India's economic outlook is the best. So, buy more stocks in the fall: Saurabh Mukherjea

Correction has nothing to do with India's fundamentals

Saurabh Mukherjea first dealt with the difficult question as to whether high P/E stocks are getting punished despite they being great franchises.

He explained that the correction in India or globally has nothing to do with high PE. All stocks, including low /E Indian power and infrastructure stocks or Indian consumer stocks or Indian banking stocks are seeing the pullback. Even American bellwether names like Microsoft or Walmart are seeing a global pullback. So, we should buy as much as we can in these circumstances because the pullback that is happening in our market has very little to do with fundamentals, he said.

He also emphasized that India's economic outlook is the best seen in the past 12-13 years. The banking system is in best shape in the last 20-25 years. The pullback in India has got very little to do with fundamentals but everything to do with the fact that a lot of American investors have huge compulsions bearing down upon them in their private portfolios. The unlisted portfolios have been decimated in the last six months. In their public market portfolios, they are down 30%. Perforce, from a compulsive perspective, they have to reduce their emerging market holdings. We are part of that settle down process, he added.

He explained that since the correction is not with regard of fundamentals, sensible investors have to keep a rational mind and keep buying the same stocks – the high quality, high cash generative, great franchises – which are available even cheaper now than they were two months ago.

"We are buying as much as we can. We are extremely thankful to the clients out there as they continue to give us inflows even in these circumstances and we are taking full advantage of that to buy every day," he said.

Rs 50 Crore is still gushing into the Marcellus PMS Fund every week

Saurabh revealed that before the Russia-Ukraine War began, his Fund was getting on an average Rs 100 crore per week. The Fund now gets about Rs 50 crore a week. Of that Rs 50 crore, roughly Rs 10 crore a day is being deployed into high-quality stocks.



Dr. Lal Pathlab is being bought aggressively

Dr. Lal Pathlab, one of Saurabh's favourite stocks has been crushed severely. It is down 30-35%. He revealed that he is not worried about the fall but has instead bought Rs 100 crore of the stock over the last couple of weeks.

"That has to be the job offer of a sensible investor. Our job is not to become a macro economist, when everybody in the world is pretending to be a macro economist and prophesying what the Fed will do and what will happen to global GDP. Our job is to just keep a calm disposition and carry on buying great companies, especially since the macro outlook for India is the brightest I have seen for a long long time," he said.

Asian Paints - entry of competitors is not worrying

Asian Paints is presently in the doldrums and out of favour because several large companies such as GRASIM have announced setting up of competitive facilities. Also, the high crude oil prices are likely to reduce their margins.

Saurabh assured that there was nothing to worry about. As regards crude oil prices, he explained that it is a mere repetitive business cycle.

"In the last 20 years, even in at least three occasions where in the space of 80 months, the price of crude has doubled and in each of these occasions Asian Paints and have held onto their gross margins and operating margins because of the sheer strength of the franchises. With a lag of a few quarters, these companies pass on the raw material cost hike on to the customer base and protect their margins. That is the definition of pricing power and that is what a great franchise does," he stated.

As regards the entry of deep-pocketed competitors into the Paints industry, Saurabh cited the example of giant Sherwin-Williams which entered the Indian market in 2006 or 2007 but could not succeed despite spending a billion dollars.

"We have seen this before. Plenty of people try to enter the franchises that the companies invest in, whether it is ’s franchise or Bank’s franchise or Asian Paint’s franchise and because of the moats, because of the sustainable competitive advantages, those advances are throttled and our investee companies continue growing free cash flows at around 25% and continue compounding. That is the nature of investing. If it was so easy to build an Asian Paints, given that the company is 70-year-old, somebody else would have done it. If it was so easy to build an , somebody else would have done it. If it was so easy to build a Titan; somebody else would have done it," he said

"These are extremely difficult franchises to build and whilst their high PE multiples attracts competition, it is very difficult to replicate what these sort of great franchises do," he added.