ASK Investment’s Bharat Shah Says Covid-19 Will Improve India Inc.’s Capital Efficiency

Stronger businesses will have the opportunity to grow and eventually be much bigger and better in the event of marginal players getting decimated, the executive director of India’s largest portfolio manager, ASK Investment Managers Pvt., said at a virtual PMS AIF World Investor panel discussion. As bad capital gets destroyed and is replaced with good capital, the overall efficiency of the system rises, he said.

On the other hand, cost of capital will also fall as a result of the crisis, as India has remained disciplined in terms of its fiscal deficit and has managed to structurally tame inflation, he said.

Digitisation will improve as companies which could have gone fully or partially digital but didn’t, will now do so. The move will further lower their costs and improve scalability, he said.

Keeping all this in mind, if an investor has “patient capital”, Shah said this is a good time to invest. “There are staggering opportunities.”

His comments come when investors are surrounded by uncertainties, mostly stemming from the coronavirus pandemic—an outbreak that hasn’t yet hit its peak in India. Financial markets, however, seem to be recovering, with the benchmark NSE Nifty 50 Index now hovering around the 10,000-mark, up from the low of 7,610 in March.

Shah acknowledged that the pandemic is an important challenge, but also said it’s a near-term one and is unlikely to fundamentally change businesses negatively. As for the uncertainty, it’s part of any investors’ life, he said.

Prashant Khemka, managing director of White Oak Capital Management, agreed with Shah, saying there are a number of opportunities available at good s to investors, in all sectors. His team’s job is to keep hunting for great businesses that offer superior return on incremental capital, he said during the discussion.

Investors, however, should stick to sectors that match their philosophy, he said. “We have no exposure in government-dominated businesses. Government-owned entities are a separate asset class altogether which is something we don’t understand and try to stay away from.”

Shah cited the example of billionaire investor Warren Buffet and how he only puts his money into businesses he can understand.

Watch the full conversation here: