How Piper Serica PMS got its portfolio right

Unless there is a Black Swan event, I do not see the funds flows reversing at all, says Abhay Agarwal, Founder, Piper Serica PMS.

Congratulations on your portfolio. A large part of it is touching new highs. Let us start by understanding your call on the platform companies. You understand that space very well and got in a little early. What is rerating that counter or that space?
I have been talking for quite a while now on how we look at companies that are using technology to disrupt existing industries and also to benefit from new emerging wide spaces. Some of the names that you mentioned right in the middle of it are companies that are using technology, technology platforms and digitalisation, the speed of which has gone up dramatically in the post Covid era where customers have adapted to digital channels very fast.

There is IndiaMart — the B2B adaption of SMEs on online digital platforms has been quite rapid. The same goes for companies like MCX which are seeing an increase in a number of traders, investors on one side and new product launches on the other side. A lot of these companies have created very solid platforms even in the insurance space. Something like ICICI Lombard or HDFC Life are using digital tech very well to acquire new customers and service existing customers. That space that will continue to play out for many years to come.

What is your view on the way huge amounts of liquidity continues to come to emerging markets? India is one of the higher beneficiaries. Is there still some more room before the flows ebb away?
I do not see the flows ebbing away at all. In fact, seeing what is happening around the world, the flows will actually increase and it was only in November and December that we got record breaking inflows, FPI inflows in India prior to that rest of the year was either negative or flat and this year we will see incremental flows. China gets around $120 billion of FPI flows every year; we are getting $25 billion and so it is not a large number anyway. When you look at global debt which is now trading at negative yields of $18 trillion, a large part of that debt will anyway move into higher yielding assets. Emerging markets including India will get part of that flow. Unless there is a Black Swan event, I do not see these flows reversing at all.

Everybody seems to be in love with private banks. What are your thoughts?
Last year towards the October, November, there was this fear and it was justified that the moratorium rates were unknown and how much of loan restructuring will need to take place. It was an unknown number and investors were cautious. But now it is emerging that the moratorium numbers are nowhere close to what people were expecting them to be which means that more people are paying back, there is enough liquidity in the system, businesses are opening up and SMEs are borrowing.

We still have not been able to see if the credit quality has weakened further. But if that does not happen, private bank numbers this year will be definitely better than last year.

What did you read of Mr Aditya Puri becoming advisor with the Strides group?
Strides group is very fortunate to have somebody like him as an advisor. I can only hope that they use him well. Considering the kind of value creation he has done over the last 25 years at HDFC Bank, if they can use even part of that it will be a great outcome for Strides. Mr Puri is very forward looking. If he has shown an interest in pharma, that is a good sign that somebody like him is supportive of the efforts by an Indian pharma industry.

Your view on realty stocks and impact it can have on other sectors.
The Maharashtra government has shown by example that it is not the percentage of duty but it is the number of transactions that drive governments’ revenue. If you look at the December data, the Maharashtra government stamp duty collection was at an all-time high despite the stamp duty being cut to 2% from 6%. That means there is pent up demand. If the government is supportive of both the developers and the buyers, this industry can really grow rapidly.

Personally in 2021, we will see pretty solid growth in real estate sector which has done nothing for investors for the last 10 years. In fact, most of Mumbai prices see are either the same or lower than 2010 prices. Realty moves in a non-linear fashion. There is adequate demand, the affordability index is at an all-time high with the cut in interest rates and lower prices, inventory is getting up very fast, the industry has consolidated with fewer players, RERA, GST related issues are behind us. I would not be surprised if within the next three years, one of the real estate leaders joins the Nifty. It will probably be Godrej Properties.

In your view, is there any space which the market is ignoring right now but which could surprise us?
Nothing seems ignored right now and investors are going through everything that has value. We had a discussion about Dixon. A lot of people think that Dixon is overvalued; it probably is if one was to look at the recent numbers and value it on the basis of next one year earnings or two year earnings. What the market and investors are missing out is that this is really the Y2K moment for Indian manufacturing industry.

With the government support for scaling up large organisations and bringing in cost and marketing efficiencies, people have to look at companies like Dixon and other manufacturing companies. These companies can do what IT companies like TCS, Infosys, Wipro did post 1999 where they scaled up massively and that scale brought tremendous rewards to investors and continues to bring that.

TCS is at an all-time high. Going back 20 years, these were not consensus trades, they were very expensive but look at the kind of value that TCS has created at Rs 11 lakh crores of market cap! Dixon is just about Rs 20,000 crore of market cap. Investors need to look at what is going to happen, which are the white spaces and which are the once-in-a-decade opportunities.

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