Are you still bearish on new age companies?
You are joking, right?
No, I feel like I have been a bear for so long that it has become second nature to me now and it feels like the easier answer, coming out of my mouth.
You have been pretty vociferous about this. As far as new age companies go, some of the valuations do not make any sense. There was a momentum in the equity market towards these new age companies which are also very large brands and household names and there were stretched valuations. Today are we seeing a correct price discovery?
When these companies went for IPOs, I did not like the fact that a lot of them were OFS (offer for sale) and they were taking out liquidity. There were secondary rounds but they were not really investing that much money back into the business. I did not like the multiples and I did not think there was enough room for retail to benefit in a significant manner.
That said, in terms of relative valuations today, I think Indian private equity is really expensive. Indian public equity is also expensive but less than private. As an investor, who has access to investing in asset classes across the world, things like meta companies on the Nasdaq which are creating a 10-11 times multiples and in many ways are a lot more innovative. One would have to be really hard pressed to pick a domestic tech company which listed recently over something which is on the Nasdaq and as cheap as it is today.
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fell below Rs 1,000 a share before it went ahead into the stock split; which is now available for Rs 450 versus Rs 2,000 plus during the IPO. When Delhivery, Policybazaar stock prices crashed, was it the right time to enter?
None of them are significantly profitable yet. When the cost was zero, it was easier to take a bet saying that this company will be profitable five years from now and that is okay but the cost of capital has gone up multi-fold. One might not be willing to take that bet today and a large number of companies are still not profitable even when they get profitable. They will have to scale up slowly for that reason and there might be more pain left on the table.
What you and Nithin have done at Zerodha is unbelievable and you guys have done it being bootstrapped and disrupted the field. You have taken business away from the big boys who had the first mover advantage.
Many of the ideas that have thrived here had been tried out in the west. There were discount brokers in the west, there were ecommerce players and food aggregators in the west, the ones which have thrived and done really well in India. I also want to paint a rosy picture of India. I live here and I love the country. But a lot of what we have built here in different domains, the companies which have succeeded, are in an euphemistic way, products which have existed in the west and they have been replicated better and these companies have really grown and done well in India.
The promoters and the innovators here have kind of made the product better and built it to scale. I am not saying there is no innovation in India but the point I am trying to make is that innovation is not happening in the manner that it is available in Nasdaq listed companies.
For example, if I had a 100 bucks to allocate and you put a gun to my head and I had to pick where to put that money, I would probably put 50 in Nasdaq, 30 in Indian public equity and 20 in private equity because that is how I value them from cheap to expensive today.
How would you invest your money? The new age stock IPOs had brought in new retail investors to the public markets. Some of them are women. In this meltdown, they have lost 50% to 80%?
We were critical of valuations (of new age tech companies) even back then and even where they sit today we continue to remain sceptical. This is a complex world for a retail investor. Somebody has to take their side now. If I ran a venture capital fund, I would have to say more upbeat things about the ecosystem because my source of revenue and my source of money coming in is somewhere else. But keeping retail in mind, the valuations that were offered to them and these companies listed in my opinion were not totally fair.
Is every retail participant savvy enough to research and figure out for himself what valuation is right and what is not? Earlier, I did not like the fact that 80% of these issues were OFS. They were the initial investors downloading or offloading to retail and it was not money which was going back to the company in the form of capex.
I do take issue with some of these small things because in a certain manner, I speak for the retail audience and the public equity focussed audience but this has been a learning for each and every one of us and the retail participants in the country. The next time an IPO were to come about and profitability is 5, 10, 15 years away, one would be wise to be a little bit more sceptical than we have been in the past.
I remember last year also there was a lot of this chatter on why one should buy into these companies because the belief is Nifty and Sensex composition a few years from now will be very different and it is going to be made up by these companies. Do you agree that will still be the situation?
It is nonsense. When people say inclusion in MSCI, Nifty, Sensex, short term fund movement from one place to another for investors is largely irrelevant. We need to go back to the basics. In the last few years, people have gotten swayed by the prospect of what might happen tomorrow; we are betting today like tomorrow has already occurred. We need to go back to a time where we looked at a company and thought that it has been around for five years, this is the profit it made this year, last year, this is the rate of growth and value of companies based on that. I am a big fan of simplicity and the simplest things tend to work best for investors.