On Episode 1000 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Rotti, CEO at Tax Compaas and Prashant Agarwal, Indirect Tax Partner at PWC. We also feature an excerpt from our recent Special Edition featuring Swati Khemani, Founder and CEO at Carnelian Capital.

SHOW NOTES

(00:00) Stories of the Day

(01:09) Why The Sensex Has Hit A Near Three Year Low

(04:07) A Merchant Charge On UPI Payments Is Being Delayed

(04:43) Elon Musk’s Strange Accusation On Indian Oligarchs

(06:12) Why The Latest Announcements On GST Are Important

(20:06) Why Taking Bets On Company Leadership Is Important In Stock Picking

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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 feedback@thecore.in.

Good morning, it's Friday, the 9th of October, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. And before we go on, this is a very special thousand episode of The Core Report. And from all of us here in The Core Report podcast team, we thank you for being part of this journey.

And we can assure you that we've enjoyed every moment, including, of course, talking about the weather, which by the way, is getting warmer in Mumbai. So do look out for some special additions to commemorate our thousandth episode in coming days.

And that brings us to the top stories and themes…

Why the Sensex has hit a near three-year low

Why the latest announcements on GST are important

The merchant charge on UPI payments is being delayed

Why taking bets on company leadership is important in stock picking

And very few people talk about it, and Elon Musk's strange accusation on Indian oligarchs.

Markets, Oil, Rupee and CPI

Oil prices have jumped again, rising more than 5% on Thursday, on persistent worries about supply from the Middle East, and of course, fresh attacks on shipping in the Gulf and the state of Hormuz. Brent crude futures were up about 5%, like we said, to $105 a barrel, which is the highest since September 29th. Analysts told Reuters that news that Washington was preparing to resume major combat operations against Iran were keeping prices up, and that's up above $100 a barrel.

One analyst said the US is probably attempting to pile on the in a bid to bring Iran to the table, but we cannot discount the possibility of a new round of strikes. Investors certainly don't seem to be taking any chances. Not surprisingly, the benchmark Sensex fell again on Thursday and also to its lowest in almost three years, or 32 months, accompanied by rising global bond yields and a weaker rupee.

This was also the Nifty 50's lowest close in 18 months. So the Sensex fell about 1,045 points to close at 71,593, and the Nifty 50 was down 371 points to close at 22,231. Elsewhere, IT major TCS reported its results, with a 15% year-on-year growth in consolidated net profits to about 13,800 crores for the second quarter of 26-27 November.

Second quarter results season has begun, and all eyes are on to see what trends would emerge. TCS's board has also declared a second interim dividend of 12 rupees per share for the current financial year. Its revenue from operations increased 11% to about 73,000 crores.

In constant currency terms, revenue rose 0.5%, quarter-on-quarter. Operating margins were at 24%, and net at 19%. The company said it saw broad-based growth across international markets in most industry segments, and annualised AI revenue had reached about $3.1 billion in the second quarter and crossed 10% of total revenue.

Meanwhile, a Reuters report says India's first rate hike in four years is unlikely to slow or reverse record-high capital outflows, leaving the central bank battling a vicious cycle of a weakening currency and higher inflation in a hostile global environment. The 25-basis-point hike that we saw on Wednesday, even with signs of more to come, will do little to curb pressure on the rupee, while expectations for a weaker currency and a sharp jump in hedging costs are set to weigh on returns from both debt and equities, the Reuters report said. The rupee has lost about 7% this year and declined further after Wednesday's rate hikes, and is now in striking distance of its all-time low of Rs 96.96 against the dollar.

Consumer inflation, meanwhile, is continuing to rise. The CPI most likely went to 5.4% in September against 4.8% in August, according to a median forecast in an October 5-7 Reuters poll of 41 economists. If this happens, this would mark the fourth consecutive month that inflation has remained above the Reserve Bank's 4% medium-term target and the highest this year under the current series.

This is also closer to the upper end of the Reserve Bank's 2-6% target range.

A Merchant Charge On UPI Payments Is Being Delayed

The government is considering delaying the rollout of a fee on large payments via its popular Unified Payments Interface, a UPI platform, by a few months, several reports have said. There has been considerable opposition, including from small traders.

Last month, the government had ended the regime of zero-cost payments, which had lasted more than six years, and in the new regime, merchants would have had to pay a 0.4% charge for transactions exceeding Rs 2,000. Transactions between individuals were not to be charged.

Elon Musk’s Strange Accusation On Indian Oligarchs

Elsewhere, SpaceX founder Elon Musk has accused people with vested interests of blocking the launch of his company's satellite internet service Starlink to protect their hold over consumers, calling it a crime against the people of India.

Now, India's telecom and internet service is obviously dominated by Reliance and Airtel, with both companies holding about 80% of share. Musk said on Wednesday that we are being blocked by certain oligarchs in order to maintain their monopolistic chokehold on the Indian people without, of course, naming them, though he said you can guess who they are. The government of India has indirectly responded already to Musk's saying that the framework for satellite services like Starlink remained fair and non-discriminatory, and the suggestion that the framework or its application is unfair or discriminatory is baseless and misconceived.

Now, Elon Musk's allegation is, of course, interesting and curious, given that in March 2025, both Jio and Airtel signed deals with him, or rather Elon Musk's SpaceX, to bring the Starlink internet service to the country as distribution partners. It's very likely that both companies were nudged to do this to win brownie points with the US administration, which also highlights the continuing folly of bending backwards for a trade deal with the US, and in this case via Musk's businesses as a pathway, something that the core report has frowned upon last year as well. Of course, all of this was in the backdrop of India desperately wooing the US for a favourable tariff deal then, none of which has happened or worked, and relations have only progressively deteriorated since then.

And of course, none of the companies, including Jio and Airtel, have got a clearance to launch satellite services in India at this point.

Why The Latest Announcements On GST Are Important

Nine years on, the 57th Goods and Services Tax Council meeting has approved a set of measures to simplify compliance, speed up refunds, and reduce the working capital burden on businesses. On Thursday, it removed GST officers' power to arrest taxpayers and set a Rs 10,000 threshold for issuing short cause notices.

It also raised the threshold for prosecution from a crore to five crore rupees. No new rape revisions were announced during the meeting on Thursday. It also said that it removed the minimum punishment for offences, and the punishment, whether a fine, imprisonment, or both, will be decided at the discretion of the judiciary in each case.

Also, taxpayers who file returns late, make mistakes, or delay tax payments will face recovery interest and a proportionate penalty, and nothing beyond that. There are several other announcements, all of which could or should make life easier for taxpayers. I reached out to Ajay Roti, CEO of TaxCompass, and Prashant Agarwal, Indirect Tax Partner at PwC, and I began by asking, first, Ajay, what they had taken away from these latest announcements.

INTERVIEW TRANSCRIPT

Ajay Rotti: So I think going towards a simplified GST, I think we are on track. Moving towards less criminalisation of tax laws, we are, you know, on track for that. Overall, according to me, a lot of positives in terms of ease of doing business, clearly a government which is having its ears to the ground, the council is having ears to the ground on some of the issues that have been addressed.

For me, one issue which sort of they've kicked the can down the road, but there's at least a date, is really this blocking of IPC credits. So Govind, just taking a step back, this is where, you know, you purchase services or goods from a vendor, you made the payments, you have a genuine invoice, you've actually paid the full amount, including the tax, the vendor does not deposit that GST, the GST input tax credit would have been blocked in my case, for example. So the FM interestingly said most of the council and the ministers were in favour of releasing that blocking, but she said, to quote her, that balance taxpayer convenience with preventing misuse, some of the states were not on board.

So they have set up an officer's committee as to what needs to be done for this unblocking of the credit in genuine cases. And that officer's committee will come back with comments and then in any case, she has said by 1st April, that should be sort of decision should be taken. GST on input tax credit on health insurance is a big thing for the corporate.

I think overall, a lot of positives, a few things as always with most decisions could have been better, but nothing to complain about.

Prashant Agarwal: who are small, but are exploring e commerce platform can be enabled using this and this would go a long way in giving impetus to the economy as well. The other things on refunds, inclusion of input services, and capital goods, hopefully over the period of next six months, would be a significant unlocking of value for the businesses capital working capital that gets unlocked. On that the arrest has already talked about how they have tried to ensure that the penalty and the arrests are taken care of.

She specifically mentioned that there will not be any arrest provisions per se, at least in GST. But for any other purposes, one has to see how the input tax credit part which I talked about will move on. I think what she has mentioned also is that the first level is still continue, which means if your vendor who gives you the invoice is fake or is not compliant, you still will have to have a challenge. But beyond that, the chain will hopefully be taken care of.

So those fine prints will have to be looked at and hopefully by 1st April that will happen. Overall, I feel Google this is the phase to do GST 2.0. I think two things have happened very clearly over the last one year. One, we have simplified the rates and they've seen the benefit out of it because the base has grown significantly.

I feel with now the impetus on making it faceless. They've talked about how central education can become faceless as well over and above whatever I've just talked about. Clearly shows they are trying to make it more system driven and less officer dependent, which could hopefully make it more ease of doing business in terms of the compliances which we're talking about.

And overall, big thumbs up. It is a phase to do GST 2.0. Clearly, GST now is pretty much out of the launch phase. And as I quoted earlier in one of the news really as well, it's something which will now be hopefully a good and simplified tax rather than something which somebody would say is a draconian and compliance focused tax.

Govindraj Ethiraj: Ajay, on the theme of arrest, so does this mean that the GST officers cannot arrest any more for anything?

Ajay Rotti: Yeah, so we'll have to see the fine print going. But from what we've heard and what was told in the press conference, yes, GST officers. See, the fundamental thing there is a criminal offence in any case under the BNS, under the criminal law, the police, etc, can arrest.

That's a separate thing. There are always two parallel things. You could have got arrested by the police on a criminal thing or the GST officers had powers to arrest.

What they seem to have taken out with the GST officers' power to arrest. Therefore, if there is a criminality involved, what happens under BNS and whether you can get arrested still remains. So it's not that for none of the GST crimes and GST frauds, etc, there can't be arrested.

It's not that. But it's really the GST officers will not be able to arrest. If you remember, there was enough sort of discussion and outcry on social media on GST officers arresting.

I think that has been, in my view, from what I've heard, that sort of should get addressed with this.

Govindraj Ethiraj: So let me take a slightly larger angle on this, Ajay, and I'll come to Prashant as well. So one of the problems or concerns with the tax authority as a whole is the criminalisation. And even on income tax, there are areas where, you know, you could be show cause, centre show cause for prosecution, which could lead to potential arrest.

So does this suggest a change in the thinking overall, as far as tax is concerned, or is it just GST?

Ajay Rotti: No, they've stated this to more and more decriminalise. They've done that in the company law, for example. They are wanting to do that in tax law as well.

See, the challenge going with the tax laws is, when there is a wilful evasion and there is actually misuse, for example, in GST, there are shell entities created and you've misused input tax credit, you've created fake invoices, etc. There's a clear intent to defraud and a criminality comes in. So I don't think we'll have a situation where decriminalisation in total will happen for tax laws.

It'll be good if there is a clear distinction between what's been done wilfully and what's been done because of a reading of the law, different interpretation and things like that. As long as there's no criminality in that first part, then it's really good for the business. I think that's where we are headed in my view.

Criminalisation and the criminal aspects relating to wilful default, fraud, misuse, etc., in my view should remain. That will be one of the fundamental differences between, you know, how they've completely decriminalised, almost decriminalised the company law to a tax law. The tax law being a fiscal thing, there will be some element of criminalisation.

But I think we are moving towards more and more decriminalisation of genuine business tax positions, interpretation and things like that, where there's no malice. Got it.

Govindraj Ethiraj: Prashant, are you on the same page?

Prashant Agarwal: Absolutely. I think the other important thing that we're trying to do are small things, but very effective.

So for instance, one has to look at the fine print, but we expect that even if you pay a penalty on your own, there is discussion that it may be called a charge rather than penalty. Now you may consider it a very small change in the world, but you would appreciate Google that, you know, in a listed world of companies, where in a stock exchange, I have to report a penalty versus a charge, it makes a lot of difference. So let's see whether it comes out or not.

But, you know, these are small, but very important, effective changes that they are making in. And add to it, as you said, baseless assessment, adjudication at the central level, rather than multiple officers coming to you and starting it with CBIC, which is a central education, because they can't encroach the state power in the whole federal structure. But at least that will show the path.

And one has to see how it really impacts large industries, if they are able to bring it successfully in terms of central administration of taxes for a taxpayer, that will really go a long way in simplifying the whole adjudication process per se. The other thing I would add is the whole transit, good transit, which again had a lot of challenges, both in terms of penalty prosecution, as well as goods getting detained, that also they have simplified to say nobody in between the route can pick up the goods, which means either the starting state or the end state can do and that too has to have some senior person really authorising you to go ahead and do these things.

This clearly shows we are moving away from considering everyone as at fault, then waiting for audit and assessment. I think we have enough data available. If there is something which is a mistake, we'll happily pick it up during the audit assessment rather than disrupt the business on a regular basis.

So I think that clearly shows the mindset of the government. As she clearly said, she's looking at listening to the industry. She hasn't talked about it, I think in the press conference, we also expect some structural change in the GST council by itself, the way the implementation happens.

Our expectation based on discussions with various people was that one may see winding up of multiple committees and there will be one committee which will basically be there along with the secretariat. So in that way, they are also looking at how they can simplify the industry outreach in terms of advocacy for any of the changes that the industry may ask for. I really don't know whether it will come across or not, but it was definitely in part of discussions and hopefully would have been taken up in today's discussion as well.

Govindraj Ethiraj: Can you elaborate on the e-commerce part again, Prashant?

Prashant Agarwal: So I think just to take a step back, what happens on e-commerce platform, let's say an Amazon or Flipkart, and I'm a small seller. So I am sitting in Delhi and I can sell goods to any state. But what happens there is each state, they try and keep certain goods in their facilitation centre and those goods are mine.

So if I have to let's say sell in Karnataka, I need to necessarily take a registration in Karnataka. That required me to have what we call as a principal place of business, a physical place in my own name, a person sitting who can authorise me. Now that used to be detrimental for me because I used to fear I have no control over Karnataka, I can't really do all of this compliance.

And hence, I used to sit back and say I'm happy to do work from Delhi, but I don't want to spread across multiple states. Now in the new provision, the expectation is that I would have an option within the GSTN portal, again system-driven, wherein I can select one of the informers players warehouse in Karnataka, let's say Amazon, as my principal place of business. The Amazon entity has to then give the consent that yes, they are fine for me to take a registration.

They will have a SPOC for me sitting down there, who basically do more like a facilitation, coordination, etc. So that my local compliances, communication with authorities can happen. And I can very well then do business in that state.

In a way, it becomes a partnership, even though legally I am funded as a seller, the platform can facilitate in my group. So imagine as a small seller sitting in Meerut or any other such state, expanding my business across various cities, because Amazon knows those goods have demand there, but I used to be reluctant to go those streets. Now I would be more than happy to do that, because it will become very easy to take registration and compliances.

Govindraj Ethiraj: Got it. Ajay, so you said that CAN has been kicked down the road. So what is the most important one in your mind, which we should come back to as soon as possible?

Ajay Rotti: I think the blocking of GST credit is really the big one. That is sort of impacting quite a few people in the industry, not just on working capital, etc. But it's actually a genuine hardship.

And that when you have actually let go of the money, you paid the tax yourself. And it's a genuine business transaction. And you are really saddled with a cost of 18%, 5%, whatever it could be.

The other one important thing during the Q&A, somebody asked her that after the 57 meeting, we moved to effectively two rates. And will we get to a single rate? And she actually was quite positive.

She said, you know, this is evolving, and eventually we have to get there. Now that will depend on how things move. But her body language, the way she said that was really good.

And she said, we should be getting there. And on a similar account, somebody asked, what do you think has been the journey so far? And where do you see this a few years later?

Again, she was very positive. She said, this is a classic example, a best test case for a cooperative federalism. And we should be looking at it that way.

We've done a lot of progress. Actually, she expressed gratitude for having played such a big role in this whole GST thing. You know, almost echoing what Prashant said at the beginning, that it has reached a point where GST is today no longer in launch, test phase, etc.

We sort of, it is evolved, and we are moving towards where the ideal state has to be. So I think some of these being put to another date is not bad, especially because she's put a date. And the most important thing is she's actually said whatever decision, whenever it may be taken, will ensure it's effective from 1st April 27.

So these are not just been pushed forever, but there's an end date, hopefully, therefore not bad overall. This whole point on there won't be rate changes all through the year, and we'll do it only once a year, and that will be effective from 1st April. The way I see it is good, because it was causing a lot of difficulty to business when there are mid-year rate changes.

Again, we'll have to see how that will work. There are both plus and minuses of that. But that's another very important, small but important announcement that's been made today, that GST rate changes will happen only once a year, and it will be from 1st April.

Prashant Agarwal: I think the way I see it is, it's becoming more on a plateau where things are getting stabilised. Hopefully, whatever we are saying gets operationalised and is easy to accept in terms of system, which is extremely critical.

So I think it's for businesses now to adopt what is being sought for, ensure better compliances. And I feel that the system-driven compliance would also put a lot of onus on businesses to see how their own data is. And that will be the next big thing, I think.

On the legal side, most of the things are sorted with input tax rate taken care of, refunds being brought in, exports being done. I think whatever you could have asked from the government, they've honestly done it at this stage under GST. And they are seeing the fruits of it, as I said, on the compliance side, on the collection is 11%, etc. All of that is there.

So I guess we are on the right path, and hopefully more structural reforms will continue to happen, depending on what the industry asks. It is for the industry now to ensure that they are able to adopt it fast and are able to comply with it, to be honest.

Govindraj Ethiraj: Great. Ajay and Prashant, thank you so much for joining me.

Ajay Rotti: Thank you, Govind.

Prashant Agarwal: Thank you.

Why Taking Bets On Company Leadership Is Important In Stock Picking

Now, this is undoubtedly a tough market to invest in, but the best bets are obviously taken at times when the market is down, and you know that, but it is also about looking at companies differently, or maybe not the same lens others are. For example, how aggressive is the top management at ICICI or HTFC Bank before deciding to invest in the stock, rather than taking a call on their legacy brand and steady growth? I caught up with Swati Khimani, CEO of Carnelian Capital, and I began by asking her about her approach to stock pricking, and how they had zeroed in on some industries, perhaps in some cases, much before many others. And you can catch the whole interview, which is on YouTube, by clicking on the link in the description.

INTERVIEW TRANSCRIPT

Swati Khemani: So manufacturing is one of the sectors which we identified very early on in October 2020. This was just six months after the first wave of COVID. And actually, when we identified manufacturing as a structural theme, the benefits of which, if you identify early on and invest in those companies, last over a period of 5, 10, 15 years.

So at that point in time, when people were struggling to get their shops and factories up and running, we figured out an opportunity, which promoters of manufacturing companies themselves did not believe in.

Govindraj Ethiraj: And how did you do that? I mean, what made you pick on that specific area?

Swati Khemani: So it was a very interesting way in which this whole idea came about was, so after the first wave of COVID, we started speaking to companies, taking a stock of what is happening on ground. So we spoke to almost 50, 60 companies. Of course, all of them said that, you know, supply from China had completely stopped.

So they were forced to look at Indian entrepreneurs for, you know, their requirements. And very interestingly, three, four companies across different sectors, different sizes and scale, gave us similar snippets saying that at a time, when there is no negotiation power available to us, we got the same parts made, same as in same quality parts made, within India, 20 to 40% cheaper. And of course, time to get them was also much lesser, right?

So that got us thinking that, you know, at a time when anyway, pricing is not in your control, how is it that these people have been able to get it at 20 to 40% cheaper? That is when we started studying the entire manufacturing space. And of course, in 2019, when China had attacked India at Doklam, you know, government was very, very aware of how vulnerable we are to China, right?

It was not necessary for them to fight a physical warfare with us. But if they just stopped the supply of APIs, the entire country would come to a stance. Not a single medicine would get made, right?

So that is when the whole Atmanirbhar PLI scheme got reinitiated. Government spoke about making India in the first term, but it really never took off the ground. It is only after this 2019 episode that the government got extremely serious about it.

Those 12 sectors were identified where, you know, they want to bring imports down to complete zero level, you know, over a period of time. So one was, of course, the most important was government intent. Secondly, COVID happened, world started looking at risk diversification.

So when we spoke to one of the partners at McKinsey who heads Asia, he said the number one boardroom project that they were running was risk diversification from China. So it was not a story, but it was a real issue that, you know, companies were dealing with and they were looking where else they could source or go to. Thirdly, cost economics had changed.

Earlier, it was always, you know, the narrative was that China is the cheapest source of importing anything, right? But that was no longer the case. The labour arbitrage had gone away.

When China started rebalancing itself, the labour arbitrage went off. Power costs were more or less similar, not too different. Yes, logistically, of course, China was better than us, is better than us.

But like we are seeing across the board in India, whichever town city you go to, there's enough and more of infrastructure which is underway, whether it's your roads, railways, ports. And in the interim, while physical infrastructure takes time to come up, in the interim, government is also using digitisation to make things effective, like a simple initiative like that Fastag, which got initiated through the country. There was a study done that a truck moving from Kashmir to Kanyakumari saved time by 30%.

Now, we don't understand what that means at an efficiency level. We just think it's a number or it's a small initiative. But at an economic level, it has far more reaching implications than we can think of.

So that is happening. And lastly, and most importantly, India is the only market in the world, which, besides being a great location from an export perspective, has a huge domestic market itself. So even if I'm saying we don't cater outside of India, even if we are able to cater to our own population, which is the single biggest driving force of everything currently in India, and more importantly, the median age is 28.

So this age is definitely going to work and definitely going to consume. See, no longer is it going to be saving in debt and you know, land, gold, it's going to be more of consumption led and financial more. So I feel there will be an equity culture which will, you know, be far more appreciated than the erstwhile or the old investment asset classes.

In fact, when we first started the fund in June 2019, the very first stock we bought was ICICI Bank. This was June 19. We bought 10% of our fund into ICICI Bank.

And the single largest holding of every individual family, office, institution was HDFC Bank. And they had clear-cut reasons that, you know, how ICICI we saw was a classical case of re-rating and HDFC Bank was a case of de-rating. And we've seen over the last seven years, how, you know, ICICI has almost returned 5-6x for us, whereas HDFC Bank has really not gone.

Govindraj Ethiraj: And ICICI, is that because that was the time the transition was happening?

Swati Khemani: Basically, 2018, Chanda Kutcher had gone out, Sandeep Bakshi came in. Of course, for us, management is extremely important. A promoter, CEO, management.

So we generally, we in fact, we internally have a framework called IMPRESS where we rate management. So we spend a lot of time on assessing management, on a lot of counts, right? From, you know, the kind of, from character to morale to him, as a, you know, capital allocator to a business, ability to understand businesses, future opportunities.

So there's a whole framework around it. And for us, that is extremely important because we strongly believe that the person driving it can either make it or break it. And we've seen enough and more examples of that.

So obviously, Sandeep Bakshi was a great addition to the company.

Govindraj Ethiraj: He was already in the group, but not in the bank.

Swati Khemani: He was at HDFC Standard Life before and came from HDFC Standard Life. And we've seen how he had performed there also. Very humble leader, very, very good at execution also.

So that's how, you know, we were very convinced about the new change of management that had happened. Banking business was good. If HDFC can make money, why can't ICICI?

Govindraj Ethiraj: But did you see the reverse in HDFC back?

Swati Khemani: Absolutely, because at the same time, Aditya Puri went out, exemplary leader. So he was also an exemplary leader. And anybody who comes in, it's very difficult to fill in the shoes immediately of such phenomenal persona.

So obviously, change of management happened at both places. Banking business was the same, but here the credit cycle was behind. Valuation was below one-time book.

In case of HDFC, the most important point, I think most people miss or did not capture then was it grew at a period from 2008 to 18 when there was zero competition. If you see all the PSU banks, right from SBI to all the ones down, they were largely impaired by three challenges. One is autonomy of the CEOs.

They did not make any investment in technology. And of course, they were marred by NPAs. Post-2014, once Modi government came in, of course, they hired new CEOs.

They were given a lot of autonomy, technology investment happened. And lastly, cleaning up happened. And I think today all our banks are extremely well capitalised as well, right?

So that is the change that happened. So the whole competitive scenario changed. Plus on the private side, now post-2018, of course, ICICI was beginning to get built.

Kotak was built, IndusInd was there, Axis was there. So a lot of private sector banks also had come of shape and size. So suddenly the entire competitive scenario changed.

Your ace leader also was on the way out. And valuation-wise, it was three, three and a half-time book. So which is extremely expensive, right?

So ultimately, it was like a classical case of derating. And ICICI for us, we thought that from here, there is nothing much to lose in ICICI, even if the story or the hypothesis doesn't work out.

Govindraj Ethiraj: In the case of banking and the set or the sample that you've talked of, but do you feel that at this point, given the fact that it's at a very highly competitive level, of course, the leadership is not the same or similar across all the banks. If you look ahead, do you feel it's tougher now to make a mark like they could earlier? Because it's so competitive?

Or do you feel there are other factors which could still provide or create those leadership?

Swati Khemani: There could always be, see, depends on the leader. See, today, times have also changed where innovation disruption is for real, things are changing very quickly. So it will, of course, depend upon the person running it.

Yes, but it could get tougher because the competitive intensity or the scenario has changed. But it is not that it is not doable.

Govindraj Ethiraj: Right, because many of your peers, for example, when I say peers, I mean, maybe fund managers or analysts say that companies like HDFC are so strong in processes and systems and brand and all that, there's a certain tailwind that will carry them through. But that's not enough because everyone has some tailwind, I guess.

Swati Khemani: See, I think one needs to make a very important distinction between what is a good company and what is a good investment. HDFC is a good company. Even today, it's a great company, right?

You will not lose your money. You won't have loss on account of, permanent loss of capital, right? Risk on account of permanent loss of capital.

But it's not generating alpha. You're not making returns, right? So ultimately, you're losing capital notionally.

So it's not a bad company, but it's not a good investment. And one needs to distinguish between the two, what is a good investment and what is a good company.

Govindraj Ethiraj: So for all other factors, and we'll move on from banking, all other factors being constant, at this point, the premium that you are placing on is leadership to create that alpha for investors.

Swati Khemani: Leadership, along with good quality businesses, business models, and of course, at the right price. That is extremely important in today's day and age.

Govindraj Ethiraj: Right. So let's come to CDMO. CDMO is Contract Drug Manufacturing.

So how did you look or approach this sector and what did you find first and how is that planned out?

Swati Khemani: So like I was saying, you know, we continue to study manufacturing. Within manufacturing, we were seeing where the opportunities lie. And we saw that this whole CDMO space, it is very nascent in India, right?

And all these companies, we are seeing how things in the West have changed over a period of time. And we, all this had to come to India to, you know, get manufactured. And we did have the skill sets or inherent skill sets, which were required for that.

So that is how we started feeling where if pharma sector has to grow, where will it go? So even within each sector, there are lots of new subsectors and themes which keep coming about time and again. So that is how while, you know, studying the whole pharma sector, we came across CDMO.

And then, of course, within that we were studying the companies. We studied several managements, companies, understanding their, you know, what is their business, you know, where do they see it shaping.