementally probably will take place. So a lot of new sectors have developed simply because the government gave that initial impetus. High tariff protection and so on and so forth.

So companies are willing to invest now.

So which links to another question that I had. You have been and seen this market through different phases. So there are times when you feel that sense of dynamism and animal spirits.

So that clearly is not the feeling right now. But what could bring it back?

What could bring it back? I think 2-3 things. One is first of all food prices coming down.

That will help India's macro case significantly. It's a simple math. Every dollar per barrel change in crude price about $2 billion impact on the economy.

Slightly about $2 billion. So it's a lot of negative impact and it's the impact on everything right. It starts with the external balances.

Current account, BOP, currency straight away. It could impact the first depending on how much the government has to absorb or pass it on to households and companies. It impacts growth to some extent.

It impacts companies profitability depending on how much they are exposed to the crude oil and derivatives chain. So if food prices start to come down, macro starts looking a lot better I think the excitement around India will start to come back. So that is number one.

Number two is just earnings coming back. People are still very sceptical because in India the history has been started with 20% growth and cut it down to whatever somewhere around 7-8%.

Do you think people are sceptical of projections or the actual numbers?

Projections as of now. I am still having a lot of debates. We turned slightly more positive in the market last September, September 25 and that was entirely based on not so much valuation at that time but it was based on the fact that earnings started looking a lot more believable for a change.

My big worry in most of 24 and most of 25 was you have very high valuations 22-23 times one year forward on earnings which are looking extremely dodgy. Unfortunately that's what happened. Earnings got cut significantly.

We were down to 6% in 2025 and 8% in 2026. That's what the 50-50 index was. Actually the valuation turned out to be a lot higher than what the market was looking at that point in time.

Now at least earning numbers are coming through and you can see it. First quarter numbers are very good. Second quarter numbers, whatever can be reported are actually beating our numbers on a reasonably high expectation I would say.

So earnings numbers are coming through. So once people get more comfort that okay fine for a change we are starting to see earnings growth coming back and as I was explaining earlier, the mid-cap and small-cap are delivering even better earnings numbers. So that gives you some more confidence that okay the valuations are something which we can rely on now.

Because if you are worried about ultimately when you look at valuation looking one year forward or two year forward and you don't have any control on the earnings, how does it matter? Because actually valuation will turn out to be a lot higher. At least that will give us some more comfort.

Third thing is how do you make India as a more attractive market for HPI investors? I think it's probably time to revisit our capital gains of tax regime in general I would say. The government has already done the right thing.

Maybe time to revisit on equities also. See the whole issue is the government is of the view that anyway India has a DTA with all the countries. So whatever capital gains you are supposed to pay in India gets offset by whatever the capital gains you are paying in your home country.

In theory and on paper this is all great but in practise it doesn't really work. For example if you are a tax exempt entity in your home country for example a pension fund or a sovereign wealth fund why do you offset the capital gains tax which you pay in India again? You cannot right?

The second problem is a lot of investors have highlighted this I think to the finance ministry also there is always a gap between what is your actual NAV versus the reported NAV. Because reported NAV has to provide for the tax which could be blended basically let's say 15% between 12.5% long term, 20% short term. So if I am an investor looking at my returns, if I have to pay 15% straight away you know should I really be in this market?

Unless I tell my portfolio manager so smart that he can make up for this but that's not the case or very difficult for a long period of time. So I think these three things macro improvement linked to crude earning resilience and third maybe some positive action by the government should get that interest back into India to some extent because see on the one side we are also fighting the AI narrative right? We don't have anything over there if anything the concern is India is an anti AI play I have tried to explain to people why are you guys so worried?

If you look at the entire IT services space in India and this includes GCC also, it's only about 6 million people employed in that industry by the way which is less than 1% of India's workforce but somehow the foreign investors are perceiving India as to be only a IT services sector everybody is employed in whatever IT service looks like in India.

Is it a kicker for overall exports?

It is to some extent but the role is very exaggerated because that's what you see right? And I have explained the math, 6 million people working in the IT service industry by the way this is pure software, BPO GCC all put together which is less than 1% of India's workforce then you would argue that okay fine income of the average IT worker is much higher it's about 4X by the way so from an income perspective IT services employees contribute about 4% of income from a spending perspective maybe you add another 50% 6-7% it's okay it's not the end of the world but somehow the perception is India is only about IT that's not the case but as I said the rest of the sectors have also performed, earnings have to come through for people to start believing that narrative

Last question, so you are based in Singapore and you therefore get a slightly different view than perhaps we do sitting here in the middle of it all what's your sense on how people should look at India from within India so as you said earlier as well the market is closed in a way so you are really moving money around the same sort of circle so to speak, how can one look differently at investing if one could or should perhaps expand one's horizons

you are talking about Indian guys investing overseas or

anyway I mean you know can an investor here expand her or his horizons and particularly when you see many of the points you make for example no one here seems to say because I guess you have the advantage of distance I don't know about that

I just stay away from the noise there is just too much noise I don't have to explain every price movement which is what unfortunately a lot of people are trying to do over here I don't know whether there is any good answer to that because if I look at long term India will do fine here should I be overly pessimistic about the fact that you haven't seen too much return in the last 2-3 years maybe fine, there was a special reason for that, you had a very high valuation to start with and obviously the excesses of the past to some extent has got corrected what the missing piece still seems to be I would say new tech sectors in India which is where I think lot more investment could happen or which is where I think Indian investor would like to invest because you don't get that opportunity in India as we were discussing earlier you have large caps which are largely in some of the more mature industries, you have the mid cap to small cap which are newer industries but they are not in the high tech industries really just starting maybe in a small way but beyond that as long as India can deliver 78% real GDP growth 10-11% nominal GDP growth if Indian companies are smart enough they will grow slightly higher than that if you could look at a market which on broad basis can compound it about low double digits for a long period of time but of course you will have these periods of no returns or low returns and periods of excessive returns so that will always play out but I think the long term graph is like this it's like a stock market, you will have a lot of movement up and down in the interim period

right, so long term graph is what one should stay focused on wherever you are whether it's in Singapore or in Mumbai

it's like anything else ultimately you have to focus on the long term and the direction short term too many things happen for you, you can't really take a call

and there is little you can do about it that's a good note to end on Sajeev thank you so much for joining me thank you for dropping by

my pleasure