We are not starting with oo Kotak. We’ll have to start with something different.
I spent two weeks in America learning about institutions. If you want, I can give you an idea why they are preparing to load more in India.
Are they preparing to charge India and if so why? Also, what was the larger topic that, in a sense, you discussed when you met them?
We were surprised by the degree of discouragement regarding China. I have to confess that I have never been to China. I’ve been to Hong Kong several times, but I’ve been to mainland China like everyone else. I just read the newspapers about what is happening in that vast country. But looking at endowments and pension funds in the United States, it’s pretty clear that they have some pretty grim news coming out of China.
The ongoing Covid lockdowns, soon to be on their third anniversary, are having an impact on people’s morale, on the economy, on the production facilities that Western companies have there, and more specifically, the new Chinese Politburo has created a real alarm in the western world. . Given that Western investors have $3.5 trillion invested in China, the feeling I got from our meetings is that a substantial amount will leave your country.
Of that $3.5 billion, even if half a billion dollars reaches India, that will almost double FII’s investments in our country. Obviously we at Marcellus are doing our best to see if we can bring some of that half a billion into the Indian stock market. But Marcellus aside, India’s wider story over the next two years will be a very significant FII entry. They have already started, but these FII inflows will increase over the next two years as China continues to unravel.
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Are you tempted to ask where that money is going to go? I wanted to do some research on the advantage of China plus one that India is currently seeing and manufacturing seems to be the big beneficiary. Is that a pocket of interest to all the investors you met abroad?
There is a lot of interest in three sectors. Remember, we’re talking to these pension and endowment funds and they’re basically talking to people like us to let us decide what to buy. According to what these endowment and pension funds read in The Financial Times and The Economist, they are very interested in understanding three sectors.
The fact that the iPhone 14 is made in India and that Foxconn is having trouble making the iPhone 14 in China has people really intrigued. I know that approximately $1 billion worth of iPhone 14 has been exported out of India every month. Apple has also announced that its AirPods will be made in India and so the larger question many people were asking is how big the smartphone opportunity can be for India. By some estimates, we have seen the entire smartphone and the supply chain that powers smartphones may be as big as the automotive sector in India. So, there’s a lot of curiosity about whether there’s money to be made from it.
The second area is the entire API market. The global API market is around $250 billion. China accounts for about $200 billion dollars of that. It’s relatively clear that the US government is quite uncomfortable with that and the question we were asked was how can India materially capitalize on the API market. Can this become a $100 million sector for India and if so? which companies can benefit from that and we have been discussing it on their channel for a couple of years.
The third is defense. We import $70 billion worth of defense equipment every year, and as you may have seen in the Tata deal, it seems likely that there will be more of these deals where the foreign defense company, whether it’s Lockheed Martin or Raytheon, will do a joint venture. with Indian. partner and that $70 billion has gone and become part of the Indian economy.
If we add these three sectors together, we are probably looking at at least half a trillion dollars of additional economic activity, which for a country like ours with a $3.5 trillion economy is very significant. So there are a lot of things going on in the background that are also generating buzz in India and there are a lot of unfortunate things going on in China that are causing western discouragement about China.
What has changed in the last year and maybe a lot will change in the next year, be it geopolitics, interest rates, commodity prices or positioning in India. When things change so drastically, what changes for the companies you follow? What changes for your portfolio positioning?
One of the things that I’ve seen in my career and I’ve been doing this for the better part of two decades is that when the world changes rapidly and there’s a rising cost of capital, you have to go with the management team of the most high quality. One has to back the major allocators of capital, developers who have proven decade after decade that they can run high-quality businesses regardless of whether GFC is happening, Covid is happening, China is booming, or China is falling.
I think that’s still Marcellus’ call. Obviously we discussed these changes in debt internally but ultimately the call remains to leave behind developers who have proven time and time again that we are champion trader and that will be the core of Marcellus portfolios. It is not going to change radically even if China falls apart in the next two or three years.
(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times)