A substantial part of the $3.5 trillion invested in China is going to leave that country and come to India
“We were surprised by the degree of despondency vis-à-vis China. Meeting the endowments and the pension funds in America, it is pretty clear that they have got fairly dire news coming out of China,” Saurabh stated.
He explained that a number of factors such as the rolling Covid lockdowns is having an adverse impact on people’s morale, on the economy and on the production facilities that western companies have in China. Also, the shenanigans of the newly appointed Chinese Politburo has created real alarm in the western world.
“Given that western investors have $3.5 trillion invested in China, the sense I got from our meetings is that a substantial amount is going to leave their country,” he added.
Saurabh opined that out of that $3.5 trillion, even if half a trillion dollars comes to India, that will virtually double the FII investments in the country.
“Obviously, we at Marcellus are trying our best to see if we can bring some of that half a trillion to the Indian stock market,” he said tongue-in-cheek.
“The broader story of India over the next couple of years will be very significant FII inflows. They have already begun but these FII inflows will step up over the next couple of years as China continues to unravel,” he added.
Foreign investors are bullish about manufacturing, APIs and the Defense sector
Saurabh pointed out that foreign investors have a lot of interest in three sectors, namely, manufacturing, APIs and the Defense sector.
As regards manufacturing, he explained that the China plus one policy has made India a big beneficiary.
“The fact that the iPhone 14 is being made in India and that Foxconn is having trouble making iPhone 14 in China has got people really intrigued. Roughly a billion dollars worth of iPhone 14 has been exported out of India every month. Apple has also announced their AirPods are going to be made in India and therefore the broader question that a lot of people were asking is how big can the smartphone opportunity be for India,” Saurabh said. He opined that the whole smartphone and the supply chain feeding into smartphones can be as big as the auto sector in India.
As regards the API market, Saurabh stated that the global API market is around $250 billion. China accounts for around $200 billion dollars of that. As the US government is uncomfortable with that, India may be able to materially capitalise on the API market. It has potential to become a $100 million sector for India, he said.
As regards the defence sector, Saurabh noted that we import $70 billion of defence equipment every year. There will be deals where the foreign defence company such as Lockheed Martin or Raytheon will do a JV with Indian partner (like the Tatas) and that $70 billion will be saved and become part of the Indian economy.
“If we add these three sectors, we are probably looking at least half a trillion dollars of extra economic activity which for a country like ours with a $3.5 trillion economy, is very meaningful. So lots are happening in the background which is also leading to the buzz around India and there are a whole bunch of unfortunate things happening in China which is leading to western despondency about China,” he stated.
— BQ Prime (@bqprime) November 3, 2022
Invest only in companies with the highest quality management team
Saurabh cautioned that a number of rapid changes are happening such as in geopolitics, interest rates, commodity pricing, India positioning etc and the only way we can stay ahead of things is by investing in companies with the highest quality management team.
“One has to back the champion capital allocators, promoters who have proven themselves decade in and decade out that they can run high quality businesses regardless of whether GFC is happening, Covid is happening, China is booming or China is going down,” he advised.
“Back promoters who have proven themselves time after time that they are champion business operators,” he concluded.