Oct 18, 2016 09:20 PM IST | Source: CNBC-TV18

Niche areas of IT will be a trend to watch for: Ramesh Damani

Ramesh Damani, Member, BSE said that Sensex carries a great importance for the Indian economy. “The story of Sensex is ingrained in our memory,” he said, adding that the BSE is the cathedral to capitalism. Sensex will be compounding at a rate of 15-16 percent as it has been doing so far.

Ramesh Damani, Member, BSE said that Sensex carries a great importance for the Indian economy. “The story of Sensex is ingrained in our memory,” he said, adding that the BSE is the cathedral to capitalism. Sensex will be compounding at a rate of 15-16 percent as it has been doing so far.

He is positive about equities as he thinks the underlying strength is enormous. “You need to differentiate between risk and volatility. You see volatility, not risk here.”

The US election is a key event. It is a horse race, and a lot of things can happen, feels Damani. But if Donald Trump beats the odds and comes to power, then markets will react badly, beginning with the collapse in Mexican peso. If Hillary Clinton wins the polls, then it will be status quo.

The consumption boom is going on right now. He recommends niche areas of IT as a trend that could play out. Increasingly, wars are being fought using the cyber medium. And as such, companies getting into firewalls and anti-virus could see a lot of traction, he feels.

Damani also spoke about his signature show "Wizards Of Dalal Street".  The focus of this series is to feature some of the finest young investors who are likely to make a mark in investments in years to come.

He said that one thing that differentiated his generation from the new crop is that they took a lot more time to learn, whereas these young have learnt faster.

Below is the verbatim transcript of Ramesh Damani’s interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: Sensex at 30,000, how does it feel I mean these 30 years what is the evolution of the Sensex and therefore what can you say about its future?

A: Future is a bit dicey; let us figure that out that in parts. For the past, I can say this it is important to Indian economy, it used to be that when the Finance Minister gives a Budget, the one figure everyone looks out is how the Sensex does. Is it up or down? When Henry Kissinger when the great diplomat retired, critic wrote about his book his memoirs they said the story of his life is history of our times and it feels the same way for the Sensex.

The story of the Sensex, the Harshad Mehta boom, the 20 percent up on when the new United Progressive Alliance (UPA) government came in to power all these are ingrained memory through the Sensex movements during the time. So, I have always called the BSE the cathedral to capitalism because it stood as one of the few institutions in India that protected private enterprise, private initiative and the Sensex is the star on the crown. So, for me, it is a very emotional thing. I have been part of the BSE Index committee when it was publicly run; now it is run by S&P.

We have had some very long broad discussions on what should be included and what not should be included. It is part of a collective history, collective memory and to say what it will be the future -- I think Sensex should be compounding at 15-16 percent over the last 25-30 years without dividends. I see no reason for that to change.

Sonia: How festive are you feeling this Diwali because the Index on an absolute basis is up 10 percent but not too many retail investors have made money in the last one year how festive are you feeling?

A: I am feeling good; I am feeling good about equities. Markets are volatile and they will always be volatile, but the underlying strength is absolutely enormous. Just look at the screen and 10 ideas pop out. I mean 98 percent invested, I don’t like to take debt but if I did, I would have been 110 percent invested.

Things will happen, I mean they will always happen out there but as I try to explain to people you need to differentiate between risk and volatility. What we are seeing is sometimes volatility but not risk. Indian market is the great place to be right now. I still believe that.

Latha: Let me speak about more nearer-term issues, the volatility, which is upon us because of the global movements. How much should be worry about the US Presidential elections? Up until November 9th will it be rocky, will it at least stop rocking after November 9th?

A: The elections are due on November 8th in America and 9th our time of course. While the polls have clearly shown Hillary Clinton leading, there are couple of polls despite all the dirt coming down on Donald Trump. He has had probably the worst weakest US Presidential history of any candidate with so many allegations against him. A couple of polls have been down only 4-6 percentage point which is broadly within the margin of error. It is a close, it is a horse race.

An America is known for its October surprises, lots of events unfold in October like the Access Hollywood tapes against Donald Trump, Wikileaks against Hillary Clinton. Three weeks to go; a debate left, lots of things can happen. If, for example, Donald Trump beats the odds and makes the biggest political comeback in the history of the world probably, markets will react very badly. I have no doubt about that.

The Mexican Peso would collapse first, you will have a huge let down in S&P and other indices and invariably the tremors will be felt across emerging markets because it is going to trade. A lot of countries the so-called heirs of the 60-70’s built their entire economy in exporting to the United States. Now here is a Presidential candidate who says I don’t want North American Free Trade Agreement (NAFTA), I don’t want PPP, I what protectionism, I don’t want China. I don’t think the market has factored in even the possibility of a Trump win.

This is a year of huge political surprises as Brexit showed us. So I am not saying that Trump will win, but if he wins there is lot more turmoil to be happening there leading up to what would happen December 14-15th when the Fed meets to raise interest rates. So, if Trump wins, all bets are up they probably won’t do anything.

Sonia: But it also feels like the choice between the devil and the deep blue sea, this election. Do you get a sense that even if Hillary wins, there could be a big sell off in the markets because a lot of people are calling her names like warmonger, etc? So, do you these geo-political tensions could continue whoever wins?

A: I think you listen too much to Marc Faber. I do not think so. I think Hillary Clinton will be more of the status quo which is precisely the reason she is running so weak. But a large part of our model after World War II has been based on expanding trade, need to providing securities, free trade packs, a bit of immigration going back and forth. All of them are being appended whether it is by Brexit or the fact that even Hillary Clinton says that I do not want these trans-pacific partnerships to go across. So, the entire edifice on which we have built western economies have been going down.

Here is the interesting point that I find that it used to be that in India, the Budget was overriding important event. But increasingly, with goods and services tax (GST) coming in, the Budget has become somewhat of a non-event. It comes, goes, market is volatile for two days and then we move on. But, in America, suddenly, the elections, the Budgets have all become huge events. We are no longer evaluating only the economic risk of a project in the United States, someone putting up a car plant or someone starting an airline, but we are also calculating the political risk. What if Trump comes in? What if Hillary comes in? What happens to the dollar? What is protectionism? What if I cannot access labour force?

So, for the first time in the US, we are seeing that bad politics is crowding out good economics that typically used to happen in emerging markets, we used to always worry about that, in countries like India, especially. But it is being reversed. In India we are having good economics and in the west we are having bad economics thanks to bad politics.

Latha: What do you like in the Indian market? Let us start with liquor, ahead of Diwali.

A: Those have been old picks of mine and they will do okay. There is a consumption boom going on in this country, which makes me so optimistic. You see it in auto sales, you see it in airline tickets, you see it in oil marketing companies (OMC). So, those sectors will be fine.

But you ask me for new theme or trend. There used to be an old saying in America that John F Kennedy was once asked what would he think World War III would be fought with and his answer was I do not know about World War III, but World War IV is going to be fought with sticks and stones meaning there will be a nuclear holocaust and nothing would be left in this world.

Now, there are about eight or nine nuclear powers in this world and eight of them have commanding control systems. So they are very safe, nothing is going to happen -- North Atlantic Treaty Organization (NATO), Europe, Britain, China, whatever. The only rogue state with nuclear power is Pakistan and they are watching them 24/7. So, I just do not think everyone is focused on the nuclear threat in the world. I do not think that is a bigger threat. What is happening is 130 countries, 150 countries, all the countries in the world have access to Personal Computer (PC). A lot of cyber warfare is taking place in this world.

Hillary Clinton’s emails were hacked. America promised to respond back. Credit cards are hacked in America. There is so much of this going on and the power of cyber to go in and lock out the electric grid, getting planes to fly down is going to be enormous. And markets and corporates are underestimating the threat that that faces.

So, as a leading edge theme, which would play out over the next year, I would say look at companies that are in that space because I do not want to mention names, there are four or five companies that you can play in India. But you need to look at that because that is an omnipotent threat and people are so worried about nuclear war and climate change and all this will happen over the next 10-20 years, hopefully nuclear will not. But, this is immediate.

Latha: So, what will you buy? Anti-virus products?

A: It is a good place to start. There are a lot of places where you want to provide security, build firewalls, there are not many ways to play it in the listed space in India, but increasingly, you have seen a problem in the tech sector, they are slowing down, but that part of the tech sector, the niche part would start doing well because, as corporates will increase its spending on cyber security, that whole sector will get a boost.

Latha: Let us speak a little bit about this new series that you are launching for our channel ‘The Wizards Of Dalal Street, A Fresh Breeze’. You had that first series of veterans and now this new lot, what is the big difference?

A: It is a matter of pride for me to do this show because it is a historical record of what has happened. I started covering it from people who were players since 1990, about a 25 year period, we have covered these players.

I spoke about the US Presidential election before and I think in one of the previous ones, when Kennedy became President, he said the torch is being passed to a new generation. I get the same sense when I am interviewing these candidates that the torch is being passed from the old veterans of the market who came in the 1990s, they are now aging and now we are getting a new bunch of absolutely brilliant, very passionate about stocks into the market.

I will tell you why I say that, a lot of the glamour stocks in this bull market, Bosch Industries of the world, the Page Industries, Eicher Industries have been picked by these folks, not picked by the old guard that has been in the market. These new people and some of the people I interview in the show will talk about how they found these stocks and why they are sticking with these stocks. They have learnt the lessons that we learnt over a 20-30 year period in the next 5-10 years. So, they are in that terms ahead of us and they have got a full innings left ahead of them. I interviewed a lot of people across the spectrum, it has been very exciting to put it together and I believe that they will teach you how to better manage your money.

Sonia: We have been fortunate to interview some of these people as well, the likes of Taher Badshah, Manish Sonthalia and their fund performance speaks for itself, it has been so impressive.

A: Very intensive, very intense people.

Sonia: How is their investment rationale different from the previous crop?

A: We interviewed across the spectrum. I interviewed Rahul Rathi from Pune for example and he has a quant based system, strictly numerical. He runs data, he runs screens and then only then will meet couple of managements to figure it out. There are of course people like Manish whose deep value investing, trying to look for a bargain trading below intrinsic value. Who is the best investor? Arguably over the last 20 years, it has been Rakesh Jhunjhunwala. I interviewed a couple of people who have been very close to him, Hiren Ved at Alchemy, they have a partnership together -- Alchemy with Rakesh, so, he has had access to the rare one if I may say.

I am going to interview his partner later on in the series, Amit Goela who sits literally two doors away from him. So, we will not only get a lot of secrets from the Wizards of Dalal Street but also the new ways, the quantitative ways, qualitative ways, PMS ways, running mutual fund, a good spectrum of nice, young men and women.

The point I want to get across to your viewers is that some of them, if they want an independent journey into the financial markets can be inspired by the examples that these guys provide. They try to break down the pre-stood, make it simple, make it understand, it is not that dismal science is not something too complicated for most people, try and keep it upfront and simple for your viewers.

Latha: How are they different from the old lot? Are they more data based, were the older guys more sincere, less distracted -- anything to compare and contrast the two?

A: I think they are getting on much younger. It took that generation a lot more time to figure it out. The market was much smaller, that is A) and b) data was almost impossible to come by. We used to go to the BSE board, some members to get the results as late as say 1995-1996. So not that far back, 10-15 years back. However, they have learnt much faster because they had the benefits, they are riding sometimes, I feel, on the shoulders of the greats that have already come through the market, Nimesh Shah, RK Damani, Rakesh Jhunjhunwala, whatever, so they have adopted from that and they have adopted the best practices. The kind of mistakes we made perhaps in corporate governance issues or perhaps not understanding the value for great business -- you just see that they are three or four steps ahead in their career and what is gratifying for their investors is that they still have 20-25 years left in their career.

So, they have conquered their mistakes, fear, greed whatever and they still got a clear runway ahead in already produced compounding results. I think a lot of them come down to that, they focus very squarely on CAGR, they know what compounded annual return means and that is all they try to do.

The big difference is that -- in my opinion -- the torch is being passed to the new generation a) and b) these people are somewhat far ahead when we were in the 90s. We were still loose with our whole idea of how the investment philosophy worked.

Follow us on
Available On