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Nilesh Shah's Really Amazing Letter To Jim Rogers

First an introduction to the two gentlemen (for those who don't know them):
Mr. Jim Rogers: A world-renowned investor, financial commentator and author

Mr. Nilesh Shah: Managing Director, Kotak Mahindra AMC

Next the context
Why did Mr. Nilesh Shah write an open letter to Mr. Jim Rogers? (In fact, this is the 2nd open letter from Mr. Shah to Mr. Rogers.)

In 2015, Mr. Jim Rogers had decided to quit the Indian stock market. For various reasons, he was not confident of India’s economic recovery and out-performance. That was when Mr. Shah, through his 1st open letter, advised Mr. Rogers to reconsider his decision and stay back.

Presumably, Mr. Rogers chose to ignore Mr. Shah’s advice.

Because, in a recent interview, Mr. Rogers expressed regret at his decision to exit from India. (If he had not, he would have more than doubled his money.)

Pursuant to this interview, Mr. Shah has written his 2nd letter advocating that it is still not late to join the Indian equity bandwagon

This was published in the Economic Times recently. For your quick perusal, the same is summarized below with Mr. Roger’s observations and Mr. Shah’s insightful rebuttal.

(Click here for the original letter.)

"The Indian Equity markets are at an all-time high"
The absolute value of the Sensex is meaningless. What matters is the valuation. From that perspective, the market is nowhere near the bubble as in 1992 or in 2000. Nor is it as expensive as at end-2007. Our focus has to be always on the Value and not the Index.

In fact, unit-holders have earned really good money in the mutual funds over the last 20-odd years; including at times when the markets were trading at so-called ‘all-time high’ levels. This was possible because the focus was on individual stocks and not the market. In fact, even some overvalued stocks like HDFC Bank have delivered excellent returns for its shareholders.

As Mr. Shah rightly observes “Equity investing is like growing a tree. Find a good seed, plant it in right place, nurture it well and wait for it to deliver delicious fruits.

"I am not aware of any big steps to boost FDI"
Recently, India has overtaken China and now stands as the No.1 country in the world in terms of FDI receipts.

Numerous multinational companies — viz. Nestle, Unilever, Suzuki, Bosch, Glaxo, LG, Samsung, Citi Bank, Pfizer, Cummins, P & G, Timken, Cognizant, Accenture, IBM, Abbot, Facebook, etc. — have done exceedingly well in India. Their huge success naturally attracts other global FDI investors. In this, Maruti is an excellent case study.

As an example of India’s progressive FDI policy, we have been more welcoming of Uber vis-à-vis China (Uber had to recently quit China), a country that Mr. Rogers favours more than India.

"I don't want to jump into a moving train. When you jump into a moving train, you get hurt"
It is better to be in the train, instead of waiting on the platform.

One must jump into the equity train, irrespective of whether it is standing or running. 

Yes, it’s possible that you might get hurt catching a running train. But time will heal these wounds.

indian-equity-market-train
One must jump into the equity train, whether it is standing or running.

"India still has lot of debt unlike Russia which has a low debt and a convertible currency. Indian debt-to-GDP ratio is high at 90%"
India’s debt-to-GDP ratio is currently 69% down from 84% in mid-2000. 

The credit-to-GDP ratio is, of course, low at one third the China, as India was obsessed with currency notes. Recent demonetization has shifted this cash from currency to bank deposits. Going forward, this will lead to credit growth and thereby support increased economic development.

In India, rupee is fully convertible for foreign investors. Even during the peak of US sub-prime crisis in 2008, both FDI and FII investors could repatriate money back without any restrictions. On the contrary, in 2015 Mr. Rogers’ favourite investment destination China had imposed restriction on selling stocks and repatriation. 

In last 5,000+ years, India has never defaulted to any foreigner.

"I invested, but Modi did nothing much for two years, and then I sold."
Mr. Shah could fill up an entire newspaper with the initiatives taken by the Modi Govt. that will positively impact the Indian economy. Meanwhile, he has listed some of these game-changing steps.
  • Replacing energy-guzzling incandescent bulbs with LEDs. Price of LED bulbs have dropped by 90% due to bulk purchase. And, by 2019, this will save India 20,000 MW of power every year.
  • Linking fuel and food subsidies to Aadhaar number. Leakages plugged in such schemes thereby reducing the subsidy bill by about US$4 billion annually.
  • 10 million+ Indians forgo subsidy on cooking gas. This has enabled subsidized gas connection to the rural households. With no more smoke due to burning of wood / coal, the health benefits to women in villages are “beyond financial analysis”.
  • Dedicated Freight Corridors to slash transportation time and costs. Speed of goods train will jump from 25 to 75 km/hr and carry 5000 tonnes of goods vis-à-vis only 1300 tonnes at present. Sea routes too being developed. In fact, Hyundai now transports automobiles via sea from South to West India at much lower costs.
  • From the problem of coal shortage during 2011-14, the power plants have moved to a new problem… how to store excess coal. This has also led to softening of coal prices worldwide. By 2019 India is likely to stop importing coal. 
  • Compared to advanced economies, India has developed digital platforms such UPI, BHIM, Aadhaar etc. at much lower costs. Markets are yet to factor in the advantages of this digital transformation.
  • Over 1 million water bodies have been developed / created in the last two years under MGNREGA. Again, the markets are yet to factor in the advantages of recharged ground water and improved farming on the rural economy.
  • Having said that there are still many challenges such as job creation, NPAs, ease of doing business etc.
In short, while the economy and markets will be volatile, as always, India is a great place for an equity investor.

So Mr. Shah concludes his letter to Mr. Rogers with “I strongly recommend you to jump in the moving train and be part of the fabulous India Growth Story. I am sure you won't be regretting that decision in future.

Very Important:This letter may have been addressed to Mr. Jim Rogers. However, its message and advice is equally for us too.

Hope, you too won’t be regretting a few years down the line.

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