Vijay Kumar Gaba

Will jet fly high again?

One positive impact of Covid-19 pandemic for me is that it has increased my productivity significantly. I am saved from excruciating travel, which many times is completely unnecessary and avoidable. I am able to devote the time, money and energy saved from travel to useful and productive tasks. I am reasonably confident that this positive impact of the pandemic may sustain in foreseeable future also.

In last two days, I did video meetings with five corporate managements, located in Gujarat, Maharashtra, Andhra Pradesh and Bengaluru. In pre pandemic era, I would usually travel to meet companies for understanding their businesses. A one hour meeting in Bengaluru would mean, waking up at 3AM to catch a 6:50 flight, and reach home by 10PM. No longer is the case. I logged in at 3:58PM for a 4PM meeting from the comfort of my home; and was done at 5:10PM, well within time for the evening tea with my wife. Saved, Rs15000, 20hrs of time, 1500 calories, and stomach ailment from eating out.

There is no doubt that I would like this arrangement to continue in post pandemic era also; and limit my work related travel to only “unavoidable” category. Also, I have absolutely no reason to doubt that there are numerous other people who are happy with the present arrangement and would like this to continue.

Now, this thought brings me to some recent uber bullish analysis on airline and hospitality stocks, and sharp run up in the prices of a defunct airline, which hopes to start its operations in 15-18 months. I need to assess whether I would increase my leisure travel significantly to compensate for my lesser work related travel.

Is Tesla, Lehman of 2021?

Michael “Cassandra” Burry, the trader who made a fortune by taking a massive short bet on subprime credit during 2007-08 mania; and inspired a best seller book (The Big Short, Michael Lewis, 2010) and a block buster movie (The Big Short, Adam Mckay, 2015), has been a role model for many traders. I have seen many young traders aspiring to emulate Lewis’s conviction in his analysis and make big money. Michael is reportedly short in the stock of Tesla, Inc. after the stock bent ballistic, gaining 800% in past one year. He has reportedly stated that the stock price of tesla will “collapse”.

I am not sure how many young aspirants are emulating Burry on Tesla, but one thing I know for sure – if Burry is right then Tesla will not fall in isolation. It will bring the entire market down, like the Lehman bros did in 2008.

Too good to be true

Not long ago, social media and TV channels were hyper busy analyzing the potential beneficiaries of the Covid-19 vaccine and its logistics. Few large pharma companies, a logistic company, couple of glass manufacturers, air conditioning companies, an airlines etc were widely discussed as likely beneficiaries of this once in a century opportunity.

Well, two unlisted Indian entities have started to ship the vaccine this week. They do not require -80°C temperature to store and transport the vaccine. The vaccine is being procured exclusively by the government at controlled rate and apparently being provided free for now.

In the investing world, usually, the things that sound too good to be true are actually not true!

Alibaba getting nationalized?

As per media reports, Jack Ma, the founder of online retailer Alibaba, is missing for past two months, after he had highlighted some problems with the Chinese financial system. Many observers who keep a watch on Chinese developments have suspected that he might have been in custody of Chinese authorities. There are reports that the Chinese government may be planning to nationalize Jack Ma's Alibaba and the Ant Group.

The Chinese government has been reported to say, "Based on tip-offs received by the State Administration for Market Regulation in recent days, the administration will be investigating Alibaba for suspected monopolistic activities." (see here)

The truth may be known only few months (if at all). However, since there is no official word about the whereabouts of the legendary entrepreneur, the doubts are getting stronger. This is a strong reflection on the true colours of the Chinese model of free enterprise.

It may sound little sadistic, but I see this as an opportunity to aggressively push India as an alternative investment avenue; though some radical steps to promote ease of doing business would be a prerequisite.

Governments are pro reforms, regardless of party in power

The incumbent government led by BJP has implemented (or attempted to implement) many legislative, administrative and policy reforms, which the party had opposed vehemently when it was in opposition. GST, higher FDI limits in trade and industry, disinvestment of strategic and profit making public sector undertakings, and labour laws etc., are some of the examples.

This highlights that the “governments” in India are usually pro reforms, regardless of the party in power. This needs to be remembered in next elections.

 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.