Vikas, it’s so good to have some perspective from you on the long-term picture of the Indian markets, but we all do know while India is in a structural bull market. Any bull market is made up of multiple, small cycles, right? With everything that’s happening around us. You know, we’ve sort of, in many ways, ignored it. How concerned are you, or what’s happening geopolitically, or what’s happening, maybe potential slowdown where we can be concerned about, earnings season so far has been okay-ish, no major positive surprises.
Do you feel all that could play catch up and I know you’re not into predicting, but do you feel like at the end of the year, maybe next year, the Nifty may be lower than it is lower than it is today, only because we borrow future returns?
Vikas Pershad: So, you touch on a few things there. I’ll say a couple of things that we don’t make predictions. We do run scenarios. We think probabilistically, and we spend as much time thinking about what happens if things go really well, especially in the market like India, as we do spending time not thinking about what if things go wrong. How do we lose capital? What are the downside risks, we think that that is a very healthy exercise within the realm of expectations for each company that we look at, as we think probabilistically, we have indeed, over the past two to three years, widened out of our scenarios.
When we look at India in particular, the upside looks like either the probability is higher, or the magnitude of the upside could be higher in many of the companies we are looking at. But then given the geopolitical risks that you mentioned, we have lowered the potential downside. We raised affordability for the wings. We’ve assumed more harsh assumptions for supply-chain disruptions or less pricing power, higher costs of money, interest rates being higher, inflation being higher. But I would say if two years ago, three years ago, you had told me that there would be conflict in Eastern Europe, conflict in Western Asia, potential for conflict between large countries out here in Asia, I would be very surprised by the resilience of the markets.
We can’t time any bear market, and this is why we are fully deployed and not sitting on cash. But we are thinking probabilistically and we have widened out the scenarios. If all the markets in the world were to close up today for the year, India would be the only major market in the world, the only market in the world to have gone up nine consecutive years and because the rupee has been generally stable, even foreign investors who are investing in dollar returns, will have gotten a large portion of those those returns. That’s a big difference between India, Japan.
Japan has done very well as a market, but the yen has weakened materially. So, if you were a dollar investor, you didn’t get those returns. So yes, we might have borrowed some future returns, but we’re thinking on a five, seven,10-year horizon and beyond. We are looking to be aligned with the promoters of these companies, they’re making long-term investments, and so are we. A pullback would be healthy. But on the balance of what we know, we’ll be adding to our positions, rather than panicking.
