Learning when I was not trying to learn

Dated: 1st of Nov, 2017

Many of the large moves in the  month gone by may be attributed to the stimulus that the Indian Finance  Ministry provided to the Public Sector Banks (PSB) in the form of  recapitalization (essentially a bailout). This stimulus package, even  though wholly insufficient, was in the tune of $32.5 Billion. While this  is about half or thereabouts of the total loans which are  non-performing, the stimulus package, which will last for the next two  years, has provided a lifeline to the PSB, and to much extent, the  political image of the ruling government. 

Before  anyone thinks that this is a step in the right direction, it may be  useful to note that this move is akin to giving a man fish instead of  teaching him how to fish. PSBs still have huge governance issues and it  is only the undeserved legacy faith of depositors on PSBs in India that  has kept them alive. I don't think the government is in a position to  cure the cancer that inflicts these almost sick units neither do I think  this is a solvable problem. Hopefully, private sector banks slowly and  surely should take market share away and at some point, these public  banks could become less impactful.  Or they get privatized and learn new  ways of banking.

On the portfolio  front, there have been some addition to the portfolio and some  deletions. Two motivations have led to these changes. One, to reduce  exposure to financial services sector to some extent and two, to find  some relatively small unknown businesses which have got a possibly  bright growth future. I have had these small names in my bucket for  quite sometime but this month provided some needed stimuli for me to  allocate to these names. With the advent of the stimulus/  recapitalization package by the government as noted above, it has become  unclear whether private banks will continue to have the loan growth  that is needed to support their relatively high valuations. PSB (Public  Sector Banks) with their kitty full will join the asset party that these  private banks have danced on for the past five off years. Given that,  there may be pressures on net interest margins of private banks and also  on their overall growth trajectory in the medium term (1-3 years). 

I  exited out of HDFC Bank and RBL Bank to add to Repro (a Just- In- Time  book producer), HFCL (a supplier to behemoth Reliance Jio fiber optic  network), Apex Frozen Foods (seafood packaging and distribution company)  and Meghmani Organics (chemical supplier with a sticky global customer  base). 

No hedges were placed in the  portfolio along with my line of thinking as noted in my last update. I  still am unclear that I have successfully understood the impact of lower  interest rates on stock prices.

Some  events or glimpses of memories have stuck with me ever since childhood.  I would like to share two such instances. It was a usual morning right  before my school was about to begin for the day (I was appearing for my  GCSE/ high school graduation examination soon) when my Science teacher,  Mr. Brito caught hold of me and said "Saptarshi, I think you have it in you to do well but it looks like you don't try hard enough".  I think ever since then, I have always somehow subconsciously thought  that I can always do better than I have done, that I can push myself  harder and try to achieve what I thought difficult. I have realized this  innate nature of man (atleast myself) to live in self-denial that he is  doing his best. I sincerely believe now that there is no best at all  but just a best effort which can be bettered. 

Later  on, during my early years in financial services at one of my previous  employers, my boss, Mr. Limbu, would show me two fingers whenever I  would show him my work and he would come up with suggestions of how to  better the work output. Back then, I found it quite irritating to find  that he was right most of the time on his suggestions. His two fingers  always meant "Two steps ahead of you".  After I started out on my own, I have really learnt the value of that  two fingers. The glimpses of those two fingers in my memory always  signifies the value of thinking ahead. I have come to think that  thinking ahead is a skill that one has to develop as humans by nature  and evolution are still inclined to think for the immediate future.  Investing in its entirety may be attributed to the skill of  thinking about a range of possibilities of future outcomes. I think it's  a skill which has no end point but only a journey.  

Maybe  true learnings are in disconnected forms in the head and sometimes  takes years to come to recognition. I am just thankful that those  learnings did not cost me a college tuition.