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Waiting for Godot!

Blog Blog Details
  • December 17, 2017
  • Mr. Gautam Sinha Roy|
  • Fund Manager, MF

In what now feels like another life, I came across this play called "Waiting for Godot", an account of two people who wait for a character called Godot, who never comes. As time passes by, the two waiting folks get increasingly anxious, confused and frustrated.

There is a nice corollary to that feeling of despair, confusion and loneliness to be found in markets at certain times.

A feeling which would have been shared by the likes of Julian Robertson, Druckenmiller and Buffet at the height of the tech bubble. This is a feeling which the early birds get a few months/ years after having spotted some massive mispricing in an asset class which they then take a position on; and go on to see the market moving against them continuously for an extended period, throwing all rationality to the wind.
A feeling that Michael Burry and other early shorters of CDS s would have shared.

A feeling (not so massive though) that the domestic liquidity deluge is creating in many investors in Indian equities today. Indeed the year gone by (2017) has largely been a story of that. A few signs of the mismatch between fundamentals and valuations are as follows:

• Nifty 500 trades at a very long term high of 27X trailing PE.

• Earnings growth refuses to bounce back belying the collective wishes of the analyst community for the 5th year running! This is fast turning into a comedy of farces. But no surprises there, for yours truly.

• Exports and private sector capex, the most potent drivers of economic growth remain stagnated. The IT services industry (India s signature export story) is undergoing massive value migration- away- eroding its famed cost arbitrage led competitive advantage.

• Major tail-wind for global equities with 13 straight months of positive returns from the global market Index (MSCI All Country World), another unprecedented event.

Meanwhile another round of money, chutzpah and talent fuelled tech bubble in California (technically Washington state too, where Seattle lies and Amazon is headquartered) promises the mother of all disruptions. "Anything that can be disrupted, will be"- seems to be the new maxim. As investors, we will take a long time to come to terms with the implications of these changes. My biggest takeaway from this year s trip to Omaha remains that the sages themselves are trying to figure and remain anxiously mindful of the same.

Despair not...

Hope springs eternal, especially in markets
My personal experience of investing has taught me one critical thing. And that is in markets, as in life, hope truly springs eternal. In time of change, can be found the hidden opportunities. As the rest of the world focuses singularly on the coming disruptions and on some imagined cataclysmic change locally and globally, the keen eye looks for the obvious yet ignored. We in India continue to be a $2trn+ GDP, 1bn people + and equally importantly <$2000 per capita GDP economy which is chugging along nicely on a 6%+ real GDP growth trajectory. We continue to be a story of huge under-penetration in many financial and other services as well as potential premiumization in many consumer goods. This happens as tens of millions of people come off the bottom of the economic pyramid and move from "subsistence" to "consumption".

Yes the market remains expensive, quite irritatingly so. It should see some normalization in PE ratios sooner or later. Yes the broader stocks earnings growth trajectory is weak. But the good part is that it is improving and there always are pockets of opportunities where one can buy growth with the potential of reasonable (though less than historical) returns over a three year period. This is probably not a market for the faint hearted.

This is definitely not a market for "get rich quick" brigade, though this is the segment which (true to character) remains the most excited in this phase of the market. But for the patient investor, who is happy to have his wealth compound at a healthy pace over the long term, the market remains rewarding, as it most often does!

Happy investing and wish you a very happy 2018 in advance.

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