Excerpts Letters

Manish Bhandari’s Observation

I must bring an interesting observation I have been having for some time to your notice.

India is likely to witness shortage of quality investable companies in the future.

The seeds were sown few years back with the scrapping of press note, allowance of 100% FDI in most of the sectors, buy back by listed MNCs and regulatory arbitrage available to do buy back rather than paying dividend.

Moreover, in many cases Initial Public Offers are from companies that have been, private equity funded leaving less room for upside for secondary market players.

All these factors are compounding the valuation for high quality companies to stratospheric height, leaving less room for error, if forecasted earnings are not met.

Moreover, my observation is that in many areas, MNC with technological edge, global relationship, brand, superior business processes have an edge, emerging as leaders or have gained dominant markets share in respective field. 

Many such, not represented in the listed equity universe of India.

The classic example is the compressor industry, where the world technological leader is not listed anymore.

This sets us in dilemma of how to invest in an excellent business, which is not listed, or invest in a second rung, average business as proxy play.

Therefore, relative value trade, pitting one company against another without a deep dig, is not going to yield sustainable return.

Such scenario also reinforces, hold on to the good companies you have discovered rather attempting to find new gem.

wrote Manish Bhandari,Vallum Capital

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