Both FDI & FPI moving to India & no reason why that trend should change: Shankar Sharma

"The only deal breaker for India romance in my view can be a big policy misstep. Other than that, I do not see what can truly stop our companies," says market veteran Shankar Sharma

I understand that you are bullish on pipes and other building materials. I believe Supreme Infrastructure is a story that you like?
Yes. You are referring to my investment in Rama Steel Tubes. I like this space. I was not lucky enough to have bought APL Apollo which has been a great company, a fantastic performer in the last few years. But these are linked to the overall real estate, even government programmes and access to water.


I am not making this up; when I was in class 8, during our geography class, on one particular period, we were told that these are the statistics of India versus the rest of the world and there was statistics of wrist watches and bicycles and radios and transistors and all those things. I looked at that and saw that we had like 0.001 bicycle per person or half a radio per person and in Germany and the west, it was like 10 radios.

I came back home and asked my father that India has to go up. I am not making this up and this was back in mid 70s and the same story is true even now. I was told that only 5% of India has access to piped water. Piped water means pipes so even if you take that metric, hopefully that is going up. It is not going to go to 50% or 100% in our life time but it can go from 5% to 10% which means that you are talking about a huge surge in capacities that are required to fill those homes with pipe water.

The same is true for building materials, real estate. Pipe is a small industry. But even in that, one can see humongous opportunities because we are far behind global averages.

Last time we spoke, you were a China bull. But the latest news around China is not so good. Power cuts are happening, the central bank is slashing interest rates, inflation has peaked because of the drought like situations. How are you maneuvering funds – China versus India?
Here is the thing that India has been the classical tortoise and China has been the hare. These are two very large countries, similar populations, neighbours. The world has always viewed a binary India or China or India plus China or whatever. The reality is that nobody can take away from the amazing growth that China has had in the last 20 years. It is just off the charts.

But of course, and this is an article I wrote in Business Standard in 2010 which said that it has come at the cost of massive debt built up. Now it is common knowledge. They have built up huge amounts of debt and went from a 50-60% debt to GDP ratio 35 years back to 250%. It might even be 300%. So there is a huge leverage in the system which fuelled their growth.

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India on the other hand has always been conservative on the debt part of the balance sheet and that comes out of our 1991 crisis. India’s mindset has been that we need to be conservative which is why India by and large has kept a lower debt to equity or debt to GDP ratio than China. For 10 years, we were running at about 60-65%. Now it has inched up to 90% plus but it is still way lower than China’s.

So because we are conservative, we will never be able to grow that quickly as a high debt fuelled growth country like China but we all know debt can have its own problems and that is exactly where the Chinese economy is when their leverage in the housing market is coming to haunt them.

On top of that-- and remember this ultimately a country is about its system of how it runs itself and in China we all know it is communist country and we have seen that we are more likely to have worse decisions in countries where power is extremely centralised. We have seen the whole crackdown on tech companies.

It defies logic why on earth would you deliberately kill your best global ambassadors! Alibaba has been a global poster child of China tech and half a dozen other companies like that. Jack Ma has been a great ambassador, why on earth would any government want to bring down their biggest poster child of how a new country has emerged from the whole communistic framework to a purely capitalistic framework because all the episodes of these companies getting crushed by regulatory changes shows that you are still a highly communist country or a country where overnight some policy change can just kill your companies. All those factors have worked against China.

India in contrast, not that we have done all good things but relatively speaking, market and capital seek more comfort in somewhat predictable policies and hopefully we should not get much shocks now from hereon on the policy front and capital will move to areas where best risk adjusted returns are available.

Both FDI and FPI are moving to India and I do not see why that trend should change.

It is well established that India is your all time lifelong girlfriend. What is going to be a deal breaker for this romance?
Deal breaker for this romance in my view can only be a big policy misstep. Other than that, I do not see what can truly stop our companies. Again, I do not make a call on GDP growth and all that because all that is just up in the air, we have no idea and anyway we as investors cannot buy or sell GDP growth, we can only buy individual company growth or sell individual company growth.

Let us focus on companies here instead of taking big macro top down views because on a micro basis, the average Mr Joe investor can also do as good a job as 90% of fund managers using the tools available. Please use it and I am telling you this is the best time in the last four years to buy small caps in India.

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