Saurabh Mukherjea's contra bet: Invest heavily in champion franchises
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Synopsis
The western CIO has very little choice but to load up on EMs. India is the big shining game in town among EMs as China, Brazil have issues, says Saurabh Mukherjea.
My answer is an emphatic yes. From March- April onwards, the foreign investor phone calls to us started trickling in and through the winter, those enquiries from foreign investors have accelerated. The reason for that is easy to understand; if you are a CIO of an American pension fund, you need to gun out at least 6% to keep your stakeholders happy. If the US 10-year bond yield is at 0%, how will you get to 6% without investing heavily in emerging markets?
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We should all hope that the cheap western money powers the fifth economic recovery in 40 years in the Indian economic history. This has been the template for Indian recovery: a recession in America followed by cheap oil and cheap money and that powers the Indian economy to life. It is early days yet, but it does look like the beginning of a 2-3 year economic recovery in our country driven by foreign money.
What is the contra call in the market right now? Has the time come to bet on economy-linked sectors?
From a Marcellus perspective, the contra call always is to stay invested heavily in India in champion franchises. This is a country which rewards you very generously for staying invested in champion franchises rather than trying to take profits off the table or running away from the market in months like February, March.
I will never forget that memorable broadcast when I was on your channel. The market went gap down and I have to confess I ran away from the interview to have a chat with my colleagues as to how much we will load up. So, do not get scared.Taking money off the table because of Covid or because the markets have run up is not a clever way to make money in India. Our view has been to stay invested heavily and consistently in champion franchises.
The Indian market rewards you very generously for that. Over the last several years, we are gunning out around 20% returns over several years with low volatility. It is not as if we are buying some highly risky names to generate 20% returns very consistently. We are buying champion franchises and we are making sensible returns for our clients and for ourselves. That is the contra call in India because there tends to be a lot of noise around investing in our country. It is good to block out the noise and focus on the signal that we have got a country with government companies that will make you and me money.
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The monetary policy is coming up. Anything you would like to hear from the governor?
The die has been cast on monetary policy long back. RBI made its position abundantly clear 6-8 months ago. Their focus is on reviving the economy and I think they will stick to doing that come what may. Inflation clearly is being ignored. I support the stance. I believe that at this juncture you cannot be losing sleep about 7% CPI inflation, given that the currency is not under pressure because the balance of payment position is healthy.
RBI is right to keep the foot on the monetary pedal. I do not think we will see a rate cut but the easing of money supply will continue. The bigger question is outside monetary policies, when will we get a decisive view from the RBI on bank licences? The slide of the PSU banks, the slide of the second rung private sector banks has been evident for four-five years and we need fresh capital infusion in our banking sector. It can come from foreigners. It can come from corporate houses. RBI needs to come up with a clear point of view on that. It is all very well to have learned people giving opinions in newspaper editorials, but for the economy to move forward, we need a strong banking system and for that the central bank needs to say who it will give bank licenses to in the coming years.