Why Amit Jeswani would rather buy consumer tech cos and not PSUs

“By investing in consumer tech stocks, we believe that if we go wrong, we will lose 1.5% of our portfolio; if we go right, in the next one, one-and-a-half year we will make 15-20% alpha on the 9% position. We have made decent sized positions,” says Amit Jeswani, CEO, Stallion Asset

The entire market has fallen in love with PSU banks and PSUs in general – be it defence or railways. You have steered clear off that space so far. What is the thought process behind that?
Our customers are very happy if we can compound their capital at 20-25% and that is the goal we have set internally for ourselves. So, we do the 20-25% kind of compounding with risks lower than the benchmark. Since inception our portfolio beta has been 0.85. We do not have to do the PSUs and the defence plays where they go from very, very, very cheap to being cheap and then very, very, very cheap again.

But the market this year has rewarded neglected spaces which fund managers avoided. Those are the spaces which have done very well. There was small earnings growth and the trick was done. In the case of PSUs in general, we do not invest in B2G business models because we have a 20-25 stock portfolio and we believe that we do not have to go there to do that.

I want to talk to you about consumer tech and the relationship with consumer tech and high growth in the inflationary environment and also how discounting of these companies happen. What are your thoughts there?
We have added two consumer tech names in the portfolio. This is just a disclosure and not recommendations. The first one, which is on the insurance tech side, is 1% of India’s insurance market. The market cap there is Rs 20,000 crore. They have Rs 6,000 crore cash on books and the enterprise value is Rs 14,000 crore.

I believe that if they move from 1% of India’s insurance market to 2%, the profit will be north of Rs 1,000 crore and can be closer to Rs 1,500 to 2,000 crore in the next three-four years. If they become 3% of India’s insurance market premiums, the profits will be north of Rs 3,000-4,000 crore. So loss is not the right way to look at it, it is about free cash flow loss.

Most of these companies are not making profit. The payment player is near profit. If in next one-two quarters they turn profitable, which I am expecting them to do, I believe decent money will be made in these stocks.

So growth remains at 30-40%, The insurance tech player is 1% of the market, yet it is the market leader with 94% of online insurance policies being done via that platform. One does not want to bet on businesses which are number one; one bets on businesses which are the only one in their segment, market leaders and have the ability to grow at 30-40% and as the revenue growth comes, 30-40% of your cost will not grow at the same level.


The cost growth will be way way lesser and so there will be a J curve in profits which will get developed in these kinds of names. There was a massive supply and a wait for these supply points. We have accumulated them and now fintechs are 9% of our portfolio. We, of course, have our stop losses in play and so we have to manage our risk, but we do not believe the stop loss will get hit.

We believe that if we go wrong, we will lose 1.5% of our portfolio; if we go right, in the next one, one-and-a-half year we will make 15-20% alpha on the 9% position. We have made decent sized positions, now is the time to start praying.

Let us talk about one more big bet in your portfolio – Bajaj Finance. At one point in time, it was almost a monopoly in the consumer lending space. Then they had a massive digital backbone and digital dissemination methodology, In the last couple of months it seem to have gotten sideways and some say a derating is happening because the landscape is getting very competitive and big players like Jio Financial Services may disrupt this space. How are you analysing this opportunity?
I do not think we will be able to compound our capital at 40-45% which we have done in the consumer finance company going forward. India’s lending market is Rs 110 lakh crore. Consumer finance is growing at 10-15%. The consumer lender that you are speaking about is 1.7-1.8% of India’s lending market.

When you look at the credit cost scenario and what this player has done across cycles, it is unbelievable and if they can continue this and the growth remains at 30-35% and the AUM doubles basically every two-and-a-half years, what is the problem? The ROAs are 5.4% and ROEs are closer to 20-25%.

These are players that will stay a tad bit expensive. The markets have derated them from eight-nine times price to book and are now closer to six-seven times price to book FY23. The game is simple. When it comes to six times price to book, you buy it, when it goes to 10 time price to book you cut your position somewhat, but you will still get your book value compounding; it will be 20-25% CAGR and that is what our customers want.

So our customers are very happy. In real life, the ones who have made money in steel, would have gone in sugar or some other ferroalloy or something like that. Now the ones who are making money in PSUs will go into something else which is very low quality and sometime in the very near future, they will give all the money that they made doing this low quality investing time back.

This is a cycle, the ones who bought HEG made money in HEG, they bought Rain Industries; made money in Rain Industry and bought something else where they lost money but it is very difficult to consistently make money out of that low quality cycle in public portfolios. Globally, I do not see many public managers being able to make returns in B2G kind of business models but right now there is a tailwind, the stocks are making new highs and if you are a momentum investor, you have to ride the trend but in our case where we have specific risk return goals, we do not have to go there.