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.