Strong businesses can become stronger, bigger & better – Bharat Shah

PMS AIF WORLD organised a webinar with Mr. Bharat Shah, ED, ASK Group, for our investors to get answers to questions and worries related to Equity Markets in the current scenario of  COVID 19.

This article presents the interpretations, and excepts of discussion done between Mr. Shah and Kamal Manocha, CEO PMS AIF WORLD

Markets always have some degree of uncertainty, sometimes more, sometimes less. Today, the uncertainty is certainly more, but, certainly this looks like a short term phenomena.

Human mind is driven by the recency bias, and COVID coming out of a sudden has given the SHOCK. March’20 was a terrible month. But, at the same time, one constantly needs to reconcile between what one believes the future is and what may be reality is. COVID is an important challenge but looks a short term challenge. It does not alter fundamental businesses in a negative way and there are businesses which could gain out of this Challenge. So, there are other positives that one is ignoring and focusing way too much on the negatives. If one takes the sum total of Fear & Opportunities, this is a time to invest, if one has a long term view and if one has a patient capital  for at least 3 to 5 years, rather than 6 to 12 months. And, if this capital is backed by a mind which is equipped to balance between the fair fear and irrational fear, it is a very good OPPORTUNITY.

Let’s talk about of Positives & Opportunities. Fall in oil price is a Big Positive of India. Agriculture sector reforms is another Big positive. The reforms in this sector bring really vital changes. Inflation has been structurally tamed, therefore the cost of capital has come down significantly. This is another Big positive. This has a material advantage from 2 perspectives. One, from the perspective of the users of capital and Two, from the perspective of Investors in the assets. Digitisation is another Big Positive that has implication for rise in productivity, reduction in cost and amplifying possibilities of scalability.

There are strong and weak businesses in each sector. Every such challenge is an opportunity for strong businesses as they will get a chance to increase their market share. And, could eventually show greater growth. Strong businesses can become stronger, bigger & better. As bad capital gets destroyed and good capital gets promoted, this has an implication for the improvement in the overall capital efficiency of the system/ economy as a whole. There are many sectors that could get re-rated. These are like Insurance ( Health, Life, general), Health Care ( including Pharma, Diagnostics), Telecom, Speciality Chemicals, and Entertainment. There are many OPPORTUNITIES to Pick good businesses in these sectors.

Without a doubt, liquidity is driving the markets, but, there is nothing wrong in it. Liquidity driving the prices is a fundamental economic truth. One should remain away from generalisation, as this takes us away from the task of what investing is all about. Investing  is about finding the Good businesses run by Great managements, enjoying trusts of their customers at Sensible price.

COVID is a temporary challenge.