With the launch of your mutual fund, you have come up with the stock picking gorilla style. Anything new addition to that list of late?
Mihir Vora: So, because of our inherent terminal value investing style, which is the gorilla picking and identifying potential gorillas, we end up having a much higher profit growth portfolio. So, our earnings growth for the portfolio on an average is much higher than the index or even the peer group for that matter. But on the other side, there are themes and segments which have a long trajectory of growth in our view, which means that optically our valuations in the shorter term as far as PE ratio or something like that is concerned will also look higher. So, we have a higher earnings growth, but optically a little bit of higher PE in the portfolio is how the portfolio characteristic is.
When we interacted with you last quarter, you were underweight IT, but positive on financials, industrials, and healthcare.
Mihir Vora: Yes.
Post the Q4 numbers, has the stance changed? Has your portfolio been rerated?
Mihir Vora: We have reduced healthcare a bit. A little bit of the Trump effect, a lot of uncertainty and we also need to allocate money elsewhere. Otherwise, we continue to be neutral to underweight on it and positive on financials, especially in the non-lenders. But after the RBI’s action, probably even the lenders are looking attractive now.
Yes, they are. Let us talk about the unknown, which is we do not know how this entire tariff situation under Trump is actually going to play out. Would you say look at just inclusive sectors, the domestic theme rather than globally exposed sectors? Is that a rational way to look at how to invest going forward from here?
Mihir Vora: First of all, Trump is a taco trade. Taco trade is something that we are anyway betting on. But the point is that even without Trump and the tariff actions, we were always of the view that the domestic economy will grow faster, domestic segments will grow faster than globally linked segments. So that theme we will continue. Financials is mostly a domestic thing and that is the largest piece of the action but ex-financials also, things like industrial, automotive components, construction, and then utilities, not the regulated utilities but private sector utilities will continue to grow faster.
But specifically on the auto side, what is your take on the EV story playing in and the reason I asked this is because a lot of these companies, how much do you believe is already in the price with respect to the expected EV growth story to pan out in the India because the EV sales has not been doing that well in the Indian markets and for one of the biggest players, that is China, companies are now slashing the prices drastically and which is a bit of a concern.
Mihir Vora: In EV, it is going to be more of a company by company story and earlier it was a case of global companies versus Indian companies, but Indian companies have managed to stand their ground, the incumbents. So, it was incumbents versus disruptors. The incumbents have stood their ground. Ultimately, it is not a very complicated product. It will ultimately boil down to product development, branding, marketing, and distribution where the incumbents are anyway very strong in the distribution, sales, and service, ultimately will matter. We have seen, for example, India two-wheelers beyond a certain scale, we were able to match the Chinese in the global markets. So, the biggest advantage of India is that the domestic market has scale. Two-wheelers have proved that. The car market is still very small compared to say China or the US, but we are getting there.Where does defence rank in the list of all the sectors that you are liking right now because it has been a case of too much too soon for the defence stocks in case of the runup that we have seen. If you take a look at individual stock action, the order wins and MOUs and positive news flows are not slowing down. How are you approaching the defence space?
Mihir Vora: Defence has been one of our favourite sectors even before the border issue and that is because of the fact that it is a sector which is coming up for the first time. So, it is very rarely that we see a sector emerging and this is one sector which was close to the private sector, closed for scrutiny, closed for this thing but now the government in the last 10 years has made it very serious that they want to indigenise.
Once you indigenise, you have the ecosystem up and ready, you are able to export also. We have seen that in sector after sector. In pharma, we were nothing, but now we are the biggest exporters. IT, we were nothing, but now we are the biggest exporters. Auto components are the same. So, whenever the private sector is just allowed to be and do its thing, we have done well. And for the first time, we have allowed the private sector to come into the defence sector and that is a blue-sky scenario.
So, where do you think this kind of a new sector creation could actually happen next? I know it is not going to happen today, tomorrow. It may take some time. I mean defence, we did not talk about it till about three or four years ago.
Mihir Vora: Absolutely.
Where do you think that next sizable opportunity is going to be?
Mihir Vora: Ultimately, the biggest investment will have to be made in manufacturing for India and it will come whether we like it or not, if we do well, it will come at a faster pace. If we do not do so well, it will come at its own pace. But the fact is, the world is running out of labour and India has proven that after five-seven years, we are able to adopt any new technology. People were saying we do not have drones, people were saying we do not have this or that (but we had all the technology to not only have drones but anti-drone also. So, India is able to adapt to technology.
Right now, for example, people are saying China is not supplying raw materials for magnets, etc, but India has some of the largest reserves which we have been lazy enough to not exploit. But see, it is not something that you cannot throw money at. If you throw money at the problem, you will be able to solve it and we have the people and the intelligence too. So, manufacturing, automation, even robotics is something which is going to be a big theme for India.
Any sub-segment within manufacturing?
Mihir Vora: To start with textiles is the basic, the lowest end of the job which we have not even exploited and all the way to robotics and all. So, if I look at the unlisted space, there are hundreds of startups doing stuff in AI, in automation, in robotics and all. In the next 5 to 10 years, we will have a substantial amount of listed companies in that space.
So, are you launching any thematic fund?
Mihir Vora: So far, we do not have any unlisted company portfolio that will probably be in the AI space which we will start later.
