How should investors look at banks? First bad news will come and then good news or right now banks is a difficult category to call?
Right now, lenders as a category is tough. It is very tough to figure out what is going to be the credit cost because historically all banks have gone down all over the world because of bad loans.
So this time, to be fair with them, it is not because they are giving very bad loans but a reasonably large size of good loans which might also become bad because of the effect of Covid. Authorities are taking all kinds of measures. They have given moratoriums, now they are talking about restructuring, rescheduling and all sorts of things are happening. But if the economy has slumped by 5-7%, who knows how long this entire thing will last. There will be damage to the banking portfolio and hence this is not the best time for the lenders.
The last six months have been challenging and the next one, one-and-a-half years will be challenging. This is not the rosiest of times for them but at the same time, no economy comes back without a strong banking system and hence there is a tomorrow. There will be lot of support from RBI and the government in every possible form to bring back the ban to the healthy condition.
So if you are invested for a little longer term — three years, five years — if you get truly the best banks at reasonable prices, they would be good investments for longer term, not so much for the shorter term.
ET Now: A long term investor or someone who has invested in HDFC Bank 20 years ago and someone who has invested 20 days ago, how should investors look at the change of guard at HDFC Bank?
Raamdeo Agrawal: The bank is one the world’s finest banks created in the last 25 years and the leader has chosen the next successor and has groomed the incoming guy for 25 years under himself. You cannot ask for any better transition and transition is part of life. If you want longevity of any corporation, then he could have been given another two-three years, but beyond that again the transition thing comes. So, you have to face it one day. Unfortunately, you are facing it in Covid times but that shows the strength of the bank. The culture, the opportunity, the value migration opportunity is there and the way they have conducted, the way they have built the book and so the strength of the bank will come at this point of time to help a smooth transition.
One point it is very clear that whenever there is larger than life leaders, it becomes a little difficult to match up with the expectation from the next guy but when the next guy comes and when you start flashing his interviews and reports, I have seen people with a very little public suddenly is seen everywhere. I would say that this transition should not be very difficult and all the strength of HDFC Bank and the pre-eminence position would help the move. I would be watching very closely but that is fine.
Where do you have a strong vision, where do you have the courage to buy and where do you have the patience to keep?
A good thing is that the future does not unfold in one day. If you remain optimistic, there are so many opportunities in the global economy. When I started in 87-88 or till 90, we were very small, the economy was primitive. We were all close and we had not seen even books, forget about anything else. So we did not know what is the world of opportunity.
Then 1992 opened up everything. 1995-1996 opened up India to the software export world of the global markets. This has happened right in front of us in the last 25 years. A lot of opportunities keep coming. There were no generic pharma companies. It has started with Dr Reddy and Ranbaxy and then Sun followed and Lupin and a whole lot of them and today we are pharma capital of the world and still counting.
A lot of these opportunities keep coming in some kind of a wave after wave. Now in pharma, all the API companies are kind of flying and at some point of time, the e-commerce companies and the online companies will start coming. They are still in the private equity space but I do not have any doubts that a lot of new ventures, new promising enterprises which are driven by digital power. There may not be digital companies, but the existing businesses will be empowered in time by the digital processes.
Those businesses will win big time and they will be the opportunity in the years to come. What I am saying is that opportunities keep coming, we have to be ready to embrace them when it comes and encash them and build on them. You have to be early in the game and you have to be ahead of the crowd. When I bought Bharti in 2003, people said that this is very capital intensive it is not your type of company but in three years, it went up 50x. The demand was growing at 100% per quarter or almost per year.
India is a large country and whenever any opportunity opens up, it opens up very rapidly and it scales up very quickly. So any successful company at the early stage, makes a lot of money. Post Covid, we hope to find one or two.
If I look at the last 10 years of corporate India, only three or four great companies have got created — D-Mart, Bajaj Finance, Indigo. Has there been a drought of good new companies in last 10 years?
I agree but a lot of them still have private equity. I can tell you very large successful companies which have not come for capital in the market. They have gone straight to private equity. Or they are like Flipkarts of the world which have not come here. So, e-commerce oriented companies which are ruling the roost in NASDAQ and in China, has not happened in India so far. They have remained in the private space and they are relatively small right now.
I believe they are 15-20 unicorns and we are expecting many more unicorns in the next five-six years. Somebody was saying I was hearing that Indian digital infrastructure is 100 years ahead of physical infrastructure. Clearly that is going to throw many more companies and many more competencies which will help the existing businesses. May be the new companies will not come but the existing companies can harness the power of digital.
So how can an average investor who does not have appetite capital or even the understanding of buying PE, can participate in the great digital highway in India?
Whatever is available in the public market, you can definitely participate. I like the first flush of it. We have seen the emergence of Reliance as one of the digital powered companies, Many more opportunities will come we have to be patient till it comes to you because in the listed space, you cannot force yourself. Or you can go abroad in the sense that you buy something which is listed abroad. Nowadays it is much easier to buy a lot of foreign stocks so you can participate into buying Zoom or Tesla or whatever you like. Actually we do not have many actively managed technology companies for global investors. You can buy into NASDAQ ETFs. You can diversify your portfolio and embrace the power of digital in the years to come.