investment themes: What should be the investment template for next couple of years? Manish Chokhani explains

“The power of the central banks has been taken away by the politicians and even in the US, it is my belief that Mr Powell is not going to be Paul Volcker because the current president is not Ronald Reagan. When they get to a threshold of pain beyond which people cannot bear, math will change,” says Manish Chokhani, Director, Enam Holdings.

Where is the puck moving now in the market?
: In a very simplistic sense the puck is moving towards Indian manufacturing. In the current year, of course, I think everyone in the market will agree that financials is the place to be in. Tremendous money is to be made in Indian financials. All of that is kind of given but where the puck is moving to is this massive opportunity for Indian manufacturing to finally come of scale and solve the need of the world and the need of the country.

I do not see as yet so many of my friends in industry being so enthusiastic to say we will put big capex and indeed the FM has also been crying like why is the capex not coming despite the tax breaks and everything? But when you see what is going on in Europe where the factories are shut down, there is no energy and a lot of the industries have basically gone offshore to China and they do not want to deal with it there. So it is no longer China plus one, it is like if I do not want to deal there, where do I go?

So we are still thinking of ourselves as number two. When we start thinking of ourselves as number one in whichever field it may be, it may be chemicals, it may be defence, it may be autos, the scale of expansion possibility is dramatic. Remember in the last crisis 2008, Vivek Chaand Sehgal’s company went 10x. In this crisis, you will find a few more people like that and do not ask me the question today because we are now going and meeting people to see who has got it in them to imagine it and do it at a scale without blowing themselves.

Exactly a year ago, the thesis in the market was everything will become digital and if you cannot become digital, you have no business to be in the business. But the template has changed, suddenly value has made a comeback, is at record high, is up more than 50-60% in the last one year. PSUs doing well. This market has taken a 180-degree turn in less than 12 months. What is the template for the next couple of years?
We had a 30-year cycle where the world went unidirectional that there is the great USA and they will rule the world. Post 2008, the Fed has had your back and in a way they tested out MMT because everyone printed and already even when the US is saying that we are going to hike rates, in Europe they have abandoned it, the UK of course abandoned it, Japan has abandoned it.

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The power of the central banks has been taken away by the politicians and even in the US, it is my belief that Mr Powell is not going to be Paul Volcker because the current president is not Ronald Reagan. When they get to a threshold of pain beyond which people cannot bear, math will change and when you all are geared up 300-325% of GDP, a 300 basis point increase in interest rates is a 10 percentage point increase in interest cost to the economy of which, 3% goes on corporate balance sheets which were leveraging and doing buyback of stocks, 3% goes into individual balance sheet where we have to pay more rent or more credit card bills. Obviously, it comes with a lag. So we have not yet seen the effects because it has only been six months when the rates have started going up.
If this pain continues over next year, what happened in the UK is going to recur in other countries of the world which means cost of capital has come back to being centrestage and what the markets have started doing is already rewarding us on that basis. Hence, even last year, there was that unidirectional bet that you could have bought pharma and made money in Sun and , but you are losing it in Divi’s. You could have bought the utilities or you could have bought autos. More strangely. I found it was Mahindra and , which people do not usually like and on the losing side, it was .

Even Maruti…
…which had EV and everything built into it. So the market is getting more discerning with the cost of capital and value because when money is free at 1% and 2% rates, price earning multiples do not matter. It is all about terminal value. When the cost of money starts going up, you start looking for value and the shift traditionally happens.

If you go back to even 2000, when all the TMT stocks were bubbling, the shift happened and even then money came back.

, , NTPC, all these have performed because they started from such a bombed out valuation and despite privatisation not happening. If and are offloaded this year, maybe people will start imagining that a lot of privatisation will happen and the PSU pack will continue to keep running.

Globalisation seems dead, inflation is back. Crude price is never going to go back to $50-60. What wins in this case?
In India, we suffered over the last decade. We did not really perform because inflation was dead and Indian industry is used to growth. So we want some inflation, the worker feels happier and we may talk about real rates and real incomes and real top line and real GDP, but I do not think in India, when you go out and say the rupee is 82 and the real value of your wealth and your income is gone, if the person gets a 10% salary hike, they are going to be far happier than saying overall you have got deflated.

When you travel outside, not only is your rupee down, there prices are even higher than what you had paid and your net purchasing power has fallen. So some amount of inflation in India is necessary for this country to feel happy. The 2% band in the West will end up moving closer to 4% and our band which used to be 4-6% will also probably be on the upper end rather than on the lower end.

So the template comes back to that that we will want to be buying companies which can pass on some of the price increases, which is seeing adequate demand and because as we are currently running at about 70-75% capacity utilisation, we still have not seen manufacturing inflation and that is why the RBI already knows that by putting interest rates up further. they are not going to dent oil prices or consumption in India. I think maybe we will have one more hike and we will be done. The currency has to bear the brunt this way. Let us see how it plays out.

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