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This article was first published 5 years ago  » Business » 'Investing in India is like joining the mafia'

'Investing in India is like joining the mafia'

By Sachin Mampatta and Samie Modak
Last updated on: May 21, 2018 18:32 IST
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'You can only enter, you can never exit. When things are good you get exit but when things are bad, the stock will be ‘limit-down’ for a few days.
'So it leaves you with only two options, don’t-sell or don’t-sell-plus-buy.
'The market is one of illusionary liquidity. You have to factor that in your return expectation.'

Illustration: Dominic Xavier/

With Karnataka election results out of the way and as several key states, including Madhya Pradesh and Rajasthan, prepare for assembly polls later this year ahead of the 2019 general election, Shankar Sharma, vice-chairman and joint managing director, First Global, advises investors to ignore all the noise around the elections.

In an uncharacteristically bullish tone, he tells Sachin Mampatta and Samie Modak why investors should buy if the market falls, why a coalition government is not the end of the world and how investing in India can be like joining the mafia. Edited excerpts:

How should investors deal with near-term triggers like elections?

I don’t consider it as a trigger at all. Even if we have a coalition government it is not an issue.


India has had the best years of its life under coalition governments.

What should investors be keeping an eye on over the next year or so?

Stop worrying about politics and the political outcome.

The election has a lot of entertainment value, but has it ever changed the course of India’s history?

All governments want to do broadly well for India. Some do it, some talk about it. Broadly, the intention is okay.

But this time the market is worried about non-aligned parties coming together?

The market’s fears are unfounded.

India needs a coalition more than a majority government.

I think the government runs better when we have a coalition. There are more checks and balances; there is more focus on decision-making.

The data don’t say India does better in a majority.

Both the economy and markets have been disappointing under this government.

Again, just having a mandate is not good enough. Just because there are five people making a decision, it doesn’t have to be bad.

It can be better than a one-person decision. Democracy by very definition is participative.

Maybe it will prevent a great idea from getting implemented. But on the other hand, it may also prevent disastrous decision-making.

Overall, it will give you a reasonable average.  If there is something to worry about, it is high oil prices.

What’s your view on oil?

I am very bullish on oil. I won’t be surprised if it crosses $100 a barrel. I will not be shocked if it crosses $150.

I am not saying it will but that’s something I can’t say will not happen.

What will be the impact on India?

India has a problem with two liquids - oil and water.

Between the monsoons and oil, our whole economy swings, and the course of policy is decided. Between 2004 and 2007, India did very well despite a huge commodity rally.

Maybe that was an aberration. By and large, we have a problem.

So any sector that you like?

I like infrastructure.

You were negative on the sector in 2007.

Yes, we were very negative because we saw the way they were running their businesses, the way they were chasing orders for vanity metrics, there was no sense in those bids.

That whole thing came to roost from 2008 onwards.

The crisis was only the trigger. They would have gone bust anyway. The players of that era…they have never recovered.

So, the old players have largely gone out of the business.

There are some new guys who have seen, at least hopefully, the experiences of the previous generation.

The size of the opportunity is still quite substantial. The number of players has shrunk.

Steel is another example because banks are not ready to fund new capacity. They are stuck trying to get rid of the old capacity.

Steel demand is reasonable. You’ve got protection from imports. So again, existing players are making good money.

So, we’ve been bullish on steel over the last couple of years.

I don’t think we are ever going to see a 2008-like correction.

Ek baar sau saal mein hona tha, ho gaya boss (It was a once-a-century event, and it has already happened).

Even in that period, the better companies without leverage didn’t fall as much.

The market fall was because of four-five sectors - metals, real estate, infrastructure and banks.

The common thing between all of them was leverage.

So, if your company is unleveraged, or moderately leveraged, and it has fallen by around a third in a market correction; go out and buy it! No need to think.

And you are not getting 2008 again.

So, what is there to fear about in a so-called fall or correction or even a bear market?

With a good balance sheet, 30 per cent correction bahut ho gaya (is the limit). Uske neeche jaa hi nahi sakta stock (The stock cannot fall further). It’s not possible.

How should investors approach the market now?

I see India as a very bottom-up market. I have been bullish on the small-cap space for many years… Small-caps are not correlated to macro.

And there are many micro stories playing around.

Are you not concerned about governance standards of small-cap companies?

I am concerned with governance even for large companies. It should be a concern when you are investing.

But, governance can be easily fixed.

I ask promoters, ‘if I invest in your companies, what’s the worst that can happen to me?

I will lose a few crores but your life is over (if there are ethical lapses because it will eventually sink the company)’.

You can go wrong because of external factors but if it is because of your own governance or lack of ethics, it is your funeral, not mine. So, companies understand that.

The small-cap boom has created a lot of peer pressure. That’s a very healthy thing we have seen over the last few years.

So, if a company doesn’t do well, it won’t be because of lack of ethics.

In today’s world, compliance is also strict. You can’t be wiggle out with hanky-panky.

But small-caps are also quite illiquid.

Investing in India is like joining the mafia. You can only enter, you can never exit. When things are good you get exit but when things are bad, the stock will be ‘limit-down’ for a few days.

So it leaves you with only two options, don’t-sell or don’t-sell-plus-buy. The market is one of illusionary liquidity. You have to factor that in your return expectation.

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Sachin Mampatta and Samie Modak
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