Memo 21 – Too many opinions, too little wisdom

Much to our surprise, we received record number of “WhatsApp forwards” over the past 30 days, highlighting the failure of current government and the severe economic slowdown that India is staring at. The surprise was not in the content of these messages but the fact that these messages were forwarded by friends working in areas that have got little to do with day to day economic news. Some of them even went to the extent of asking if their investments in stock markets were at risk and if they should liquidate their portfolios!

Our quick rebuttal to the above questions was that hell hasn’t broken lose and India is doing fine. We have been consistent with my view that India is “an island of stability” and will continue to remain so in the foreseeable future. We will have a detailed discussion on this in the subsequent paragraphs but there is a bigger issue that needs attention – is the excess information available to you via social media, internet and whatsapp really helping you make better decisions?

Losing the information advantage

For hundreds of years, availability of information would often be the determining factor between success and failure. For example, professionals like lawyers, doctors and chartered accountants were highly revered because the masses never had access to information pertaining to these aspects of life. Internet & social media killed some of this informational advantage and empowered the educated Indian to Google the easier aspects of these professions.

While all of us acknowledge and understand the benefit of internet & social media, most of us fail to understand the associated risks. Internet & social media have given vent to all and sundry to express their opinions; so much that the lines between an expert opinion, a motivated opinion, naive opinion and reality have blurred. We have met so many people who read articles on wellness and substituted ghee with olive oil (which is actually very undesirable); so many urban educated folks who believe that India is an intolerant country and; so many people refrain from investing because they have read that Indian economy is in a bad shape and stock market is a bubble.

All this reminds us of the amazing troll quote on Abraham Lincoln – “Don’t believe everything you read on the internet just because there is a picture with a quote next to it”. A large part of mainstream media and social media is dominated by people whose interests and intentions may be vastly different from yours. Just consider these two examples:

  • Political example:

    During the 50 days of demonetization, the print & television media was busy covering “the disastrous consequences on common man and BJP’s self goal”. Few weeks later, BJP tasted a historic win in India’s most populous state (Uttar Pradesh). Isn’t it obvious that media and most of us are not in sync with the ground reality?

  • Economic example:

    India’s GDP growth for Q1FY18 slowed to 5.7% and vested interests in media created so much noise that many people actually started believing the India is headed towards an economic disaster. No one bothered to check that number of cars, trucks, tractors, scooters, airline tickets, etc touched an all time high in the same quarter.

Well, this is not the first or the last time that there will be such motivated articles on the internet or the social media. We couldn’t agree more when an investor friend made an observation about Media, FaceBook and Twitter – “On these platforms, there are better Captains than Kohli, better PMs than Modi, better anchors than Arnab and better performing economies than India”.

India remains “an island of stability”

We have repeatedly highlighted that India’s macro position is very formidable and this will insulate us from external shocks to a large extent.We have achieved the holy trinity of low fiscal deficit, low current account deficit and low inflation despite the global turbulence.

A few quarters of lower GDP growth does not derail India’s long term story. Over the past three years, this government is re-setting the ways in which business should be conducted in India – e-auctions, demonetization, GST, RERA, etc. These resets are adversely impacting the old lords of India – the politicians, the bureaucrats, the middlemen, the “connected” men and the tax evading traders and they are using all possible platforms to criticize the government measures and create an environment of concern.

We believe that we are laying a foundation of a new economic order, where there will be lower corruption, lower bureaucracy and higher transparency. A few quarters of slowdown is a small price to pay if we are able to overhaul India’s economic architecture and get ready for multi-decadal growth.

 Which sectors/ themes do we like?

We are very positive on stocks of Mumbai / Pune based real estate companies involved in middle class housing (though we are very negative on real estate prices). Consumer sector remains replete with opportunities – Dairy, Plywood, gold loan NBFCs, kitchen products and financial product distribution companies. We would continue to avoid the IT sector – the TCS, Wipro, Infosys of the world.

 Trivia – the story of an employeepreneur

In one of our investor awareness sessions, we came across an interesting gentleman named Chandrakant, who worked for one of the Tata Group Companies. He introduced himself as an “employeepreneur” i.e. an employee for eight hours of the day and an entrepreneur for remaining eight hours of the day. This obviously spiked our curiosity and made it a point to catch up with him post the session. We were fascinated with the below equation:

Employeepreneur = Employee (8 hours) + Entrepreneur (8 hours)

Chandrakant joined Tata Group in 2006, immediately after completing his MBA. In about a year’s time, he figured out that Tata Group will give him stability, work-life balance, perks and longevity. But it will definitely not give him fast growth, monetary or otherwise. After his first appraisal, he had a choice to make – cling on to the super stable job at Tata or switch to relatively less stable job that offers faster growth. Chandrakant decided to stick to the Tata ecosystem but resolved to “do something additional” in his spare time.

Having got some ESOPs in 2007, Chandrakant decided to explore the stock markets through a financial advisor. Based on the recommendation of his advisor and his own individual reading, he started investing Rs. 20,000 every month into stocks (and increased it every year). Later in 2011, one of his colleagues was opening a play school cum daycare in Mumbai and he invested around Rs. 10 lacs in that venture. In his interactions with parents who admitted their kids in play school, he understood that pregnant women require pure cow ghee, which is not easily available in Mumbai. He did some research and invested Rs. 20 lacs in a dairy start-up that provided desi ghee.

It’s been 11 years since Chandrakant is working with Tata Sons. He is 36 year old; a part of the middle management team at Tata Sons and having a CTC of Rs. 38 lacs. His professional track record fails to raise eyebrows. But it gets really interesting when you ask him about his portfolio investments – he proudly told me that he owns stocks worth Rs. 2 crores and his investment in pre-school+dairy is worth more Rs. 80 lacs. And that he is actively considering an investment in a travel start-up. Chandrakant credits his entrepreneurial success to his decision to invest in stocks. “I realized the importance of growing your money only when I invested in stocks. Most of my peers have bought a house, pay their EMIs and have negligible savings”

Making systematic investments in equities is the best option for people between the age of 25 to 45. It gives a common man with limited savings a chance to participate in the vibrant Indian economy. You can also read the story (featured in Mint recently) of one of our customers (a couple) whose savings received a boost as they started investing and financial planning at an early age – http://www.livemint.com/Money/S6Iy6o8XZdpk9TG4g6vnCM/Starting-early-gave-this-couple-the-confidence-to-be-aggress.html

P.S:

  1. Equity as an asset class in extremely rewarding in the long term, however only individuals who can bear interim volatility should invest in stocks. Kindly consult your investment advisor before acting on advice provided here.

  2. Names have been changed above to protect their identities.