Which Sector is the Future of India?
if you see the consumer sentiment data of China or the industrial production data not only from today, even if you see the production data of Chinese goods exported globally, all these things are coming down from last 2-3 years so it is not that only we are doing good China is not doing well from 2-3 quarters the benefit is visible to many countries not only India I am not saying all of it will be shifted to India we are just 2% of the global export market India as a country I think if that 2% goes to 5% it will be very big for India so the Chinese issue or the government initiatives another thing is very important Vivek when the economy starts expanding, in the last few years there were many operations so no corporate had the guts to do capex as I said, there is a leveraging cycle from 2008 to 2012 then there is a deleveraging cycle that happened but now at this point the banking books are so strong, which was not earlier When some people talk, they talk with the data and I have a strange connection with data. I feel happy when people talk about data that it is so fascinating people are using data Food, clothes, shelter, and data this is what drives us and it helps us to make our lifestyle better I did face2face previously with some people online with whom we had some nice conversations And now I am looking for chances that how I can do offline face2face with them So I can do a next level discussion, and can do a follow on the discussion that I did with him in part 1 So 1 week I recorded with Alok Jain and uploaded it I really like him with whom I am going to talk today His catch in investing process is very data driven, which really inspires me. I really like to talk to him because every time I learn something new and in today’s video you will also learn a lot So in today’s part 2 video, we have with us Varinder Bansal in Kolkata Welcome to Kolkata, thank you What do you say? Dhonnobaad! Yes yes So good to see you, we did a face2face 2 years back in June 2020 it was during covid I will say thank you again because that was great content so now I have got another chance to do this with you again So we will do a follow on discussion from where we ended And friends, if you haven’t watched that then you have missed out on a lot because that was great content and I will share the link with you here It is a 2 hour video, which has a great learning and exhaustive content which Varinder has given to all of us I am really happy to be here first of all thank you so much for having me here you have got a great office huge team and I am sure a great team as well but thank you for hosting me here Thank you so much, it is always a pleasure to interact with you You have so much knowledge and it won’t come out in one interview So I have taken a commitment from you that it will keep going on Maybe we will do more face2face in the coming years no 3 no 4 no 5 because the market is so full of knowledge. It is a well of knowledge
So let’s do a bit of recap First 5-10 minutes we will talk about investing process, whatever you find is right tell us Then I want you to talk about some new theme in this video that what do you think So Vivek Bhai, if I remember this correctly then I told you the same thing before and I will say this again I don’t think anyone thinks this about India story or they have any question I will try to show this presentation less and will go more on my thoughts Look, you will have to think like the government if you have to really make money in India I always say that with every step taken by the government or any organization, you have to understand what are they thinking If you see then the balance sheet of India in the last 7-10 years have been really bad Every time in every budget we talk about the physical deficit which is 7 million dollars and sometimes 8 million dollars We also talk about the physical deficit in the GDP, which is 3.5,4,5% and that has been constant It has a reason, you think of yourself as a government, you have an income and an expenditure Your income has direct and indirect taxes, and your expenses are there Our income is not increasing but our expenditures are increasing, every time we tell the government to reduce our taxes You are not making roads you are not giving proper education Every state government has something so we have a lot of wants If I think like this then how will I get the money and from 7-8 years they are saying that there are no investment in India And there have been many things in the past like GST, demor, nbfc crisis, Covid, Ukraine and all those things that is happening has also led to the drawback So the government is very clear that we have to increase the income and how will we increase that One way is to increase your direct taxes but we love our country and that is a big disclaimer When we say that the tax to GDP ratio is 3% then we are not a developed nation, we are nowhere near that So if you see then in these few years the government has made it very clear that they do not want to increase the taxes You must have heard Nirmala Sitaraman that she wants to increase the base Because if you increase the tax-GDP ratio to 10% then you are better off than what you are earlier So you think about aadhar, NPCA revolution, the big revolution of UPA, NPC, I can’t even imagine what happened they are taking everyone into the gambit how financial inclusion comes into the database So that people are not stealing and there are less leakages that’s why our tax-GDP ratio has increased to 8-9% from 3% Second, if you think what the government has done then dera, gst, demon then PLI, PLI is one of the biggest incentive schemes that the government has given the way these labour reforms are happening, we reduced corporate tax, which is the lowest in India we are hearing about independent India from a long time so these are the strategic steps of the government because they want to clean their balance sheets and reduce the expenses almost 10% of the population works in the textile industry in India if you see look how Bangladesh and Vietnam is ahead of India now why did it happen? because the government never focused on it Piyush Goyal has a different kind of fire in him these 6 months so the FD happened with Australia, UAE, now they are talking with UK every minister is targeting how we can increase manufacturing in India and how more people can come to India in the last 10 years did you hear that Apple is manufacturing here? be it Apple, Samsung, Vistron, all of them are in India now people are producing here, they are doing it domestically, MNCs are bringing there technology here India can make a big export market or not is a big question mark so think like the government, if you see the clear picture then the government has made it very clear in the 7 years they want to increase their balance sheets or maybe our condition would be like the neighbouring countries because we are very well off but what if do not do anything in the next 5 years? This attitude will kill us second, as we all know, India will become a $5 trillion economy you can question if it will be in the next 6,7 or 10 years? if the growth of our GDP will be 5 or 6%? they are very very clear that it will happen, so we will go less in the India story what is the significance if we view it in a simple way any developing nation's market cap to GDP ratio is the same so if today we have 3 lac crore GDP then that is also the market cap if our GDP will be 500 lac crore then we will be the 3rd largest economy in the world it means that the market cap to GDP can go up to 1.2% even now so 600 lac crore can be our market cap in simple terms, if in the last 50 years the market cap was 300 lac crores so in the next 10-12 years this country get 300 lac crore market cap income from the stock market I don't think anyone has a question mark how it will happen in India now if you want to make money, which this show focuses on be it a technical trader, options, fundamental or anything you have to make your own process someone took this and that, this story, it will happen like this and everything all these things give you a lot of loss I say this all the time that stocks don't make money you make money from allocation so it is very important how you have allocated your portfolio some people have 50 stocks, some have 100 some people don't even know what stock they have in excitement sometimes they take this stock and that stock it will have this story and that story so people pay really less attention on allocation it is very important that you follow any process if you have to make money then it will take time in the last 20 years, we talk about people like Rakesh Damani, Radhakrishna Damani, Ramesh Damani, RJ, Madhu, Sunil? Why do we talk about these 10 people? when we have to call to CNBC then we call them only because there are only a few people who stay in the wicket for years you will make money for a few years, that will be luck not skills, even stock market gives that so make a process, and very very important make less mistakes you will make less mistakes, you will automatically make more money I never say what you have to take I always say what you don't, if you have a good rejection rate then you will automatically know you have a process if you are taking stocks because someone told you or you saw it on TV then it doesn't work like that so that is the problem, I see that some people take some stocks and then they take more listening to some stories I remember, Rakesh Jhunjhunwala sold crisal to buy some property for his sister he told me it was his biggest mistake he sold it for 30 crores and it increased to 700 crores he said he could have sold some waste item but if you have sold crysal but don't sell the winner you think that this stock has given you money so you can sell it now, so that is the biggest mistake if you want to make huge money then you have to ride the winner and do proper allocations if you think this is 50% and 100% and you can sell it off then take some other stocks then no that is the biggest mistake so create a process make less mistakes, and if you have taken stocks then you should have an answer why you have taken this stock if you are taking stocks for some other reason then you might get money because of the market but you will not have the skills someway or the other you will lose money before starting anything I always tell myself something if you make less mistakes then you will automatically make money they ask me about which stock to buy, but I tell them what you should not buy to make less mistakes small small stocks can increase that you won't even realize and that only takes money, why and how much you have to take? everyone tells you to take this stock but no one tells you why you should take that, ask them why? never mix your drinks, you should never mix trading and investing sometimes the stock you take for trading becomes an investing stock so you sell it off later on sometimes the trading stock becomes a forced long-term stock another thing I have seen is that people take a lot of stocks looking at the PE I have never understood this statement because this is not a good concept I always say that the cash flow is a statement that gives a true reflection of the company you can do a poll on this also, stocks like tata, bajaj finance be it Kotak, SRF or any of it, how many have these stocks? they just check the PE every time, and do not check the value you have to know what is the factor, which is increasing the price earning ratio from 50% and more that's foolish on anyone's part to think about so if you think that SKF, Tesla is working for these last 5-10 years, so will the Tesla say that because SKF's pe is low so they won't work with them it is important to know how we work, how we make the process and how it is done how the company even does, it depends on the market cap, so I said that the market cap is 12000 crores, and 7000 is the market cap okay then take idea, the stock is 9 rupees, 30-40 crore is the market cap, 1.5 crore is the rate to lose weight you have to walk, go to the gym, eat less, but who even does that a good stock never takes your money, it is always the bad stock that takes it whether they are able to take the advantage or not, when there was a telecom boom then MTNL was nowhere But holding stock is difficult. You feel that the stock price had doubled so sell it and buy another stock that is the biggest mistake.We did not sell that stock which gives us huge loss
The idea has to be was if the stock is in loss and you know the reason and you know it is a waste And everyone knows this. And heart of the heart we all know that we bought this stock mistakenly He said to buy this stock. But now, it can't sell as it is in loss & we sell that stock which is in profit So, don't do that. As soon as you cut your losses, you will protect your money
and you also grow your money with the winner. Never ever sell the winner just because the company announced a bad quarterly result. If their story will change that's a different thing. But don't sell like that One more thing I would like to tell you that for the last 7-8 years, one great thing happened in India As I'm telling in this slide, India implemented GST, RERA, Demon, NPA clean up In India, for the last 7-8 years operations is going on and some domestic issues And some external causes like covid, Russia-Ukraine war. So, a lot of things have happened
Due to this economy is not growing well. You have seen that bank growth had only 4-5%. From 2008-2013, we have taken huge leveraging. And this process was placed in entire India. And from 2013-2018, we see the deleveraging in the entire India Sir, it is of utmost importance to understand why they got that P/E and We always think that how much will the sector growth of any company I think we have to focus on the supply side rather than the growth of the company.
that how much capacity in that sector There are many industries, in which only 2-3 market players own 90% of the market share It is difficult to get new players in this industry. Because of all these operation, 50-60% of companies whose balance sheet is not good and promoters are also not good that has cleared off Only 2-3 companies are left. So, if India will grow then these companies will get more benefit. Today what happened in the chemical sector. We took only half percent away from China, and the market of chemical companies went up by 5-10% And who will get more benefits? The companies whose business are present in different segments. On the supply side, only a few companies are left in the business is the great thing. And I will give you an example of the bearing sector From 70 years, only 3 companies have 90% market share in the bearing sector i.e, SKF, Timken and Schaeffler.
But then you say, there are more than 2-3 companies, but they have a small number of shares and that doesn’t matter. but today is the Adani, Ambani or even China making that product should be impossible, you can make a big bearing company your product cost should be on how someone is not able to duplicate that product you shouldn't be able to make it, the product cost should not be disrupted if anyone even tries to disrupt then it will take years' if someone wants to take a new client then they take 15-18 minutes so the longevity of the company is so huge that they get orders for years So in India, the supply set has ended if we ask why Tata Elxi, SKF, or Scheffler runs? then they always keep running these companies will keep running at 25-30% and it will always happen like that and it is scarce, there are no values with these companies in the last video, the process you told us was more bottom up you were using screener and taking out stocks for multiple parameters then you were making the view of the sector and then investing this time your view is a little top down, you are looking at the sector and then taking out the stocks you have experienced both, so which one is a better approach I think this is a very very good question that time the market was really bad, you were getting everything at a cheap rate you were getting Hero Honda at 7-8 PE that time you needed the view if you need to go in a sector or not or you need to take a broader, macro view you needed to see the company, which will do 20-25% ROC then you can check after making the list and which sector you have to go then I invest in one of the 10 companies Indian hotel used to be 10-12 rupees at that time in today's time if you do the screening then you might get some ideas there are many companies that will see the ROC but the market has matured from that time so you won't get good things at a low price, now you have to take a bigger call first you have to understand if you can take these possible steps or not I think one should be really alert as an investor as I said your process should be identified, with time you have to address it in the broader perspective if you look at the trend then you will make a lot of money in 2004-2008, even when air was selling off so Unitech's market cap went from 10 lac to 1 lac crore be it hubtown or ormax, many even got shut down, even then you would have made money Trend is really important I think this could be a big call for the country manufacturing is a big call, and I don't think it will change in 2-3 quarters this is a pivot for the country, it can take the country to a new high from the past 30 years, we are stuck in 15% GDP 15% for the last 30 years just think about it, don't even listen to me have you ever heard these companies or the government to, be it PIL schemes or the labour reforms be it aatmanirbhar or reducing corporate related tax apple, samsung, and vistron all are saying that they will manufacture in India if you are doing this then you are changing the whole structure of the GDP if we define this quantum wise, be it 15% how much will this be percentage wise? and how much will be the quantum? whenever we talk about it with anyone they say it is expensive they ask for stock ideas and then you have to see how it is performing downwards in the current times if we see then the manufacturing industry can grow 2-3 times in the next 7-8 years the total sales of all cap goods in India is only 2.5 lac crore in today's time, sales are only 2.5 lac crore, there are scopes for such countries to grow consistently they are the ones who use money from their own income. Their debts will be 13000 crore people forget one thing, they just see PE, they should see the ROCs there is a scarcity value, which is coming. The company won't be able to do it
if you see China's data or even the production data then the goods are coming from there this is the deleveraging cycle, trust me the banking books are so strong now, which was not earlier you see numbers from Canara bank, Kotak, ICICI, the credit growth is going to double digits it was not there before, so it is a big thing, which is happening they can get a book value of 1.5-2 crores, and it is also possible to get 100 and in the toughest times, these companies won't do well so why do you want to see the PEs because it’s very very simple. The credit growth, the opportunity size in this phase is very very high compared to what we’re thinking and these companies have such strong balance sheets that they’ll be unbothered by these things. Understood.
But the whole cycle from 2003-08, inflation was rising, it was demand-induced inflation. But for the last 2 years, you see, the inflation is more supply related. The price has increased because there’s no supply. Do you think, it’ll shift and demand will generate? I’ll show you the data, see you’re right that earlier it was on the demand side and now, it’s totally on the supply side but I think it’s very industry specific and I don't want to generalize the comment whether it’s happening or not. In some sectors, which are Globally related such as IT or Pharma doesn’t have much demand. If I show you the numbers in Cap goods, It had a huge demand. You must have seen the stock results, they had 50-100% growth. So demand is there. I think what’s important is, where and how you take your position. But one more thing which is very important to understand,
when we talk about manufacturing or cap goods sectors then many people think that if the story shifts in India then the domestic growth from these companies will keep coming. Now also when I talk to people, they think that a huge current will come in domestic but I think there are 2 more huge things, which I think is happening, there are signs and if it keeps on continuing, then I think it is a huge bazooka. I’m using the word bazooka very carefully for the entire cap goods sector in India. First thing is, that there’s a shift of technology happening from MNCs to Indian companies. It is very very rare MNCs are saying that I’m shifting my technology to the Indian counterpart because they know how big a manufacturing basket India can be for the whole world.
Second, what’s happening is that they want India to become the export hub for the MNCs which has never happened before. If you’re seeing the con calls, then there are several companies that have pointed out that there’s a technology shift, there’s a China-plus factor, export opportunity is arising Vivek, you know these are the companies you’d love to listen to them. They are not smaller companies. Hear to the ZF Concall It says, as a part of its Refresh India Strategy Euro 38 Billion Dollars- ZF Group plan to double its sourcing from India to 2 Billion Dollars as part of its China-plus strategy to ensure reliable supplies Each word is important here. These are strategic decisions and they don’t change in one quarter because they are thinking big.
I was reading the concall of Tube Investments, so Valian ji is a very renowned person, whom many analysts and industry people listen to He’s saying that the supply chain of EVs has to shift in India in the next 10 years. It’s a big change. If you ask why is it changing then technology shifts as RHI Magnesita did Now, ZF is doing it, SKF is talking about it, so there are many of these companies. So don’t be mistaken that it is only Domestic 50 lakhs opportunity but if the technology and export thing happens then it’s going to be vast. I’ll show you the numbers. This is SKF, Schaeffler and Timken- again no stock specific but I’m just telling you to look at how are exports growing for these companies as a % of Total Revenue. There’s a word you know, you think if Samsung, Apple, etc are coming in India
and these are very big players and not small players. Ecosystem. If the ecosystem is being built in India, if these 2 are coming then 10 more companies will follow them. Because if they are getting to know that they are manufacturing here, their work is being done nicely, Government Policies are helping them, cost of production is less English-speaking people are more and all those things are happening in India then you’ll see an ecosystem developing. Now here you see, export for each and every company is rising. 7% to 10% for SKF, 11% to 12% for this, and if you see Growth in % terms then it’s 143%, 73%, 89%. Earlier it was almost flat. So these companies are believing that export from India and if this trend starts then following it, 10 more people will come and sit in India and export from here, shift the technology here. the 50 lac crore will increase so much that you won't be able to realize it, China can shift their system here and start manufacturing from here only even the cap goods percentage today is 3% and it used to be more before in the last 50-60 years, we have not seen the government giving so much importance to manufacturing industries this is a trend, and how much money you will make in this trend you won't understand you are getting companies in 10000 crores, 12000 crores these days there are many sectors like textiles and others, which will come on our radar I find it very fascinating that people in different cities think that will know about everything that is happening around it should be data backed belief, if I say it is 50 crores then it should be backed by data but with the same conviction, you have to take it 10 times and more