7 hours Ago
Last Monday, a groggy Bertie was sleepwalking around his office building in search of his caffeine fix. That’s when he bumped into an old friend who is the India economist at a foreign brokerage. Many years ago, she and Bertie had worked for the same Wall Street bank, which is how he knew of her diligence with numbers and attention to detail.
Unlike many of his buy-side peers, Bertie has never given anyone a hard time about missed forecasts, but the one thing that Bertie is allergic to is bad data. The future is uncertain, but the past shouldn’t be. That is why Bertie likes analysts who present solid historical data in easy-to-comprehend formats.
Bertie’s economist friend met those criteria, so when she offered to run Bertie through her India macro deck, he accepted. In the freezing conference room of her office, Bertie flipped through the presentation deck. It looked like she hadn’t changed the flow of her presentation at all.
It had sections for each important macroeconomic variable in an unchanged sequence since Bertie had last seen it. It felt like the menu of his favourite Udupi restaurant; he knew where to find the dosas , the filter coffee and the pineapple sheera . The economist took him through the contours of the current account deficit, balance of payment and forex reserves.
The fiscal deficit, public debt, inflation, rates and currency followed that. She wrapped it up with charts showing overall levels of indebtedness at corporates, households, and the government. Finally, there was some sensitivity analysis about the proposed tariffs and their impact on growth, which to Bertie did not seem alarming.
Read more: What analysts miss in concalls while chasing guidance She finished her monologue and looked at Bertie for a reaction. “There’s nothing to notice here,” Bertie blurted the first thing that came to mind. She seemed disappointed, and so Bertie said, “As always, you have been thorough, but overall, things seem fine.
There is nothing to get very worried or very excited about.” She reluctantly agreed. “That’s great news for an investor like me,” Bertie continued.
“We should get double-digit nominal growth with no apparent signs of large excesses anywhere. As a stock picker, that’s all I need!” To ensure he gets invited to future presentations, Bertie thanked her profusely and promised to vote her the number 1 India economist in the upcoming analyst polls. She smiled, and so did Bertie, but for a different reason.
He knew this pitch of slowing growth and ‘meh’ macro and how to make runs on it. Superior growth After the macro lecture, Bertie returned to his office with a spring in his step. Experience told him that in a slowing-growth environment, superior growth is what investors richly reward.
The rarer the thing, the dearer it is. Bertie’s rule of thumb for superior growth was to find something sustainably growing in double-digit volume terms. That generally translated into about 15% nominal sales growth.
All he had to do was find sectors which were showing these growth characteristics. Armed with what looked like a solid game plan, Bertie sat down to trawl through corporate database to uncover the superior growth gems. His first port of call was consumer staples, a reliable hunting ground in the past, but low single-digit volume growth at 50 times earnings multiples is all he could find.
He turned to pharmaceuticals, a sunrise sector of the past, again to be disappointed. Domestic volume growth was barely 5%. Automobiles was a similar story—across two-wheelers, cars or commercial vehicles.
Read more: Backed by giants, bleeding cash—is Ather Energy ready for IPO? Bertie shook his head and changed tack by looking at information technology names. If domestic demand stories were bad, this was dire. The bellwethers had just reported numbers and guided for 0-3% topline growth for the forthcoming year; a guidance that analysts deemed optimistic.
A permanent also-ran from Bengaluru was on track to report a third successive year of revenue decline. There wasn’t much to report from utilities and traditional media names, which left him with banks and industrials. The popular commentary for both these sectors was that the best was behind them.
What made things worse was that prices had already been bid up to the sky wherever there was even a whiff of superior growth. Bertie’s mood went from enthusiasm to exhaustion. Yes, the pitch was alright, but he felt like he was batting on a sweltering Chepauk afternoon with bowlers bowling tight lines and the field spread out, meaning only singles were on offer.
A boundary or a six would have to be manufactured, and that would take skill. However, regular readers know that Bertie isn’t one to give up easily. The growth may be tepid at a sectoral level, but in a large country like India, niches will be within those sectors that offer the prized growth profile.
Our man is determined to suss them out..
