Bet On Companies That Dominate Their Sector: Saurabh Mukherjea
Category
đź—ž
NewsTranscript
00:00 Yeah, it's a pleasure having you at BQ Prime today.
00:02 And I have a short like a couple of questions that I want to ask quickly.
00:06 Now in the bull run rally, what are the kind of sectors that you see would be gaining pace
00:12 and are the bets that you'd be taking?
00:14 So look, a couple of things to clarify.
00:18 We don't really do the sector focused investing.
00:20 I don't believe in it.
00:21 What we have always suggested to both our clients and to generally investors who are
00:26 interested in identifying good companies in India is follow a three-part process in India.
00:32 Firstly, use forensic accounting to identify clean companies.
00:36 I would say around 40% of listed companies in India have suspect accounts.
00:40 You want to steer clear of them.
00:42 Secondly, amongst the cleaner companies, look for promoters, look for management teams with
00:46 intellectual acumen to identify, to do sensible capital allocation.
00:51 We have plenty of companies in India who are honest, but their ability to allocate capital
00:55 is a little suspect, right?
00:56 So step two is look for good capital allocators.
00:59 And step three is look for monopolists.
01:01 Look for dominant companies who are able to crush the competition and dominate a sector
01:05 for 10, 20 years, right?
01:07 So I've explained this process in our book Diamonds in the Dust.
01:10 It's also available for free on the Marcellus website.
01:13 But this sector piece is a complete hogwash.
01:16 It doesn't lead to prosperity.
01:17 It just leads to this illusion that you're doing investing.
01:20 Investing requires a degree of work, requires a degree of research.
01:24 Forensic accounting, good capital allocation, dominant franchises.
01:28 If I had to understand this differently, what is it that you're looking at?
01:34 Maybe the themes or companies that you're looking at really closely?
01:37 You're looking for good companies, you're looking for outstanding franchises.
01:41 The themes piece is good for, what should I say, it's good for media hype.
01:45 But theme-based investing is seldom a way to create lasting wealth for yourself.
01:51 It's good for entertainment.
01:52 If you're doing investing for entertainment, then I could give you China plus one as a theme.
01:57 I could give you financialization as a theme.
02:00 If you're doing investing for entertainment, I could give you themes and you could invest.
02:04 But that's not a good way to make money.
02:06 If you're doing investing to earn money, perhaps for retirement, for your children's education,
02:11 then follow the three-part process of forensic accounting,
02:14 good capital allocation, and dominant franchises.
02:17 So in the China plus one, and then you mentioned that China is going through a suicide in that
02:22 sense.
02:23 So what themes in India, what businesses in India do you believe would prosper because of that?
02:30 So as you're already seeing, as China and America's hostilities grow,
02:36 large electronics manufacturers like Apple, they're coming to India and they're saying
02:43 that they will shift something like a quarter of their production to India.
02:46 So just take Apple alone, they make $220 billion worth of iPhones and iPads,
02:51 a quarter of that means $50-60 billion of production moves to India.
02:55 India's current production of smartphones, I think is $5 billion.
02:58 So if you look at a sector like electronics and medical equipment,
03:04 globally, that's a $500-600 billion sector.
03:09 We barely make $5-10 billion worth of it.
03:11 If you're able to get even 10% of that sector,
03:14 our electronics and medical equipment sector will grow 10 fold.
03:19 Similarly, pharmaceuticals and APIs, active pharmaceutical ingredients,
03:23 China makes 90% of the world's API, that's $200 billion worth of API.
03:29 India makes barely $20 billion, 10% of global production.
03:33 Even if we take 10% of China's production, our API industry will double.
03:38 So the themes are going to be relatively clear.
03:41 I suspect many of your viewers already know these themes.
03:44 The hard work that's required is to figure out
03:47 how do you take, for example, the API theme
03:50 and identify clean, well-managed companies.
03:53 In our case, we have chosen Divi's Lab.
03:55 Marcellus's portfolios are invested through Marcellus.
03:58 I'm an investor.
03:59 My parents are investors in it.
04:01 And so are our 9,000 clients.
04:03 It took us a year of research to identify Divi's Lab.
04:06 And that's the depth of research your viewers need to do
04:09 if they want to make money from thematic investment.
04:12 Thank you so much, sir.
04:13 It was a pleasure.
04:14 (upbeat music)
04:17 (upbeat music)
04:20 (upbeat music)
04:22 [MUSIC]