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Ramesh Damani
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Ramesh Damani has a certificate, barely visible in his office at the Bombay Stock Exchange, which congratulates him on successfully completing the half-marathon. It is tucked in behind a shelf and a visitor might think it perhaps deserves more prominent display; considering that he completed 21 kilometres in under the three hour mark.
But that is only the first of a number of things he has done since turning fifty, including climbing one of the tallest mountains in the world and trekking the largest desert.
A man who came in ‘fairly late’ into investing, he is bullish on India and especially bullish on consumption. In a conversation with DNA, sachhe shared his thoughts on reading, investment and doing something new every year.Excerpts:
What are the current events that the markets will watch?
Domestic factors such as interest rates and industrial production for one. There would be focus on corporate earnings too.
What are your expectations from earnings?
I am going to wait for the earnings of FMCG (fast moving consumer goods) companies. It has been a red-hot sector in the market with huge multiples. So if their margins are under pressure or if their growth is under pressure, it would not be well received by the market.
What kind of macro developments are you factoring in now?
I am more of a bottom-up stock picker but my personal sense is that you will see one more interest rate hike of 25 basis points (one percent is 100 basis points) but that is it. I think if the monsoon is reasonable we should see a moderation in inflation. So the scenario six months from now looks much better than today.
How is the consumption story different from the poster children of earlier bull runs?
Any bull market will have leaders. In 1993, it was the cement shares, in 2000 the technology shares. In this bull market I think it is clearly the consumption story and evidence shows there is underlying truth to that. We go to the malls, they are packed. We fly a plane, it’s packed. Just go anywhere and you can see that the Indian consumer is out there spending his wallet. That is something that had never been seen in India. Nine o’clock at night on a Sunday you will find malls packed. You can’t get a (movie) ticket for love or money on a Sunday in any major metro in India. The (air) fares are just raised-if the typical fare is Rs5,000, the last-minute fare is Rs10,000; if you can get one.
And this is a young country. A lot more people are coming into the consumption age. So my sense is that the market is discounting that story. The consumption story is for real. I don’t think that it is a case of a bubble developing as some people may believe. And the sheer raw numbers make this a very exciting country. As a young country maturing, the kind of figures that you will see in the average category — whether it is cosmetics, food, cigarettes, alcohol or travel — will be absolutely astonishing.
I think we are seeing early evidence of that. And I am a firm believer that while a lot of the stocks are expensive, you can look at another bunch of stocks as potential opportunities. A well-diversified portfolio should have some exposure to domestic consumption.
There are various ways to do it. You don’t necessarily have to go out and buy the pizza company or the watch company, there are other ways to do it.
Such as?
Alcohol companies have not participated as much. One thing we are looking at is the glass manufacturer because ultimately the boom will reflect on that segment. We are still under-penetrated in terms of glass in India and some of these people have pricing power. It might be through a media company, it might be through a television stock. If you can find out a thing that is going to be correlated to a consumer boom, you will do well. Five stocks may have already taken off or ten stocks may have already taken off. But there are a lot of ancillary stocks that will start feeling the effects of the consumer boom. It could be advertising, it could be media, it could be cable, it could be raw materials.
The large-cap FMCG stocks still look good to me. I believe that media stocks in India are fairly cheap and that digitisation will happen sooner than later. And once that happens the entire content distribution guys will get re-rated because that’s the one big trigger that they need. Also I believe that if you are going to have a consumption-led economy, there will also be a big boom in logistics, warehousing, those kind of businesses.
Anything that you won’t touch at all? Everybody talks about real estate...
I like real estate. I am buying real estate companies. I think there is good value there now. What I would avoid, I think, is microfinance because I think it makes no sense to me. Companies that have to guzzle capital, probably raising capital to fund expansion plans - it’s probably a bad time to be in that segment. The markets are respecting companies that don’t have to dilute equity or have a good return on capital. Maybe infrastructure companies, but I’d be very careful with those companies.
How is oil expected to play out?
It is my belief that while oil is extremely volatile in price, is inevitably headed higher over the long run over the next 5-15 years. There is only so much oil and we are extracting it faster than we are finding it. There is only one way for the price to go —higher. And if you adjust at $100 of oil for inflation, and compare it with $30 a barrel which was the price in 1979, it’s close to that price now. As a percentage of income or as a percentage of GDP oil is no longer as important as it was in 1979.
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