Investing in India and ice hockey
In the investing context, this refers to the need for good investors to look at what is going to happen in the future and not to unduly fixate on the past. Hence, while Kodak may have been a great business, its future is sure to be bleak if digital cameras are gaining a lot of market share.
The stock appreciated more than 50-fold in about six years.
Today, it seems all investors looking at India have a Wayne Gretzky in them. We have seen a big run-up in the Indian markets after the 2014 general election results. Investors are now not looking at past financials. The whole investment theme is that of a revival in the Indian economy, increasing infrastructure investments, increased capacity utilization and prices for cyclicals, improved asset quality for banks, more sales of flats,offices and malls for real estate developers, and so on. Investments are based on what the financials are expected to be in a few years’ time.
While the mainstream indices have moved, the run-up in many small-cap and mid-cap names, which were languishing for many years, has been astonishing. Price movements of 20% in a day for many stocks in this space has become the new normal.
I am as optimistic about India as the next guy. The only place where I differ is that I do not think that the optimists are putting a realistic time frame in which things could improve.
To put things in perspective, an investor will need to keep the following in mind:
1. A changed business environment does not automatically turn wealth-destroying corporate houses with bad governance into wealth-creating paragons of virtue. Frogs turning into princes usually happens in fairy tales.
Finally, it should be remembered that there is only one Wayne Gretzky and that one should not confuse profits coming from a bull market with high intelligence and skill.
The writer is chief investment officer and equity fund manager, PPFAS Asset Management Pvt. Ltd.
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