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First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only. Seeking fund investment advisors in India? Discover top companies and experienced managers in the India to guide your investment decisions effectively. Explore trusted expertise for your financial goals.

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Seeking fund investment advisors in India? Discover top companies and experienced managers in the India to guide your investment decisions effectively. Explore trusted expertise for your financial goals.

Explore insightful blogs at First Water Capital, where financial expertise meets clarity. Elevate your financial knowledge with First Water Capital's engaging and informative blogs.

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Indian market is poised for gains in the long term and industries and businesses that will benefit from the ‘China + 1’ initiative, as well

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Too early to say inflation war is won; infra a bright spot: Arun Chulani of First Water

Arun Chulani, Co-founder of First Water Capital Fund, believes it is the investors’ job to try and create a diversified weather-proof portfolio that one can feel comfortable holding. In an interview with MintGenie, he shared his views on inflation, rate hikes and sectors he is positive about.

Many have been dashed on the rocks of volatility trying to time the markets. It's better to take a long-term view and focus on finding well

Edited excerpts:

What are your expectations from the Q4 numbers of India Inc? IT is expected to witness a lacklustre quarter. Do you see value emerging in this sector?

Of course, one should look at expectations on a sector-wise basis rather than a blanket approach.

Some thoughts are: For metals and more specifically steel, there has been a softening in coking coal prices, so I would imagine that margins should improve compared to the last quarter but is likely to be softer than last year as realisations have generally come off.

Textiles should also see a softening in the numbers, as recessionary fears impact orders.

The IT sector has seen growth so far, but once again the impact on its key customer segment, that of BFSI, will create a softening of future earnings as clients look to re-negotiate or put a hold on projects.

One bright spot should be infra as raw material prices are down, while the government continues to push its infra-led agenda.

How do you expect the trajectory of inflation and rate hikes for the rest of the year? Is the worst behind us?

When it comes to the near-term macro, anything can happen. But, at least to me, it seems that both have started to soften for now.

However, it is too early to say if the war on inflation has been won. Energy, one of the key protagonists of last year, has come off in comparison to last year.

While OPEC+ are aiming to keep a floor, future price hikes should hopefully not be as pronounced given that some producers have increased output and the world seems to be in a heightened phase of energy transition and strategic diversification.

The central bank is going to continue doing its key job, which is to tame inflation, but the decision-makers will be cognizant of the impact on growth prospects. And so, the RBI will likely look to balance between the two.

The Indian market has underperformed most of the major markets this year so far. We see the FPIs have started coming back. The concerns over valuation have eased and the RBI has taken a pause. What is your outlook for the domestic market for the next six months?

Six months is too short a time frame to take a view. Many have been dashed on the rocks of volatility trying to time the markets.

Better to take a long-term view and focus on finding well value stocks or screening for good managers.

Can the RBI remain on pause mode for a protracted period while crude oil prices are rising, and El Nino is looming which can impact monsoon and crop production? Do we have fresh risks of inflation?

Again, as I mentioned, trying to second-guess the impact of all these macro factors in the near term may leave one dizzy.

There is also the question of China’s opening up – why hasn’t there been any real inflation occurring as a result?

Is it because growth boosters have yet to kick in or is there limited juice left in the tank?

On average, China is 40-50 percent of global demand for most basic commodities, so what is happening here? There are too many factors out there and unfortunately, I am not a macro specialist.

But what I do believe is that India does have strong long-term tailwinds.

I would personally prefer to focus on companies that are relatively well-valued and should be in a good position to benefit from these macros.

That way should there be near-term macro-violence, I am not that worried as long as the structural story of my selected companies remains intact.

What sectors are you betting on at this time? Should one look at real estate stocks?

We are sticking to our bets of infra, chemicals, packaging, and metals. Again, while there be booms and busts, we believe that due to the various winds of China+1, the government-heavy infra focus, rising incomes, and per-capita catch-up, many of our stocks should be direct beneficiaries.

What are the key challenges which can upset the market? Can they trigger a knee-jerk reaction?

Market participants seem sensitive at the moment and who can blame them?

Recently we have seen a lot of things we haven’t experienced for a while – pandemic, major conflict, heightened geopolitical concerns, inflation, rate hikes and financial fragility. But still, we are standing.

Any escalation or negative news can create a knee-jerk reaction.

But I believe that it is the investors’ job to try and create a diversified weather-proof portfolio that one can feel comfortable holding and even add to when the storm clouds are out.

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

To know more information visit us on:

First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only.

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Success is sometimes the outcome of a whole string of failures

As an emerging, vibrant, and multifaceted economy, India can boast of several spectacular success stories. We are surrounded by success stories of unicorns, leaders who have disrupted industries with their innovations, young achievers who have blazed a trail in their respective fields. While we see their achievements, we seldom realize the stories of their struggle. Their stumbles, mistakes, and lessons learned.

As an emerging, vibrant, and multifaceted economy, India can boast of several spectacular success stories. We are surrounded by success stor

Many of us, are also experiencing our own J-curves. Perhaps by being part of a start-up that is finding its feet, or in a role where we lack passion or even looking for a job. Sometimes, life is non-linear and doesn’t always go to plan, but we can take inspiration from those who have continued to roll the dice despite experiencing multiple setbacks and challenges.

Think Different

One of the best examples of a brilliant visionary who came back from the brink of failure is the late Steve Jobs. Having been unceremoniously and bitterly forced out of the company that he co-founded, he returned to a struggling Apple, which was no more the innovative force it had once been and on the verge of bankruptcy. However, through a combination of humility, luck, sheer determination, he pulled back the company and set it on course to become what it is today. Jobs set aside his bitter rivalry with Bill Gates and struck a deal for a cash infusion to save his company. He also changed the way he dealt with people, tempering down his approach. Under him, Apple became one of the most successful companies on the planet and went on to create revolutionary products that have changed the way we live.

Believe. Dream. Dare.

One of the most iconic personalities of our generation, Walt Disney, was initially considered to be a failed entrepreneur. What most people don’t know is that the first animation studio that he founded went bankrupt. If that was not enough, his second attempt succeeded but his partner double-crossed the genius producer and took away the IP along with a number of other animators, but that did not stop him from achieving greatness. He always went by, “First, think. Second, believe. Third, dream. And finally, dare.” Today, the Walt Disney Studios is one of the most successful animation studios in the world, and it is thanks to Disney’s power of belief in himself and his hard work.

“Life’s not about how hard of a hit you can give… it’s about how many you can take, and still keep moving forward.”

One of the most iconic actors of our generation, Sylvester Stallone, has faced a ton of adversity before he emerged victorious. Starting as a struggling actor who was homeless for a while and at one point sold his wife’s jewelry and even his dog as he was determined not to get a normal job lest it dampen his ambition of becoming an actor. He went on to star in a number of record-breaking films and much like Rocky Balboa achieved greatness despite being the underdog. If there’s anything that Stallone’s career can teach us is to keep at it, never hold back and how fortune eventually does favor you.

Another example closer home would be none other than the ‘Angry Young Man’ of Indian cinema, Amitabh Bachchan. After having a successful career for decades, the superstar came to the brink of bankruptcy as his company failed miserably. However, phoenix-like, he rose up and starred in one of his most iconic roles on television that took the nation by storm with Kaun Banega Crorepati. Ever since, he resurrected his career in the most spectacular way and went on to star in a slew of hit movies and continues to be the busiest actor among his peers.

In conclusion, while luck does play an important role in anyone’s success, it also takes many other qualities to make it from determination, patience, temperament, mental robustness, optimism, the ability to adapt and the willingness to keep learning.

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

To know more information visit us on:

First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only.

#best equity funds in india #hedgefunds #funds

The Rise of the Value Investor

For more than a decade, we have been living with TINA. This does not refer to an unwelcomed houseguest, but with “There Is No Alternative” in terms of investments.

What this means is that since the crash of 2008 and more so in the West, we have been living with low interest rates and in some cases with 0 per cent. Thus, excess capital has had very few safe and decently yielding places to call a home, especially if the owner was looking to make it work. Saving accounts and high-quality fixed income instruments have been typically low yielding and this has steered investors towards other riskier asset classes. Some might say that certain sectors have generally become frothier over this period as they attracted this capital. These sectors might include momentum stocks, growth stocks, pre-IPO deals and the like. A lot of these themes rely on a narrative and the requirement for a number of assumptions to play out, making these types of companies difficult to value and riskier. But these narratives can be convincing, exciting, and popular – for instance tech and fast-growing stocks that will “disrupt” and “change the world”. For the most part, many of these great companies are also generally available at premium prices with the hope that their story will unfold and value will be created. They may even be loss-making.

With value investing, the company’s intrinsic value generally exists, but the market doesn’t recognise it. As long as there is no value trap or miscalculation in its fundamental value, the play is that the market will eventually acknowledge its true value. Value stocks are generally associated with more traditional industries, cash generative or tangible industries, which sadly do not have as exciting stories as their prettier cousins.

However, the relatively smooth economic paradigm that we have been living in has been horribly impacted by a number of events that have knocked both demand and supply– the pandemic, conflict, supply-chain issues, the Fed and by “Dirtiest of all dirty words” – inflation. The last of these is putting pressure on central bankers to increase interest rates.

So why may rising rates lead to the rise in value investing? Here are some thoughts, but as always, I reserve the right to be wrong.

This is because, as rates rise, investors will need to price risk a bit more and they will have alternative, less riskier assets to place their money. It wasn’t that long ago that a savings account in the West used to give 5 per cent interest. Growth stocks also have a longer horizon and a number of assumptions when and whether they will in some cases even become profitable. Thus, with higher rates, they will be more heavily discounted as rates increase.

PE inflation can be evidenced with Apple, a great company with great products. However, if you simply look at the PE ratio, it has received a re-rating. In 2016, it was trading at 10.35x and at the end of 2020, it was 35x. That means even though its performance and earnings have grown, its valuation has increased considerably based on the perception of valuation. Currently, the PE has fallen to 24.5x, but what is to stop it falling further? Why not 20x, why not 15x, where it was as recently as 2019? What about loss-making companies like Zomato, which is valued at 11.8x sales. Why not 10x, why not 5x sales? Where does the buck stop and the penny drop?

Why wouldn’t a value play suffer the same fate? After all, the same investor may take out money from all types of stocks and interest rates impact most companies. The reason that value stocks are less likely to suffer the same fate as their frothier cousins is that their value is more tangible/visible and already exists in many cases. It is supported by an actual cash yield and also their PE ratios can be in the single digits (i.e. relatively cheap). If they were to fall further, the company might be effectively paying you in just a few years to buy their stock. Thus, there is a limit to how low its perception can go and given that the intrinsic value is already higher than the market, the share price may still rise, at least in theory

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

To know more information visit us on:

First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only.

#best equity funds in india #hedgefunds #india

Infra sector: The keystone to India’s 5 trillion-dollar economy goal

The government has ambitious targets for the Indian economy: a 5 trillion-dollar economy by 2030 and the third largest in the world.

The infrastructure sector allows the country to have access to basic yet important services including clean water, electricity and transport

Getting there, however, is a lofty goal indeed. The country needs to build a robust infrastructure to support this desire given that Infrastructure is the backbone of any economy. Without it, this ambition may well get strangled along with the dreams of a nation.

The infrastructure sector allows the country to have access to basic yet important services including clean water, electricity and transportation while generating jobs and promoting overall business efficiencies.

The health and growth of infrastructure are crucial to any country’s development.

As a sector, infrastructure is vast and covers a range of sub-sectors including private and public construction works of bridges, roads, railways, aviation, electrical grids, ports, houses and buildings, sewers, water supply, tunnels, etc.

So where do we stand? During the pre-Covid period (2019), the government announced the National Infrastructure Pipeline (NIP) initiative with a budget of approximately $1.5 trillion dollars.

Over the next five years, for infrastructure, this is a huge amount. Almost half our current GDP.

Even if this is discounted, there is no mistaking the signal that the government means business. It followed that up by launching the ₹100 lakh crore Gati Shakti plan last October (approximately $1.2 trillion).

With NIP, the government has sanctioned a host of social and economic infrastructure projects that amount to ₹102 lakh crore.

Energy, roads, railways and urban projects make up the bulk of this plan. To meet these lofty targets, the Finance Ministry developed the National Monetisation Pipeline (NMP) in consultation with infrastructure line ministries.

Under this scheme, an estimated ₹6 lakh crore over a four-year period, from FY22 to FY25 will be generated to fund the NIP projects.

The government’s next aim is to increase the length of the national highway network to 2,00,000 km and build around 200 airports, water aerodromes, and heliports and double the gas pipeline network to 35,000 km by 2024-25.

It also plans to set up two new defence corridors along with 11 industrial corridors along with tackling energy demand by increasing the power capacity to 225 GW from 87.7 GW.

So, what could this mean for infra companies? The previous decade was seen to be a poor period for many of them due to policy flip-flops and limited initiatives.

This led to a number of infra players falling by the effective wayside, leaving a leaner pack with less competition to help build India.

With these massive budgets in place, we are hopeful that not only their revenues will increase, but also their margins and slowly this is getting reflected as many of them are relatively sizeable order books.

Alongside this, there may well be a re-rating of the sector as perception gets shifted, but of course, as always we reserve the right to be wrong.

With all these moves on the anvil, the future sure is promising. However, we will still need proper implementation of policies in the infrastructure sector and an alignment of interests between the public and private sectors.

If these are effectively executed, then we are hopeful that they will help us compete effectively on a global scale as we hopefully move into our golden decade.

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

To know more information visit us on:

First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only.

#best equity funds in india #hedgefunds #india

This is India’s decade; we focus on the mid-caps, says Arun Chulani of First Water Capital Fund

Indian market is poised for gains in the long term and industries and businesses that will benefit from the ‘China + 1’ initiative, as well as the ‘Minus China’ movement, are the focus of Arun Chulani, Investment Advisor, First Water Capital Fund. In an interview with MintGenie, he talked about his view on the market.

Chulani said it is futile to try and predict the market's short-term movements. It is far better to look at long-term themes and build convi

Edited excerpts:

What is your view on the current market trajectory? For how long this rangebound move of the market may continue?

As a value investor, I think it is futile to try and predict the market’s short-term movements. It is far better to look at long-term themes and build conviction around a company’s intrinsic value.

Can the inflow of foreign flow sustain considering the strong gains in the dollar index and the rate hikes?

Again, to second guess what foreign investors might do and whether they will pull out their funds is of course important but while we may give credence to it, we prefer to focus on value. Of course, Uncle Sam wants some of his money back and conventional thinking might suggest that higher rates will allow some investors to better price risk and re-allocate to “perceived” more risk-free assets, which in turn might lead to outflows.

Are you positive about the domestic theme? What pockets are you bullish on?

Yes, most definitely. We are very hopeful that this is India’s decade. Much has been written about it in the press and there are multiple pockets that we would like to focus on. We are keen on industries and businesses that will benefit from the ‘China + 1’ initiative as well as the ‘Minus China’ movement. The latter are industries in which China itself is reducing its capacity – areas such as steel, chemicals, etc., as it looks to both reduce its pollution and upscale the products it focuses on. We are also keen on flexible packaging which is a relatively cheap proxy for the much fan-fared FMCG sector.

Can the mid and smallcaps outperform benchmarks? Please explain your views.

We very much focus on the mid-caps, and we believe that it is here that one can find value and companies that can create alpha. Of course on the flip side, you have to sometimes deal with opaque information and illiquidity. But with some luck and effort, one occasionally finds a diamond in the rough.

Is there more steam left in the auto stocks? What are the major challenges that the sector is still facing?

Autos are certainly an exciting space to be in, but I find them generally pricey. There is good scope for the sector but of course, there will always be risks due to high fuel prices, high input prices, and improvements in public sector transportation amongst other things.

The number of Demat accounts crossing 10 crores is a proud landmark. What factors have facilitated the rise of retail investors? Because of this, do you think the clout of FII will decrease in the Indian market?

We hope that this increase is due to a combination of factors. Ease of access, digitization, lower broker fees, and general education of making your money work. The market is one of the places where anyone with excess capital can invest and not only become an owner of some of India’s best companies but also benefit from India’s hopeful wealth creation. Of course, as the domestic investor becomes more disciplined and the GDP per capita grows, it will be more attractive for the FII.

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

To know more information visit us on:

First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only.

#best equity funds in india #business #hedgefunds #india

FPIs coming back to India: What makes them buyers again and what’s expected going ahead?

Foreign portfolio investors (FPIs) have been on a buying spree in the Indian market since March this year.

FPIs turned to the Chinese market from the Indian market after Beijing lifted Covid restrictions and opened its economy. At that time, the C

For the current calendar year, however, they are still in the red as the outflow in January was massive.

FPI flow in 2023 so far.

FPIs turned to the Chinese market from the Indian market after Beijing lifted Covid restrictions and opened its economy. At that time, the Chinese market was very cheap while India was at a premium to its historical valuation.

FPIs hoped that their investment in China will give them better returns and they were right.

China’s Shanghai Composite Index is up about 10 percent this year so far against a two percent fall in the Indian benchmark Sensex.

FPIs coming to India, but slowly

India has been one of the best investment destinations for FPIs among emerging markets since March. But if we see carefully, they are not investing heavily in the Indian market. In fact, they are picking stocks very selectively. FPIs are buying capital goods, construction and FMCG and selling IT and oil and gas.

FPI net investment in the first three months of 2023 has been negative each month. March 2023 was positive only due to the one-off equity investment in the Adani Group. However, April’23 has been a good month to date.

Betting on the India story

FPIs appear to be betting on India’s growth story. As the correction in the Indian market In January and February gave comfort on the front of valuation too, they want to reap the benefit of India’s resilient economy when the West is trying to avoid recession.

“The Indian broader indices had corrected nearly 10 percent from their highs, making their valuations attractive as compared to other emerging markets. FPIs were net sellers in the months of January and February 2023. Barring a huge deal, FPIs were net sellers in the month of March too,” Sanjay Moorjani, Research Analyst at SAMCO Securities, observed.

“Given the recessionary conditions across the globe, India’s growth potential remains the highest in the world. This could add as a fillip and foreign flows would come back soon,” said Moorjani.

Kaizad Hozdar, Investment Advisor at TrustPlutus Wealth, also believes India’s growth story is a major factor that has attracted FPIs.

“As per the latest figures from the IMF, world GDP growth is estimated at nearly 2.8 percent in the year 2023 which is close to the decadal low of 2.6 percent attained in 2019. A major slowdown in growth is expected in US and Europe while India is likely to grow at about 6 percent in the financial year 2023-24 (FY24). We believe this is one of the prime reasons why FPI flows are likely to gravitate towards India over the next few months,” said Hozdar.

“India benchmark earnings are likely to grow at about 10 percent in FY23 and between 10-15 percent in FY24. This growth stands out as an oasis in the current season of drought in the earnings prospects of the other large economies,” Hozdar said.

Arun Chulani, Co-founder at First Water Capital Fund, also highlighted that FPIs are once again coming back to India because they have seen how robust the India growth story is.

“Of course, India is not an island and will not be unaffected by the global headwinds, but with our internal domestic engine still on, we hopefully will be less impacted. Also, it is likely that the FPIs have seen what the other opportunities there are out there geographically and in comparison, India probably looks like a beacon of growth,” said Chulani.

“China has a big pull when it comes to attracting foreign investors; they have done a fantastic job in industrialisation and urbanisation over the last few decades. But as history shows, the baton of growth gets passed on and hopefully India will be the one to benefit next and take advantage of the passing trade winds,” Chulani said.

“India should hopefully grab this opportunity with both hands and especially more so if the government is aligned,” said Chulani.

Weakness in the dollar index and rate hikes hitting their peaks are also positive for emerging markets.

Hozdar observed that the dollar index which peaked out 7 months back at about 115 is now on the verge of cracking below the 100 mark. This is positive when seen from the point of view of FPI flows into emerging markets.

“The FPI outflow seen in the first quarter of the calendar year 2023 could be partly attributed to China relaxing its Covid curbs and re-opening its economy. Now looking ahead, it would be reasonable to assume that flows would get directed to regions where the earnings growth is superior,” said Hozdar.

“The interest rate hike cycle is now at its fag end which too could help funds flow to emerging markets. Our inflation is now likely to not only come within the RBI’s comfort zone but more importantly is likely to remain in the zone as most commodities are seeing bearishness due to weak global growth prospects,” Hozdar said.

What could be the trend?

It is unlikely that there will be a strong shift of foreign funds from China to India. India may continue to see inflows due to its bright economic outlook and pause in interest rate hikes.

However, China too will remain a beneficiary of foreign fund inflows as investors hope the country’s growth will beat expectations.

In fact, the Chinese economy has started showing signs of recovery. Its first-quarter gross domestic product rose sharply.

“China GDP grew by 4.5 percent in the first quarter. That marks the highest growth since the first quarter of last year — when China’s economy grew by 4.8 percent — and better than the 4 percent forecast in a Reuters poll. Quarter-on-quarter, the economy grew 2.2 percent,” said a CNBC report said.

As Rajnish Girdhar, CEO of Karma Capital, explained: “Global allocators look at the emerging markets as one asset class. China being a heavyweight has a huge contribution to that asset class performance. Most allocators look at it as complementing rather than competing geographies for allocation. It would be unfair to look at it as India versus China, as in the current circumstances both will be beneficiaries.”

The views expressed are the authors own. Please consult your financial advisor before making any investment decisions.

To know more information visit us on:

First Water Capital focuses on Indian publicly-listed equities. We are value-orientated, concentrated and long-only.

#hedgefunds #best equity funds in india #business

Promoters raised stake in 23 BSE 500 companies in June quarter; should you buy?

Promoters buying into their stocks from the equity market is generally a sign of confidence. That is why it makes sense to study more about it before lapping up such stocks. Initial shareholding data showed that promoters of at least 23 BSE 500 companies raised their stake in the June quarter when the benchmark equity index BSE Sensex cracked 9.48 per cent.

Among the major buying done by promoters in Q1FY23, promoters of Mahindra CIE Automotive upped their stake to 74.87 per cent from 72.17 per cent in the previous quarter ended March 31. Shares of the company have advanced 1.80 per cent on a year-to-date basis till July 14, 2022. It is one of the top global forging players with a strong presence in both Europe and India. At present, two-thirds of the revenue comes from Europe, while the rest is from India.

NCC Ltd is next on the list. Promoters increased their stake in the company to 21.99 per cent as of June 30, 2022 from 19.68 per cent in the March quarter. Shares of the company have plunged nearly 19 per cent year-to-date.

Ricky Kirpalani, lead sponsor, First Water Capital Fund (AIF) said, “As part of our screening process and with our investee companies, we tend to look at the quarterly updates to see if there have been any changes in shareholder patterns.”

“Buying of shares by promoters is a sign of confidence and it shows that they are willing to increase skin in the game. We also look at what FIIs and DIIs are doing to see what the general mood is around the company and try to understand why they are increasing or decreasing their stake,” he said.

Data further highlighted that Uflex, VIP Industries, Lux Industries, Lupin, Nuvoco Vistas Corporation, Jindal Stainless, IRB Infrastructure Developers, KRBL, KNR Constructions, Atul, GAIL (India), ITI, IIFL Wealth Management, Zensar Technologies, Amber Enterprises India, Hero MotoCorp, JSW Energy, JK Cement, Ambuja Cements, JSW Steel and CSB Bank stood among other major players in which promoters increased their holdings during the June quarter.

“Investors should consider it as one of the criteria while shortlisting the stock,” Kirpalani said.

To know more information visit:

https://www.firstwatercap.com/

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