Eye on India: We take a bottom-up fundamental approach to stock picking, says GQG

As Adani stocks began to rebound, the value of GQG's investments nearly doubled within a short span.

GQG Partners, known for its contrarian bets on Adani Group companies during the Hindenburg crisis, is looking to make more such investments in India and is attracting a steady stream of Indian promoters seeking "confidence capital," a top fund official said.

"Given the assets that we manage and the media headlines that we have received over the last 18 months or so, it is quite natural that we receive inbound queries, which is a positive development," Sudarshan Murthy, a senior portfolio manager with the firm, said in an interview. "But even before, we used to receive inbound queries, though perhaps the quantity has slightly increased," he said.

While GQG has made several investments in India in the past, the decision to invest in the Adani Group marked a turning point. As Adani stocks began to rebound, the value of GQG's investments nearly doubled within a short span.

Also read: GQG’s Adani investment reaches $10 billion as stocks bounce back

For instance, GQG bought Adani Enterprises shares worth Rs 3,403 crore in March 2023 at Rs 1,408.25 per share. On Monday, Adani Enterprises shares closed trading at Rs 3,327.55, more than doubling GQG's holding to Rs 8,017.5 crore in less than a year.

Similarly, a Rs 4,244.7 crore stake bought by GQG in August in Adani Transmission at Rs 279.15 has also doubled to Rs 8,636.2 crore in under a year.

However, concerns linger regarding the fund's exit strategy, given its substantial stakes in companies with limited interest from institutional investors. "The rise in value is notional, and any attempt to offload even a minuscule stake could see a steep fall in stock prices of some of the companies where GQG has invested," said the head of a well-known domestic equity fund, who refused to be named.

Nevertheless, many remain optimistic about GQG's prospects, citing the evolving liquidity landscape in Indian markets, which they say will lead to GQG's investments eventually acting as a magnet for more investors, paving the way for exits at favourable valuations. "We take a long-term view," said Murthy.

"In Adani's case, the short sellers' report led to significant price action, and as we did more and more work, we felt that these are wonderful, world-class operating assets. These are businesses that have a strong GQG-like characteristic. In some cases, they have visibility for the next 20 years," he said.

Also read: GQG Partners' Rajiv Jain bullish on PSU stocks, regrets not buying LIC in 2023

No pressure from investors

GQG's client base comprises institutional investors, including endowments, pension funds, and corporates, but Murthy maintains that despite operating as a public markets fund, GQG's private equity-like bottom-up fundamental approach sits well with its investors, and there is no pressure to return capital before time.

"That's the first question that we need to get comfort on. So, it's really important for us to have confidence that this business will look in good shape five years out," Murthy said, adding, "Once we have that confidence on what this business will look like five years from now, then we try to understand what could be the earnings growth for the next five years and, more importantly, we'll try to understand the earnings growth beyond those five years because your earnings growth beyond those five years will determine your terminal exit multiple five years out. And when we discount all these cash flows, that tells us whether the opportunity is attractive or not."

More contrarian bets 

Since the Adani investments, GQG has taken significant stakes in several Indian companies, including JSW Energy and IDFC First Bank. It has also invested in Patanjali Ayurved and GMR Airports Ltd, which stand out as both of them, like Adani group companies, have significant promoter stakes. But Murthy insists that this strategy is what distinguishes GQG.

"Our job is to keep looking under every rock that we can find, and somewhere down the line, after a few attempts, we might find something interesting," he said.

Murthy maintains that Patanjali Ayurved, founded by Ramdev, has a strong brand image and robust growth trajectory.

"With a focus on brand building and advertising, Patanjali has demonstrated consistent earnings growth, making it an attractive investment opportunity for GQG Partners. Patanjali is a business with a strong brand image and strong roots in traditional Indian medicine, and they are growing their food and FMCG business pretty well. And they are doing the right thing, investing in brand building, advertising," Murthy said. "It's a business that's very attractively valued for its growth prospects and can show a steady 20 percent kind of earnings growth for the long term."

Similarly, GMR Airports Ltd, which owns and operates major airports in India, including Delhi and Hyderabad, caught GQG's interest in December when it acquired around a 4 percent stake for Rs 1,672 crore. "They own the largest airport in the country in Delhi. They own the fourth largest airport in Hyderabad. And we do feel that over time, as passenger traffic has come back, post-COVID, that will help the revenues and the profits. More importantly, they're doing a good job monetizing the non-aero business, be it retail, food and beverage, duty-free, and so on. They are also focusing on property development," he said.

"Airports business, we tend to like them. There is a strong network effect; once you have an airport, it is very difficult for that to go away," he stated.