Hear the Bengal Growling: Featuring Malabar Investments

Greg Dowling (00:05):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic and philanthropic minds, to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. I'll be heading to Asia soon and my first stop will be India. It is my first time back to India since Covid. To help me prepare, I've decided to call on my good friends at Malabar investments On this podcast we'll learn more about Malabar as a firm, but also hear about the Indian economy and stock market. What are the opportunities, what about the risks? And then finally we'll finish with some geopolitics. What does India look like after Modi? And is India a good alternative to China? Hear this and more on the FEG Insight Bridge. Gentlemen, welcome to the FEG Insight Bridge. Would you mind introducing yourselves and Malabar?

Sumeet Nagar (01:07):

It's a pleasure to be here. I'm Sumeet. My background is I grew up in Central India with my schooling there. I came to Mumbai for undergrad, and after that I went and worked in Europe. It was during that time that I got interested into investing and I started learning about investing from mentors, from others. And as an engineer, I actually found this to be very interesting. It's like a problem that you need to analyze and understand, and that's what sort of got me gravitated to investing. And then came the realization that I don't know enough, and that led me to business school. I went to Wharton and that's where Akshay and I overlapped. And that was really good because I ended up learning a lot about not just investing, but about management, about operations, about accounting, all the other nuts and bolts that need to understand businesses better.

While I was doing that, I realized that some of my classmates would come from consulting backgrounds, actually had really, really good ways of looking at industries and businesses. And I thought, this is a great skill to learn. And I was lucky enough to get an opportunity to join McKinsey and Company and with them work on investment related work. And I thought I would do it for a couple of years, but it actually lasted a little bit longer. But with them, I had a chance to work with some of the smartest investors in the world to evaluate investment ideas, both in developed markets, but also in India. And eventually that started to become more and more of my focus. And when I did that, I found that the best ideas were these small and midsized companies that were growing very well, but not many people were looking at them. And that sort of formed the genesis of Malabar. And so that's how we started Malabar back in 2007 and 2008. And so it's been 15 or 16 years as we have put those ideas into practice. And it's been a wonderful experience.

Akshay Mansukhani (02:59):

Hey guys, it's Akshay Mansukhani. I grew up in Mumbai, used to be called Bombay. Went to Philadelphia for my schooling, the Wharton School, as Sumeet mentioned. That's where I overlapped with him. I did my undergrad and my MBA, graduating in 2004. I finished five years in Philadelphia and moved to UBS as part of Equity Capital Markets in their investment bank in New York doing derivatives and convertible bonds, buybacks. It was a wonderful learning experience in my kind of early days, 2004 to 2009. And my father founded a white goods business in India called Onida, O-N-I-D-A. And it makes televisions, air conditioners, washing machines. And he's a very trusting person and trusted a bunch of his life savings to homegrown private equity funds and unfortunately didn't go as well. We maintain a very good relationship and he said, look, can you fix this investment problem I'm having?

They kind of packed my bags and I came to India. I'd spent a decade abroad and did over a hundred meetings with people in the financial space. A large part of it public market investors. I met Sumeet at 4 million dollars in assets an really appreciated the heavy diligence. We were talking about long-term investing at the moment today we have 16 years of data to show. I really appreciated the line in the sand on corporate governance and recognizing that we can generate returns while keeping a high level of integrity and ethics so our conversation led to another and I joined in 2009. I spent time both on investments as well as on the business development side. We've been really proud of what we've been able to do with regards to the team, our investment processes, our LP base, our relationships with portfolio companies, and we're looking forward to talking more.

Greg Dowling (04:50):

Thanks for the introduction. We're thinking about calling this "Hear the Bengal Growling." India is often referred to as the Bengal tiger and also a little tongue in cheek because FEG we're headquartered in Cincinnati, which is home of the Cincinnati Bengals. But being that you're both Philly guys, I wonder if we shouldn't maybe have called this fly eagle fly or, or or something like that?

Sumeet Nagar (05:13):

I think it's a great point because as it happens, I think my two kids go to American school here and the mascot for that school is eagle. So I think that will go quite well.

Greg Dowling (05:23):

Fly eagle fly! And actually you were telling me before we recorded that the tigers are everywhere now in India.

Akshay Mansukhani (05:29):

Yes, the tiger numbers have increased. The number of kind of sightings has gone up. And if any of you are traveling down to India, I would strongly recommend keeping a couple of days aside to go to a tiger reserve. There's some really nice hotels and spots with some good food, but it's quite a sight to see a tiger in the jungle.

Greg Dowling (05:47):

That's great. All right, Sumeet, where's the name Malabar come from?

Sumeet Nagar (05:52):

So the name Malabar, if you looked into the old map like from the maybe 1600, 1700. The entire west coast of India is called The Malabar Coast. And that was the coast where European traders or investors came to India. So this was sort of the gateway to India and that's why we picked the name. But perhaps subconsciously there was also the notion that what if my all-time favorite cuisine is Malabar curry. So maybe that had some impact on that.

Greg Dowling (06:20):

That's great. So I'll be coming back to Mumbai for the first time post covid. So what will I notice different? And, and by the way, I hope I don't see a tiger in Mumbai. I'd like to see a, a lot of new development, but maybe not a tiger. But so what, what can I expect?

Akshay Mansukhani (06:35):

There's been a lot of change, I must say. And there's a coastal road that has come up on the ocean that has reduced my commute to work and has made traveling through the length of Bombay a lot more efficient. The metro work is ongoing and we should have an up and running metro within a year, year and a half. Although our existing train network as you know, is pretty important in terms of transporting moon bikers as we call them. This infrastructure spend is not isolated to Bombay. And I apologize. I call it Bombay because that's what I grew up with but it's across the country. I think that infrastructure spend is something that is so obvious when we travel and we see new airports, new roads, and these are the visible changes you will see.

The other piece is electronic payment. Every corner of India now being forced to accept electronic payment through the pandemic is now allowing a UPI payment, which we'll go into more detail later if the chance permits. And that's been a visible change. I think in terms of what's not so visible you see it in certain numbers and the like, but it's the confidence that the Indian economy has to survive and sustain. What has happened is the pandemic and the entrepreneurial spirit has really flourished, recognizing that even if business was shut for a few weeks, we can come back strong. So I think there's been a change in attitude in the people as well, recognizing how difficult the pandemic was.

Greg Dowling (07:58):

Well I can't wait to see it. When I was there, a lot of this was starting there already, starting digging the tunnels for the metro. And it's a interesting mix of old new, but you saw a lot of the new buildings and everything going up. You just couldn't get there. The traffic was just, just horrendous. So that's great to hear that they're spending on infrastructure not only in Mumbai but around India 'cause it definitely needs it. For those that aren't as familiar with the Indian stock market, can you give listeners a gauge of how big it is and what it encompasses.

Sumeet Nagar (08:29):

So the Indian market is about $5.2 trillion today in US dollars. Quite small compared to the U.S. market, but sizable. But very importantly, it's actually growing rapidly. It's growing because of the underlying growth in businesses and leading to higher market capitalization, but also a very thriving IPO market. There are a number of new companies are being listed and that's sort of creating opportunities for both domestic as well as foreign investors. And you see the impact of that in terms of in indexes as well, right? So if you look at the emerging market index, India used to be a fraction of where China was. Just a few years ago perhaps China was about 40%, India was about 10%. If you look at the latest numbers, China is still the largest, but it's about 24% and India has crossed 20%, right? So the difference has actually become a lot smaller. But the thing is that the mindset takes longer to change, right? So investors still don't appreciate that fact that India has become so much bigger in the emerging market index. And it's something that really needs to be looked at, evaluated, understood, and over time invested.

Greg Dowling (09:40):

That's an interesting point about the IPOs because the U.S. market has done tremendous, but a lot of private companies are staying private and so you're not getting access to some of those newer companies. Our stock market is generally kind of getting older. So it's interesting. The other thing too, I always blows me away with the Indian stock market is how many companies are listed? There's a lot of companies listed on the Indian Stock Exchange. So, Sumeet, we offhand do you know roughly what that number is? A lot of other emerging markets, China's different. China's similar but in a lot of other ones there might be 400 stocks. I mean you guys have thousands, right?

Sumeet Nagar (10:16):

Yeah, I mean if you look at just the two largest exchanges - the National Stock Exchange and the Bombay stock exchange - between them there about 3000 listed companies. Outside of that, they're also sort of smaller exchanges around the country and there are sort of few other thousand companies that are listed. So it's a very large thriving, a broad market which is very unusual for an emerging market. And the reason for it is that if you go back 20, 30, 40 years ago there was really no other source of capital. It was either family capital or the public markets. There were no VC firms, there were no private equity firms and so for many businesses this was the only way to raise capital. And that's why you have this sort of broad range of companies that are listed. Obviously they're not all high quality or investible, but you have a lot to choose from and there is definitely a subset of that which is very high quality and that's the subset that we would look at.

Greg Dowling (11:14):

Yeah, if you add all those different exchanges together, I believe there's more listed Indian companies than there are U.S. companies. 'cause our number has definitely shrunk as companies have merged and gone private and everything else. So that is certainly one reason maybe to consider an investment. What are other reasons? Why should investors, foreign investors or U.S. investors invest in India? 'cause boy, the U.S. stock market's done well for a really long time. What do you get when you invest in India?

Sumeet Nagar (11:40):

So If you look over the last several years, India has been the fastest growing large economy in the world. And if you look at the underlying factors at play, it's likely that it'll remain like that for at least next decade or two. And so when you have that strong tailwind of an economy growing at six or 7% in real terms, probably 10, 12% in nominal terms, it just gives a lot of opportunities for companies to grow. And especially if many of these companies are in sectors that are quite nascent and have a long catch up to go, it just provides a very conducive environment and some great opportunities. And I think that's something that has been quite unique about India, where the economic growth has translated into earnings growth for other companies and that earnings growth has translated into market growth. I think that's one of the criticisms that you hear about some of the other emerging economies where those two haven't gone hand in hand.

But India has been an exception. And if you get into this competition, if you were to compare India to the U.S. if you look at the last 10 years, which arguably have been very very good for the U.S., you look at S&P earnings growth that has been about 7%. If you look at the BSE 100 is equivalent of 500 companies that have grown over 12%. If you look at the returns, in dollar terms, the S&P has given 11% compounded over the last 10 years, Indian markets have given 13%. So India has been a real standout, when it comes to the other emerging economies and even compared to the best performing developed market in the world. And so I think that's the reason why you have to look at investing in India. Here's a country that is quite large and the market that is sizable at the current juncture for people to invest reasonable amounts of capital and generate good returns from here.

And what's driving that is that India is the most populous nation in the world. It's got 1.5 billion people, many of them moving up from lower income levels to medium to high income levels and as their disposable income increases. They spend a lot more discretionary outcomes and that's what creates opportunities, other businesses. If you look at the financialization of the economy it's still at a very low level as that invites further opportunities. And at a qualitative level, I can tell you that when I graduated and landed up in Europe and later in the U.S. I used to be amazed to see some of the innovations there, right? It's interesting to see that. The same reaction from my friends who are visiting India from U.S. or Europe, they come here and see that we have 24 by seven banking transaction, right?

You can do any time and it gets done within second. All you need is somebody's phone number to be able to make a small payment to them. It's just amazing how seamless that is and how scalable that is. And those numbers of digital transactions increase rapidly. They've gone 10 or 11 x in the last five years. Just an amazing growth of digital public infrastructure that has being created. Another example I would give is the new business models that are coming up. They don't exist in many other markets. They definitely don't exist in global markets. In India today,like if I were to, you can name me anything I can order on my app and it will arrive before this podcast is over. And it could be anything! Not just what you want to eat, but let's say this microphone isn't working, I can order a new microphone, and it will be there within ten. These are the kind of innovations that are coming today. And people come from outside, they say wow. These are sort of some of the invisible or intangible things that are happening in in India today. And that's creating opportunities for businesses to create value for themselves, and for their shareholders, and to participate in that investors have to come here and invest.

Greg Dowling (15:27):

That's a great commercial and a couple of great points there. I love the point about China because China has experienced an amazing economic miracle. However, shareholders have not benefited from that economic miracle. There's been much more of a direct follow through in the Indian stock market. So I think that's a great point. So you make that point on the why India, but why do you need a specialist Malibar or a India specialist? Why can't I just get my Indian exposure from some EM manager in New York or London, or just buy an index?

Akshay Mansukhani (16:05):

When we think about the emerging markets, they are so different from each other. The level of growth, the risk profile, currency, there are numerous things at play. The EM index can be bought, but the kind of aggregate returns haven't been there for a host of reasons. Ultimately kind of picking kind of what Sumeet described as the reasons to potentially invest in India to kind of making an informed decision on a single country. Even if it's a small amount of the capital that comes through, the returns have been there over a period of time. So I think an economy and a market that is actually proven to generate dollar returns is important. On the index fund side, they do exist and their returns have been kind of more muted in line with where the larger company growth is.

However, as we think through the specialist - and we'd like to call ourselves a boutique but specialist may sound better. Ultimately we're finding those uncovered gems. If you look at the portfolio today from the largest private milk business in the country, which has been in the portfolio for a decade. Earlier on a pressure cooker business. In these names we're the first institutional investor coming into these names and these companies are now the 800 pound gorilla in the space that they're playing in and being able to assert an integrity, their kind of long-term plans, their capital allocation, the jockey we believe is pretty important decision making in addition to the investment thesis. And so being on the ground and finding the right people running some incredible businesses is what we do. The earnings that Sumeet mentioned for the portfolio, we've done a fully 1% earnings CAGR as reported for the last five years for Malabar India Fund. And that's the power of being able to find some of these smaller companies that are in niches that are growing at a rapid pace. And us, as an investment manager also being aligned with our investors. Sometimes that doesn't happen in an EM or an index fund. And so we're the largest investors in our own funds. Almost 17% of capital is represented by the team and the GP. So I think there's room in a space that is extremely inefficient. You have hundreds of companies going public in the last few years. Many of them are smaller, they're head offices in different cities. It's difficult to kind of access some of these companies. I mentioned the private dairy. The founder, the largest private dairy in the country, it's been public for a while. He refused to speak to investors and I give Sumeet a fair amount of credit for having built that relationship. He was at our annual offsite a couple of years ago. He said, "I don't believe talking to investors is a good use of my time." And I do only talk to two investors and they don't do any earnings calls. And it's been one of the biggest value creation stories that have been out there in our kind of consumer space. It's been an incredible business where even the largest company in the country Reliance has tried to enter Danone, the French dairy giant has tried to enter and failed. So being able to go down to the grassroots and find these businesses I think is where we come in as a specialist, we're on our toes recognizing that our space is continuing to create more IPOs, some of them investable.

Greg Dowling (19:14):

So those are all the positives. There's got to be some negatives here. And one of them that comes to mind is that yeah, India's great, but isn't it always really expensive?

Sumeet Nagar (19:24):

That's true. I mean India as far as I remember has always created at a premium to other emerging markets. That may be reason to overlook it. But the reality is that India is probably the only country in the emerging market that has actually performed. And so if you unpack that, if you slice and dice the reasons for why that high multiple is, it's because of the composition of the index, right? So if you look at the Indian index, it's probably much higher quality companies. If you look at their return on equity, their return on capital or at their profit margins, if you look at their earnings growth, they have done far better over a longer period of time versus the other emerging market indices that tend to have companies that are either resource-heavy or they're state loan enterprises and so forth, but generally should attract global attention.

And so I think that's been one of the reasons for differences. I think if you were to find the top 30 or 50 high quality companies in other emerging markets, you'd probably get to a multiple which is very similar. So I think that's sort of one thing to keep in mind. But ultimately if you look at the earnings growth over long period, if you look at the market performance over a long period, I think India continued to deliver and that's what has sort of created that interest in India. Moreover, I think until about a decade ago there was really no culture of putting one's savings in India in public markets. First of all, the level of savings that went into financial assets was a very small fraction because most people wanted to be in inflation-hedging assets like real estate or gold.

So only a small portion of savings went into financial assets. And even most of that tended to be sort of fixed income. And so a really small factor, numbers like 3 or 4% that actually went into public markets and that has started to grow as inflation has structurally come down In India. As there has been the reforms that the Modi the government has brought in, there's been a clamp-down on taxed or untaxed money. A lot of it used to go towards real estate and gold and once people pay taxes and they call it the black money, there is no disadvantage to invest in public markets. So, I think lot of those performance has driven interest, lack of other options also may have created that interest. And so there's a substantial amount of inflow or interest that is in Indian public markets from domestic investors and it comes through the systematic investment plan where every month on a specific day, a certain amount of money goes from people's bank account and invest into their choice of mutual funds. And once those things are set in place, there's an inertia not to change that. And so that monthly inflow has reached about $3 billion a month today and that's what creates support. And so from the point of view of foreign investors, it it's sort of, it's almost like having a put option that exists. And so again, for all of these reasons India's continue to remain of interest to foreign investors.

Greg Dowling (22:25):

No, that's great. The point about domestic investment, that's very different than some emerging markets where there really isn't, all the investors are typically foreign. So you have this growing domestic demand. Yes. I've heard the argument many times that premium growth deserves a premium, therefore it should be a little bit expensive. The other point that I really love that I think is very true that you made was that if you compare it to different emerging market countries and you could just throw in like Brazil or South Africa, you're right that you're absolutely right that from a sector perspective they just have a lot more mining and natural resource, basic materials that just around the world these types of companies trade at lower multiples. So you kind of have to make that apples-to-apples comparison. So that is helpful. Now, yes, you have a lot of stocks and maybe they're not as overvalued as they seem, but what about liquidity? Especially since Malabar tends to invest down the cap spectrum, is liquidity a risk in the Indian markets?

Sumeet Nagar (23:25):

Yes, the liquidity is definitely a risk. And moreover, in the small- and mid-cap space that we're playing in, we deal with it through a few ways. One is being upfront and communicative to our investor base with regards to what we're doing. Our average hold on our positions is seven years and ultimately we're buying these companies to see the earnings grow and if markets go through their cycles and they do at the wrong point in time, pulling out can be detrimental. Along the way we realized that we really wanted that long-term capital. So today 90% of our capital base is in our long-term share class, which after the initial locks is a two-year rolling lock, which effectively allows to slowly exit the illiquid part of the portfolio over a few quarters without disrupting the portfolio. In the initial years for us, we slowly grew our asset base because we were so clear in terms of this point.

Now what the screens do not show on the liquidity is the blocks that sometimes people call into us. And if the businesses are sound and of high quality and the management teams are communicating the story, we land up getting inbound requests for blocks in a host of different instances. Our largest position today is a pharma business that makes APIs and the Capital Group for example, called us and wanted to buy our entire position a few months ago and that's over a hundred million dollars position in a relatively smaller company. And so we did trim a little bit, but I think that's also important is if you are humble to appreciate kind of where your mistakes are and be able to catch them. On the flip side, if your earnings grow, there's a fair amount of interest for these names. And then also in terms of liquidity, where you really want to be is the provider of liquidity during corrections and being able to build a relationship with clients over a period of time. In certain cases draw down only part capital, let them know that when there's a drawdown we'll call in for some liquidity and in certain cases if there's a correction, that's what we've done. And so when the pandemic hit, we had existing commitments that we could draw down and we raised some further capital in just a matter of months allowing us to deploy close to a hundred million dollars of fresh capital in and around the pandemic, resulting in significantly better IRRs for our client. So if we're cautious patient, communicative with our investors and can take advantage of opportunity, the liquidity cycles can favor us.

Greg Dowling (25:50):

You mentioned drawdowns. It feels like India always has some massive drawdown used to happen. I feel like it always happened like every summer there'd be like this "boom!" and they'd go down. Do investors have to just kind of expect a little bit more volatility in India?

Sumeet Nagar (26:04):

Yeah, I think so. I mean we usually in the first sort of 10 minutes of conversation with a client to bring it up, this is like fasten on your seatbelt, this is going to be a great ride but it's going to be a bumpy run. And that's the reality of the situation. We're in a volatile market and the factors that drive that, whether it's the flow in and out foreign capital is on or off, in domestic markets there is alot of waiting and following the short term horizon and that leads to volatility. So, I think those factors are there and very human and so they will remain. It’s just that the ambiguity of India tends to be high. For foreign investors, you have to know that the currency actually perfectly correlated with those movements, particularly on the downside. And so, it tends to exacerbate that volatility of movement, I think that is there. But I think what is very important to know this is price volatility.

I'm not talking about the market overall, but if you look at Malabar's portfolio, in the 16 years, we have never had portfolio earnings go down - even during the pandemic, which is probably one of the worst shocks that you can imagine. Our portfolio is resilient enough to actually grow its earnings by the way. And I think so that's a very key that if you're focused on intrinsic value, and that intrinsic value is compounding year after year after year. If there's price volatility, the price comes down, it's actually a great opportunity to deploy more capital. But this is something you have to tell beforehand. It's true that when you have that, it's too late to go to an investor and say, hey, markets are down, your investment is down, putting in more capital. It's almost like the fire drill, right? The reason you do fire drills is you tell people what to expect when it happens because if it happens it's too late. People are not in the right frame of mind to listen to you. And so, you've got to communicate this early and often that this will happen at some point. And just like you do in fire drill your reaction at that point in time to the extent you have liquidity, you should deploy more capital. And for the clients who have done that, they have actually experienced really good IRRs.

Greg Dowling (28:13):

I like that - buckle up! Yeah, that's your first meeting with a client to say it's going to be a great ride but buckle up. We hit on a few of them, just sort of liquidity and the volatility. Are there other challenges or risks facing the Indian economy or stock market right now?

Akshay Mansukhani (28:28):

Yes, on a relative basis there is risk and even on an absolute basis. I think there's sometimes the world we live in parameters of an analysis of risk is different. Personally when I think through the Indian economy and just the one big risk that stands out is job creation. India should add half of the incremental workforce in the world in the next 10 years. We just don't have the jobs within the country to kind of cope. There have been actions the government has taken with regards to promoting manufacturing skilling. We ourselves are supportive of organizations, community service organizations that help guide young students in terms of vocational courses. And so there are a bunch of actions in place but that definitely stands out as a risk in terms of how the risk pans out, if it does. There's a tremendous amount of our population, over 40% related to agriculture.

And we saw this in the pandemic when the jobs were not there. Effectively people went home to their kind of native place and the villages and went back to agriculture. And so it is more of an inefficiency kind of issue as it comes up versus I see civil unrest as being a very low probability. But the other risk that we deal with is resource risk. Recognizing our import of energy, specifically oil for our, from our neighboring countries. We have good relations across the world. However, it's a big risk if oil prices fluctuating does impact our deficits. The move on solar has been pretty stock and significant specifically on companies that have factories where they're able to put up solar panels effectively going into the grid on excess and taking from the grid as need be. And so there's the dependency is coming down, but currently it is a higher level of risk.

The cycles of our economy in the current market, we've seen a slight credit slowdown there, slow, low spending in the affordable price category, which is impacting GDP numbers. However, since the economy opened up in 1991, we've grown at 11 12% on a nominal basis. And except for the pandemic, year 2021, the economy continues to grow. So coming off a low base with an independent financial system with a young kind of hungry population with the low per capita GDP, it feels as if we have many more years of growth. And on the market we've discussed volatility, valuations we've discussed and the only kind of point I'll make is on correlations with world markets. They do go up, there's crashes, the world markets financial crisis, the pandemic. However, on the way up the correlations do break down and kind of try and move in line with some of the fundamentals. And as Sumeet was mentioning, the earnings growth for the market has done 12%. Depending on how you slice it. It's been almost similar the last 3, 5, 7 years. So ultimately what we're witnessing is a doubling of our market on a fundamental basis every five, six years. I would say that the volatility is definitely something to highlight, although over a period of time the market should grow as they reflect fundamentals.

Greg Dowling (31:25):

Growing things create their own sort of gravity, right? You've seen Apple for example, who's maybe kind of tapped out or finding new challenges in China saying “hey, India's going to be our next market in investing in India. So you're definitely seeing some of that. I did want to ask you about private markets 'cause I know that's something that Malabar also does. What do private markets look like in India these days?

Akshay Mansukhani (31:47):

There's been an evolution on the private market side coming out of the British Raj. India has been capital starved. We have a tremendous entrepreneurial spirit with strong family bonds and a low cost structure, effectively resulting in numerous private companies thriving as the economy has grown and foreign capital has come in, private markets have evolved in a few ways, I think. So one is being more institutional in nature, having received either capital from a VC fund or a growth equity fund. The first wave of exits happened in 2014, so literally just a decade ago. So it's a pretty young market.

Greg Dowling (32:29):

I think a flip card is kind of the big one. That was the big winner for everybody. Yes?

Akshay Mansukhani (32:33):

Exactly. And so the private markets exiting into the public markets, institutional capital, looking for an exit. Entrepreneurs realizing what it takes to take a company public has resulted in kind of a flurry of activity, but private institutional capital has also become a little bit more sector focused and we see kind of sector focused vehicles being a lot more successful. And overall this IPO activity should continue recognizing this entrepreneurial activity. So the private markets are a point and exiting into the public markets. As we think through us and our private activity being a public market fund, one would ask, are you doing anything? The answer is yes. We’ve been in a situation where we've done a lot of work going into an IPO. The IPO is over a hundred times oversubscribed and we've been left with just a few shares and it's not been a good return of time.

I think for us we've realized that if a small portion of our capital is allocated to certain exceptional businesses where buying them a year or two before IPO and we're holding onto them for many years after we can actually conduct diligence in a way in which we're getting information that wouldn't be available on the public market side. And once we are aware of that information, nobody can take it away from us. Building relationships with companies, potentially allocating into a size that's meaningful for us, and then also gaining from the price that we're buying at going into the listing price. So this is something that we have done and we've had some 18 IPOs and today companies looking to go public in certain cases we are seen as the preferred partner.

And the last point I will make, actually two points. The different type of companies that we are able to access going into the private space is something that we have actively done. So for example, the largest mobile advertisement business in India is a company that we took public. There was no public company at the time doing this and we were pre-IPO investors and, and help them go public. So there is a different type of company that's out there that we can access, which sometimes may not be available. And then also being able to handhold companies through the IPO process. The first company that went public after the pandemic was a specialty chemicals company where we were pre-IPO investors and we were happy to take the risk in a shut market because the pandemic had just hit in the middle of 2020, to take the company public. And it was wildly successful given how strong the numbers were and the appetite for the stock. So I think on both private markets as well as our activity on the private space, it is significant. However, we have 7% of the fund, which is private at the moment, recognizing being a public market fund, we have to be careful on our asset liability mix, but it's been a, a wonderful space to explore and invest for us.

Greg Dowling (35:19):

Thank you for that. Let's finish with a few geopolitics. So we are in the U.S. entering the return of Trump and with that is probably the return of tariffs, and China's probably in the cross hairs. What does that mean for India?

Sumeet Nagar (35:35):

We sort of realize this. India as well as rest of the world that through the pandemic countries had probably unusually high and unhealthy level of reliance on China when it came to manufacturing and the problems that came with that sort of very obvious during the pandemic. And so since then there's not been any country or any large company which hasn't been thinking about "How do I de-risk myself?" should they have any way at looking at alternate options. And when you think about alternate options, India is very viable in many cases and in some cases India is the only option. And so I think if, let's say the Trump administration has further tariffs on China, and as people look at alternate options, India will be one of the beneficiaries for sure, specifically in cases where there is a sizable domestic market, right? So there's a natural case to have something manufactured in India anywhere for the domestic market. And by the way, once you set that up, your cost of production is actually quite competitive. Even on absolute level, I mean even if you look at today average labor in India is probably what a third of what it is in China. It's an English-speaking country, so it's easy to communicate and coordinate with. India also tends to have sort of a non-confrontational sort of relationship across a wide spectrum of country. So that sort of makes it easier to work. Obviously there are, there are hindrances. There the hindrance of our infrastructure, which as we mentioned at the beginning, that there's a lot of effort that is being put through to this, that gap and there's a long way to go there, but it's moving in the right direction. I think definitely India will be one of the places they'll benefit.

Greg Dowling (37:16):

What does India look like post Modi?

Sumeet Nagar (37:19):

I think it's more of the same, right? And obviously the Modi government has done a really good job when it comes to reforms, when it comes to being business friendly and also sort of taking an independent foreign policy and sort of increasing the [unintelligible] of the country. But you also have to see that since the economic liberalization in 1991, it's like 34 years now, India has continued to grow on average at about 6% plus minus one or 2%, right? And in that period we've had governments of every different political composition that you can think about, but that underlying growth has continued and it's because you have 1.5 billion people who want the better life for themselves and for their children. And that's a great motivator for people to drive the economy forward. And as long as that keeps happening, I think there will be better opportunities for investors to allocate capital in India.

And as I mentioned earlier, now India is at a spot where it ought to be a part of the consideration set. Having said that, I think Modi as an individual had done some really remarkable things in terms of connecting with people within the country and outside it's remarkable he was able to build that personal rapport, relationships with, with leaders across so many different countries, even across political spectrum. And those are not easy shoes to fill. So it'll be a tough pass for whoever comes in. But if history is a guide, the direction of the economy, on the whole, continues to be on the same.

Greg Dowling (38:49):

People forget that India is the world's largest democracy. And yeah, sometimes democracies can be a little rough around the edges, but they tend to work over time. And India's interesting, they still have relations with Russia, China even though they might not agree on everything, India's a very independent kind of in the right spot, almost neutral in a lot of ways where other parts of the world feel like they're kind of lining up East-West and India's sort of in the middle, which is probably a good thing for India. So for listeners out there who want to learn more about India, any good books or resources you can recommend?

Akshay Mansukhani (39:25):

It's a pretty voluminous book. I'm giving that caveat upfront. But if somebody wants to understand the history of contemporary India post-independence, there's a book called "India After Gandhi", which is written by a very good historian called Ramachandra Guha, and unlike many historians he also happens to be a very lucid writer and speaker. It's actually reads very good as a story, but it's still a pretty big book. But probably one of the best accounts of how India came together to be a republic, how it sort of created a country out of 550-plus plus Princely state and became a democracy. It's really, really interesting the early part of how that came together and the extraordinary people who were there in the helm to manage that transition. And so yeah, so if somebody's interested in India, I would recommend reading that book.

Greg Dowling (40:17):

That's great. Akshay.

Speaker 3 (40:19):

One book that stands out for me is a book called "I Do What I Do" by our previous Reserve Bank, Governor Raghuram Rajan, the independence of RBI and in America the Fed is almost assumed by many and it's not the case in many other countries. And if the politicians are able to control monetary policy, it could be a disaster. When Rajan took office in 2013, the Rupee was in a free fall and he effectively talks about the actions he took and his lectures and the winding back, he was actually credited to have solved the financial crisis in 2005, a couple of years before. And so he's highly respected. He's not so popular recently in terms of how outspoken he is on certain matters. However, independence of the financial system and the importance of that to our world of finance is something that we really open up when we see the workings of the Reserve Bank. For me, a must read for any investors coming into India.

Greg Dowling (41:17):

Those are great suggestions and he was a great independent financial voice for India. Alright, so if someone is coming to India and maybe coming to to Mumbai and had a few nights where they could grab a good meal, I'm looking for some good restaurant recommendations, I'll ask each of you to give me your best recommendation - asking for a friend!

Akshay Mansukhani (41:39):

Actually my buddy from high school and his wife run a restaurant called Masque, M-A-S-Q-U-E. And Masque has been recently awarded top 50 kind of restaurants in the world. It's one of those kind of gourmet style experiences which is lacking in India. And so for me, I'm just biased given how close to home the founders of that restaurant are. You asked for one, but the other one on the seafood side is Krishna. It's kind of the one that we went to ourselves many years ago and it's a basic joint, but some of the best fresh seafood cooked in Indian spice.

Greg Dowling (42:11):

I do recall that and that was amazing and spicy. So warning to anybody going there. All right, Sumeet, anything?

Sumeet Nagar ( (42:18):

Yeah, so those are two great restaurants. In fact Masque happens to be one of my favorite restaurants as well. To add one more I would say Bombay Canteen is a terrific restaurant with great wine and it's inbound so easy for anyone to get to, so I would recommend going.

Greg Dowling (42:33):

So you have everything you need, right? So we've talked about tigers, you can go see tigers, you can see this amazing economic miracle. We've given you some books and even gotten some restaurant recommendations. So this has been an amazing podcast. So thanks both of you for just sharing your insights on India.

Sumeet Nagar (42:51):

It was a pleasure to talk to you and we enjoyed it and looking forward to continuing our conversation and to visit India.

Akshay Mansukhani (42:57):

Greg, we're really looking forward to having you and Brian come to Bombay. There's a lot more than the restaurants and the tigers as well. If anybody is actually coming, we have a two pager on all the options of optional activity, so happy to share that at the right time and really appreciate you taking the time to conduct this podcast.

Greg Dowling (43:17):

If you are interested in more information on FEG, check out our website@www.feg.com. And don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed with a unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.