Where Vallabh Bhansali sees investment opportunity

May 18, 2020

Co-founder and chairman of Enam Group, Vallabh Bhansali is an ace investment banker, venture capitalist and stock-market expert.

When he spoke at the 2016 Morningstar Investment Conference in Mumbai, he drew an analogy between investing and rare precious stones.

Diamonds will have no value if there is an abundant supply. It is the rarity that adds value. What are the rare qualities in the company you want to invest in? It could be the brand, capital efficiency, excellent management from the standpoint of integrity and capability, a well thought out business model, and so on and so forth.

You need to get that right, and then stay with the company over the long term. The method to win in the short term is completely different from the method to win in the long term. You need to differentiate between the two.

Last week, he presented at the digital conference conducted by Aditya Birla Sun Life Mutual Fund. Here are some excerpts.

India has a real chance of converting this black swan event into a grey swan or even a white swan.

This pandemic has affected the world very differently. Our world, for instance, may not change as dramatically in comparison to a Mediterranean country which depends on tourism. Companies which are local in nature have not been affected so badly. We have self-dependency, whether it is food production or healthcare.

There are a lot of mitigating factors like good foreign reserves, a demographic dividend, and a good external debt profile. The aggregate debt profile of the country is quite manageable. We were not on steroids. Now that the world is suffering, we have a chance to become a new supply chain.

History suggests that pandemics change world history. For instance, imagine if India becomes friendly with China and changes geopolitics. And if India and China start supporting Pakistan, this entire region will grow tremendously. It will be game changing. In politics, anything is possible.

It is not the nature of our people that defines our country but the nature of leadership that defines a country.

We have a low ratio of well-paying job opportunities. This is a structural weakness. This is because our laws have not been very great. We don’t administer our country to get defined outcomes. It is all fragmented between state and centre, judiciary and legislature and so on. It is too early to say if the vision which the Prime Minster has talked out will play out.

Around 30 years back, Maharashtra’s labour profile was lucrative. Maharashtra has relatively better governance. So Maharashtrians are not migrating elsewhere. People from Bihar, Orrisa and other states are still migrating. The migration has reduced in Uttar Pradesh. Even Punjab had a lot of migration. Punjab became an entry point for all kinds of migrants.

It takes determined leadership to change things.

Look for gems.

We have had a long bull market though we had massive correction in 2001 and 2008. The market bounced back. The world was never on steroids that we have today. We are dealing with an uncertain medical situation. The moment people see bad news they panic. Similarly, they get excited if they see good news. The hangover of bull market brings fear of missing out, or FOMO, very quickly.

While you must buy equites, you must also back good promoters.

Liquidation happens in markets. A lot of good names get beaten up. I learned that it is important to see the man behind the business after doing hundreds of Initial Public Offering, or IPOs.

Narayana Murthy and team brought very different values to the market and the world. The same things apply now. If you see a businessman like him get punished in whatever sector, that’s the sector to get into. A lot of businesses that have good leadership and promoters are getting beaten up in this market and that’s the place to go.

While the index has not performed, individual stocks have generated returns. Where will alpha be generated?

Generating alpha is going to become difficult, especially in this uncertain situation.

The fiscal package could provide a liquidity support to banks and a lot of them will survive. Once the country opens for business, non-performing assets, or NPAs, cycle could come to a visible end. Once that happens, some of these stocks will recover.

Gold has also generated good return but will it remain a good investment for all times? The answer is no.

I see opportunities in technology, telecom and pharmaceutical sectors. You could see automatic COVID testing labs coming up because you can’t risk the lives of frontline medical staff. You will see robots helping patients. A huge opportunity will emerge in technology.

You cannot have cricket matches without people in the stadium. Is virtual reality and gaming come into it? The way we get entertained, educate, socialise, everything will change. Businesses that have an edge in technology will benefit.

Physical retail is getting into online retailing big time.

I’m hopeful that the way we were consuming and what we were consuming will continue in future. People love to go out and socialise. That will not change. But the way we do some things could change.

The changing dynamic of Work From Home, or WFH.

The National Association of Software and Service Companies, or NASSCOM, has said that a large part of its workforce would work from home in the next three years. Home has to be redefined. The present homes are not equipped for WFH environment. It is a huge social shock. So WFH may not continue for long.

Home is a separate social profile. There are some advantages like saving on travelling time and costs. But it is still very early to gauge the productivity of employees working from home. It is not easy as it is projected. Information Technology is only a small part of the employment pie. IT and financial sector can work from home, but other sectors cannot.

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