Vijay Kumar Gaba

 Besides digital transformation of global economy, sustainability is the other theme that had dominated the investment strategies in past three years. The global energies have remained focused on enhancing the role of digital capabilities in our day to day life, and making the growth sustainable in terms of the pressure on natural resources and dispersal of harmful waste in the environment.

Scrolling through my social media timelines, I gathered some interesting instances of “sustainability” theme dominating the investment discourse.

·         Market capitalization of Tesla Inc., the US company making electric cars, among other things, has topped market of top 10 global auto makers; even though it’s annual revenue is about US$28bn (vs. Toyota revenue of US$572bn).

·         The stock price of Orsted A/S, a Danish largest energy company in Denmark and world's largest developer of offshore wind power, has risen by 275% (vs S&P500 growth of 36%)

·        Zhong Shanshan, the Chinese promoter of Nongfu Spring (water bottling and selling) and Wantai Biological (vaccine manufacturing) surpassed Oil Refining Moghul Mukesh Ambani and Oil retailer Jack Ma, to become the richest person in Asia.

·         Markets celebrated the victory of “climate change hawk” Joe Biden with London Stock Exchange’s FTSE making an all-time high, despite the country (UK) facing serious healthcare emergency and fresh lockdown.

In Indian context, stocks of companies like Borosil Renewable (PE 203x, Market Cap 3x Revenue); Suzlon Energy (Loss per share -2.95, Market Cap 2.6x Revenue) and Adani Greens (PE 9956x and Market Cap 67x Revenue) have been prominent amongst the most poplar shares in past one year.

It is evident that the stock markets, as usual, have embraced the trend enthusiastically, just like a toddler would embrace a new toy. It is very difficult to separate the toddler from his new acquisition. He/she would eat, sleep, play and do everything else with the new toy in his/her hand. Invariably, the alienation would occur only when a new toy is presented to the child or the old toy gets broken very badly.

Remember, the toddlers who fell in love with Suzlon & Inox Wind (wind energy)’ JP Power (Hydro Power); Himadri Chemical (Lithium Batteries) etc. are still nursing their wounds (emotional and financial).

Just to set the record straight, personally I am a huge supporter of the sustainability effort. I strongly believe that these efforts will create tremendous investment opportunities in next one decade. These opportunities need not come necessarily from the clean energy or producers of natural products. Many of these opportunities shall come from the existing businesses adopting sustainable methods, and thus improving their productivity and acceptability. As a tiny investor, I do not have resources to analyze the risk involved with businesses focused on new technologies and products. I would therefore focus on established businesses adopting new technologies and methods to become sustainable.

Some examples of such opportunities include – large FMCG companies becoming water and carbon neutral; large IT companies adopting solar energy and work from home as normal business practice; textile companies using natural colors.

Two inquisitions from readers in past one week have kept my mind occupied for most of the week. The questions are not new; rather these are the most routine questions I get from readers (usually small individual investors). I have answered it many times. But still I keep getting it repeatedly, even from the same people. This makes me wonder why do we investors refuse to learn the art of investing, despite an abundance of wisdom easily available for free on the internet and our own experiences!

The inquisitions were:

(a)   Yes Bank is down more than 95% from its 2018 peak. How much more it can fall? Can I buy this?

(b)   ITC is up more than 40% from its recent lows. Should I buy it or wait for correction?

Well, I cannot comment on stock specific queries. But let me answer it the following way. Please note that this is only for illustration purposes and not an investment advice.

(a)   15yrs ago, Suzlon Energy Limited, a renewable energy major, emerged as one of the top stocks in the country. It was included in Nifty. The promoter appeared on front pages of all magazines as one of the richest persons in the country. He was termed as true visionary and a potential global corporate leader. The stock touched a high of Rs450 (adjusted for all corporate actions) in January 2008, before falling by 50% in next two months. The question was how low it can go. It's already down 50%. It fell 30% from the March 2008 level in next four months. The question was asked again. The stock fell more than 70% from July 2008 level in next four months. In 10months the stock was down over 90% from the January 2008 peak. The question was not even more forceful. 12 years later, the stock is further 90% from the November 2008 level.

Without commenting on the merits or demerits of Suzlon Energy Limited, I just want to highlight that "it's down 50% from top" can never be an argument for buying a stock.

(b)   The stock price of Pidilite was around Rs90 in January 2008. By then it had appreciated close to 100% in 7months. Someone was reluctant to buy it just for this reason. The company was undergoing transformation at that time. The older generation had already paved the way for the new generation. In next five years, it appreciated by over 200%. The question however remained - "it's up so much, should I wait a bit?" In next five years it gained 400% from 2013 level to reach Rs1200 level. To top this, it has gained another 40% in next 2years.

Again, no comments on the merit or demerits of investing in Pidilite. I just want to highlight that "it has already risen so much" can never be an argument against investing in a stock.