Global jitters hit Indian stocks: Sunil Singhania discusses the road ahead

Surabhi Upadhyay: This is awesome. You know, I think, you know, our viewers would perhaps know this Sunil is someone who's a veteran. He's been in the markets for more than 20 plus years for sure.

Sunil Singhania: I didn't want to give away my age.

You look as young as the first time I ever met you and interviewed you, which was way back in the day, I remember. Oh, thank you. Thank you so much. Thanks. So, I took the liberty of ordering for you, Sunil. This place is known for its Irani Chai.

Sunil Singhania: Always good to have maska pav and chai.

Surabhi Upadhyay: Absolutely can't go wrong with that, I think when you're at this kind of a place. Right. So I was just thinking, Sunil, I think when I initially met you way back, I had come to Bombay, I think it was 2005 or 2006. And at that time, you were with one of the leading mutual fund houses of the country, it was known as Reliance Mutual Fund back then. It's been a long, long, long ride.

Sunil Singhania: It's been a long, but very enjoyable and very fruitful, I would say last 20 years, not only for me personally, but for Indian investors generally.

Surabhi Upadhyay: Yeah, absolutely. And you've seen the change. And I want to know more about that. Because back then I think I remember, mutual funds were still a new concept which people were getting sort of, you know, accustomed to. And here we are today, where Indian investors have been consistently investing more in the market this year, particularly while foreigners have been selling.

Sunil Singhania: So actually, if you go back to those days, when we used to meet prospective investors, we had to start with explaining what a mutual fund is. The concept of mutual funds, how safe they are, and so on and so forth. Now, you don't need to do all this, you know, so I think the thanks to even, you know, media houses like yourself who have taken a lead in educating investors and obviously the economy has done well. The markets have done well. Yeah. Ultimately, the returns is what pulls investors in. Right. So I think it's been a great, I will say, change. And I would go and to saying that we are just about starting there's a long way to go.

Surabhi Upadhyay: Wow, that sounds really promising, right? And now of course you have founded Abakkus, which is of course your own investment firm. And it's been what for four or five.

Sunil Singhania: 5 years and change. In March 2018 we founded Abakkus.

Surabhi Upadhyay: So how's the whole entrepreneurship phase been for you?

Sunil Singhania: Actually, to be fair, even when I was in Reliance Mutual Fund, it was like an entrepreneurship, and we were given a lot of freedom. But yes, you know, it was a large organisation. Setting up Abakkus was a challenge because all my life, I was with a major organisation for almost 16 years. But you know, I love investments. And that is what we do here. And that is what we were doing earlier. But, you know, the love and support and cooperation that we have got from people in general, our investors and all our partners has been massive support, and obviously, the performance has helped. So, in last 5 years we have grown to almost ₹20,000 crores so not bad.

Surabhi Upadhyay: ₹20,000 crores that's quite a sizable AUM that you're managing over there. And, you know, just to get an idea. I think again, what happened with mutual funds back then 2000-2005, that phase? I think portfolio management services PMS as they're calling some sort of a transition that's happening now because earlier this was an investment for only the rich, the ultra-rich, but I think now with the affluence, there's so much money also in that mass affluent class of India, that people want to know more about.

Sunil Singhania: Yes, actually, you know, if you see Surabhi, in the US, for example, the retail money goes into the Vanguard's and the black drops of the world. And the smart and intelligent large money tries to find niche portfolio managers who have owner driven organization so you know that this is the guy who's going to manage your money all your life, which is unlike, say a mutual fund where fund managers can change and also they have limited capital so they can do a lot of things which mutual fund maybe might not be able to do. Having said that mutual funds are the best ways of investing, despite we run AI or a PMS. So it's very simple, particularly for people who want to do SIPs and you know, those kinds of stuff. But my interaction with investors and I meet a lot of investors now I travel around the countries that, one India is growing. India is becoming wealthier. So, you know, the number of people who have wealth is increased. And the and the wealth which these guys have is really, really large compared to what is was earlier.

Surabhi Upadhyay: Where is this money coming from? I always ask this question.

Sunil Singhania: You mentioned 2005, you know, that time the GDP was like $250-300 billion, then $3.5 trillion.

Surabhi Upadhyay: Is it the size of the economy?

Sunil Singhania: And what happens is, the way you spend money, as you become wealthier, is very different, you know, so you're going to eat the same 200-300 grams of food every day. So, you know, the quality might increase, your spend does not increase. The spending as you become wealthier, increases in more consumption led stuff, and that fuels the economy further, and we are a young economy, we are a growing economy. And I think this only lead to wealth, being felt more. The other good thing is that earlier, wealth was being made out of Indian equities by foreign investors. Now for a change, Indian investors are also creating wealth, and that is also adding to the wealth effect, right? Yeah. So if you make money on the equity markets, on your investments, the propensity for you to buy a new house or a new car or spend also increases.

Surabhi Upadhyay: And to invest again, reinvest that money.

Sunil Singhania: Its like a nice cycle where wealth is fueling more wealth.

Surabhi Upadhyay: Virtuous cycle, absolutely. But having said that, I must ask you a bit about the mood that we are in today. And I want to know what you really feel about the market, because we had this, you know, absolutely furious rally from April all the way till June. But July onwards, this is a consolidating market where we were in 1000-point range between 19,000 to 20,000. Right, July to today. And there is a lot of talk about high interest rates in the West, or what's happening now with West Asia. So there seems to be some trepidation or maybe anxiety, I don't know what's the right word for it, but how do you feel?

Sunil Singhania: So one is, you know, we're looking at a very short period April to now, you go back October 2021, we had Nifty at 18,500. After two years, we are at 19,500. So, 2 years absolute return done is like 6-7%. That will start to show in the base effect of returns if you see it finds. The other thing is, you know, December 2022 to March 2023 was not a great period for the market. So, you had some issues about a one new one, you know, Media House, which was in the news. And then you had the Silicon Valley Bank, and then you had the Credit Suisse episode. So, there was a risk of & in March, the Nifty infected fall to 16,500. So, from that level, you feel that it's up 20%. But year to date, again, it's only 6-7%.

Surabhi Upadhyay: Very, very, true.

Sunil Singhania: But having said that, I think the Indian economy, and the Indian scenario is like on a highway driving fast. But on the Western world and the world in general, geopolitical and all we have huge speed breakers. So I think we are right now in a in a phase where the Indian economy wants to just speed up. But there are global speed breakers, which ensure that you know, just don't go berserk. So, I think we are in a nice balance where India has outperform because the domestic is looking very good. But yes, it's not running away, because the global is challenged both on the geopolitical side as well as on the economic side. US tenure rates are almost 5%, you know, which is which is a level which makes investors a little jittery?

Surabhi Upadhyay: You know, that's what I was thinking. The last time US interest rates were as high as where they are today. What followed was a global financial crisis. No, no, I'm not saying that the same will repeat. Then you have, you know, someone like Jamie Dimon saying that this is probably the most dangerous era that we've been in the last many decades. So, should we be scared? And when should investors kind of be a little more cautious than maybe what they are right now?

Sunil Singhania: You know, we are in a world where there are so many countries and so many things impacting us. So we should be aware of everything. You know, it's, I would say, it was not wise to say that we should just ignore, we should be aware of it. Because, you know, in the past, such events start building up, and then you have something which just gives away and you just, you know, collapse at least for the near term, so you can't ignore them. At the same time, the only difference this time vis-a-vis say Lehman Brothers or some other events in the past that time these were unexpected. Now, this time, it's all getting built up slowly. So, it is something which is you know, sort of discounted to some extent. So unless it worsens significantly from here, I think more or less we are, we are aware of this and at least our view is that from here things can only improve, at least as far as the interest rates in the US is concerned, inflation coming off, because there's a base effect, prices of commodities agri, chemicals, except oil, which has moved up because of geopolitical reasons that also nominally, I think everything else which contributed to high inflation has come off. Inflation also logically should come off. And that should ease the interest rate scenario. But we have to track them, we just can't ignore them.

Surabhi Upadhyay: Oh, got it.Got it. Please, please, I'm not allowing you to have your, you know, sip of the chai. Lovely Irani chai. You know, I think the issue is that as investors have become savvier with the stock market, everybody knows a moment, there's 1000-point dip, you have to buy, almost everybody. So that's an easier thing to do. The harder thing to do is to decide what's the best way forward when you're in this consolidation range? So first, what do you think of and I'm not asking you to put out a level, but what are the chances the probability that from 19,000, we go to 22,000, or from 19,000, we go to 16, or 15,000.

Sunil Singhania: So, both can happen, I don't know when. But the chance of the higher happening is much more. See, I know, first, a disclaimer, I've been positive all my life on Indian economy. And that's worked well. You are happier and you're wealthier. But the other thing is, if one is confident that the economy is going to grow, I think markets will keep pace. So now we have come after 76 years to $3.5 trillion economy, we have no doubt in our mind that this will be 6-7 trillion in the next 8-9 years. And I think the wealth which we have created over the last 76 years, that kind of wealth is again going to be created over the next 7-8-9 years. I think any investor who is confident of that, you should just keep on investing. Okay, now whether you invest now when you see a 500-point dip or a 1000-point dip, that can always happen. Because the world is so dynamic. So many geopolitical things which have never happened in the world are happening with the Russia Ukraine issue, China and Taiwan keeps on popping up. Now you have the West Asia, Israel and Hamas issue, you know, something or the other will keep on happening. But ultimately, I think as long as the economy is looking like growing, markets will keep pace. The only one thing is that investors get swayed by the immediate near or immediate past returns, and they start to build in that the same returns will be made in the immediate future, I think that is not going to happen or the probability is lower, I think returns will have to start to moderate, because we are not exactly cheap, cheap.

Surabhi Upadhyay: So great that you brought this point up and who better than you to answer the question because you've seen cycles, you've seen decades in this market, what is a realistic rate of return that one can expect from Indian stocks?

Sunil Singhania: So if you would have asked me 3 years back or 6 years back, or 10 years back, I would have said the same thing. No meeting kind of returns is what one should expect? And I would continue to do that. And I will say that it's there's a rational thinking behind it. Okay, so our view is that ultimately returns are all about profits, profits, profits of the underlying companies. And that's why at Abakkus we don't invest in loss making companies because ultimately, the profits which are invested companies will make that those are the kinds of returns we'll make, and our view is at least for the next 2-3 years 15% profit growth is possible for Corporate India. In fact, for FY24 and FY25 it will be slightly higher, you know, and even if there is no PE rating, we will have that kind of return. Now Nifty at 17 and a half 18 PE multiple or at FY25 is not cheap, but it's not very expensive. But yes, there are some pockets where you know, the PE multiples have just gone about.

Surabhi Upadhyay: 70 times and 60 times

Sunil Singhania: And some are infinite because they don't make profits. So, I think investors have to be careful of what they're getting into in pockets.

Surabhi Upadhyay: if someone is investing now in this environment, geopolitics rates, etc what is happening with running into an election next year. If someone is investing money today, what are the two or three or four things that he or she must very thoroughly consider or remember when you're going to cut that check or make that e-transaction rather there's no checks these days right.

Sunil Singhania: So, I think everything is good, India is growing fast you know, corporate returns earnings are good, monsoon has been predominantly pretty okay, you know, festive season is now starting so the next six months for consumption should be good. You go to any place, you know, it's full. So, you can see people spending. So, I think all that is fine, but there are obviously some, you know, things to watch out for, like what is happening in West Asia in terms of Israel issue. You know, we hope and pray that it sobers down, one for the poor people who are losing their lives, and you know, all their belongings, but also to ensure that it does not spread.

Surabhi Upadhyay: One for geopolitics, that will be the first.

Sunil Singhania: That is going to be now I think ingrained every year we'll have some issue somewhere in the world, you know. The other thing is because of geopolitical issues, particularly oil prices, something which you need to watch out for. So those are medium to long term use oil at $60-70 because of the demand supply scenario, and renewables and hydrogen and all innovations happening there, but still in the near-term oil moving up does impact India because currency impacts and all those things will happen. We have an embedding 5 state elections and the general elections. And you know, we can all say that there is a case for continuity, at least for the general elections, you know, elections are elections, you have to be very watchful.

Surabhi Upadhyay: Yeah, so third would be local politics, watch out for what happens next.

Sunil Singhania: Otherwise, we are in a decent space, infrastructure spend is happening, all these initiatives taken by the government over the last 2-3 years in terms of manufacturing and PLI, you know, indigenisation of defense, railways, and all those things are happening. China plus one is for real, when you meet companies overseas or talk to analysts there, there is a move towards sourcing outside of China, and obviously, India is one country, which also benefits out of it. So, you know, all the stars are aligned, okay, now, we just have to pray that these global clouds will not kind of you know, but one thing is investors have to realize that there will always be some risks, if there are no risks then Nifty will be at 50,000. So, I think given a balance, I would say that if you're satisfied with this mid-teen kind of returns, investing now also is not an issue.

Surabhi Upadhyay: Okay, great. So, let's then get down to what are the highest conviction themes or areas in the market, you've been a long term India bull, but now as you look at things, there's been quite a sort of crazy rallies if I can call it that. PSU stocks nobody thought, power is a sector that started moving nobody thought. What do you find most convincing right now?

Sunil Singhania: So, when is trends particularly in the short term become shorter. So, you mentioned about power or PSU, or it was defense railways EMS and x y z, in some in-between textiles and paper and so on and so forth. These are like trades, and I always say this, that this Twitter varsity where we have 100,000-200,000 analysts are working and retail is obviously very, very dominant. So, you know, if you look at the number of shareholders in each company, you will see the numbers just rising. And I think this retail is predominantly focused unfortunately on very, very near term and therefore, these trends are very short term. And I think the short-term trends are leading us to believe that these trends are going to continue forever. So, in equity investment, our view is that yes, trends themes are all important, but ultimately over the longer period of time sustainability of profits and growth is what is needed. With that in mind, I think Pharma looks very interesting. I would say manufacturing and engineering is looking very very good. But stocks have moved up so you know, you will have to wait maybe for time when there is a correction. Correction can always happen Yeah. When you least expect them to happen. That's true. I think financials near term maybe there is a little bit of pressure on names, but profit growth has been phenomenal. So, I would say financial and non-funded financials. So, insurance companies wealth management, asset management you know, all those things will do well because as we become wealthier you know we're obviously going to spend, but we will end up investing also. Luxury is going to be a big theme. But right now, there are not too many companies listed, but it will happen. Indian entrepreneurs are very interested, we have a lot of IPOs coming in. So next 4-5 years as we become wealthier the products on which we spend will change, it will be away from roti, kapda aur makaan to maybe some wants.

Surabhi Upadhyay: To recap this, there's pharma, manufacturing where one needs to build more stock specific, you're looking at any representation of luxury.

Sunil Singhania: Luxury or want based, like building materials for example, you know, earlier we used to have those steel plates now we have crockeries I'm just giving an example.

Surabhi Upadhyay: Fancy tiles in the house now.

Sunil Singhania: Yeah, even clothes, you know, the same clothes we used to wear for weddings. And now for the wedding. We have separate clothes for yoga, athleisure separates, running separate, morning separate, evening separate.

Surabhi Upadhyay: Yeah, that's true. And then you spend all your time trying to organize them. You mentioned Pharma. Let me just ask you for a follow-up on this because it's a complicated sector. So, if someone is looking at things, what kind of pharma companies should they look for? There were the traditional Indian generic makers who are going and you know, making copycat drugs in the US market. Should one look at companies that are more into R&D with any further clues as to what to consider?

Sunil Singhania: Two segments are now looking good. One is domestic Pharma, has always been our preferred bet over FMCG because the growth rates are higher you know the penetration of soaps and shampoos is more in India than maybe pharma because that awareness was not there affordability was not there now we have insurance penetration increasing. So domestic pharma and the growth rate has been like almost double digit now, last 2-3 months. And generic pricing in the US is also started to insure plus, it's a little bit of a hedge along with IT as far as the rupee movement is concerned and you know, in this volatile world, if for some reason in oil spikes up and rupee depreciates, then these are sectors which add stability to your portfolio.

Surabhi Upadhyay: Okay, got that. You mentioned that you don't invest in loss making companies and I must ask you this, because the last 1/2- 2 years was all about New Age internet companies coming to the market, many of them were loss making and people still invested, they've gone through a cycle. Now most of these companies are either already profitable, or they have a very clear timeline by which they will become profitable. Are you interested now?

Sunil Singhania: So there is a timeline, we'll wait for the actuals to happen, I adore them, I really, really salute them for the kind of business they have created for the huge employment generation, which, you know, companies like Zomato, and Swiggy have done. But our view is that we are investors in listed equities. Our investors have a different mindset. I think those investments are ideal for PE kind of investors, you know, who have a view. And I'm very sure some of them would really, really become large. But we don't want to play the hope trade. So we are tracking them. But we'll wait.

Surabhi Upadhyay: Okay, got lots of food for thought even for me to think about areas which which may do well. As we come to final thoughts, Sunil, I want you to give us some life lessons, any anecdotes, it has been such an amazing journey. I'm sure you've had your share of you know, making mistakes, whether it's at work or in life in general. What can you share with our viewers today?

Sunil Singhania: No, I think I don't want to be too philosophical. But, you know, I was attending the Warren Buffett AGM. And you know, we all think that we should retire, I think my lesson from Warren Buffett and Charlie Munger was that l retire in my grave, but you must love what you do. That's true. So every day you should feel energetic to go to the office, you know, that means that you love your work. That's true. And I think at least for me, you know, my work is my love. And that is the best thing to have. And the other thing is, you know, wealth is relative. And we all get happy and sad, on a relative basis, not on an absolute basis. On an absolute basis, we are all doing well. But you know, when we see someone close to us doing better, we get a little bit sad, well I think this is going to happen in life. So, it's a little bit philosophical, but I think, look at your wealth in isolation, not in a relative manner. And you know, you'll be able to enjoy your wealth. And I think the third thing I've realised is that you must take care of your health also. Because for you to enjoy what you have been working hard towards, you know, you must ensure that you will be healthy enough to do that.

Surabhi Upadhyay: No, absolutely. I think those are words of wisdom that one can really hold on to. And it means a lot when it comes from you know, veteran like you who's been through it all. Who's seen the highs, Who's seen the lows as well. So fantastic. Finally, let me end on a good note, because as you said, we are rounding up the festive season. So, are you a festive person, when do you usually do around Diwali or this time of the year? What is it like?

Sunil Singhania: No, so I never leave my house during Diwali, because we have a small puja. But this time, luckily, you know, my son is in the US and after 2015 this will be the first year that all four of us would be together on Diwali. I think we are looking forward to him being here. My daughter is already here.

Surabhi Upadhyay: I quite relate to that, with family being scattered, just having everybody in the same house is a big celebration.

Sunil Singhania: But I think it's good because the environment is very lively. So one good thing about India is we love our colors. We love our festive season. We love our traditional wear, and the environment itself is positive and this time, the good thing is that whether you are in business or in equity markets all have had a great year. So hopefully there will be festivities all over.

Surabhi Upadhyay: Absolutely fantastic. Well, I'm already looking forward to it and wish you a very happy festive season in advance.

Sunil Singhania: Wish you and everyone on the channel. Great. Great.

Surabhi Upadhyay: Thank you so much for taking the time. I know you're a busy busy man, but I really appreciate it and maybe not too frequently but maybe once every couple of months we will pull you out for sessions like this. Thank you so much. Thank you.