Expert: Ashish Swarup – Invest in snacks, let’s get that bread | Aikya Investment Management

Bryce: [00:00:15] Welcome to another episode of Equity Mates or should I say Goodbye Mates, where journeying into another thrilling episode of equity mates. We're not just horsing around, we're galloping through the financial track. Whether you're a rookie foal or a financial stallion, our aim is to lead you from the starting gate to the gate to the winner's circle. As always, I'm joined by my equity buddy, Ren. And who am I? 

Alec: [00:00:38] I mean, are you a generic Melbourne Cup horse? Hold on, hold on, hold on. Is it a specific, like, animal or person? Are you Phar Lap? Oh, there is nothing specific.

Bryce: [00:00:53] Very general.

Alec: [00:00:54] I got a man from Snowy River, but

Bryce: [00:00:57] Nice. Well played. Well, anyway, enough horsing around. Let's get on with today's episode and we're joined by another expert who is pitching at the Sohn Hearts and Minds Investment Conference coming up on November 17th. And that is Ashish Swarup, who is the portfolio manager and investment analyst at Aikya Investment Management. 

Alec: [00:01:18] Yeah, that's right. Ashish and Tom Naughton, who we had on the show last week, are both getting up and pitching one stock their highest conviction stock for the next 12 months at the Hearts and Minds Conference. But in this episode, we're going to speak to Ashish about his speciality in emerging markets. We're going to talk about what's happening in emerging markets as we end 2023. And then we've asked two chefs to bring a couple of stocks for us to talk about and unpack. Unfortunately, it won't be the stock he's pitching at Hearts and Minds. He's not allowed to tell us that. But two fascinating stocks, I'm sure.

Bryce: [00:01:54] Yes. Can't wait. If you are interested in seeing what Ashish, Tom and all of the other experts pitch at the Sohn Hearts and Minds Conference, tickets are available for the virtual conference. Equity Mates get a 20% discount on the virtual tickets. The code is Equity Mates 2023, all one word, and it brings the price down to $400 with all proceeds going towards medical research. So we will include a link in the show notes for you to access that. It's an amazing conference each year.

Alec: [00:02:25] Now, if you're listening to this episode on the diet drops, as I'm sure everyone does. The conference is tomorrow. If you're listening to this after the 17th of November, whilst you have missed the conference, make sure you're listening to the Equity Mates Investing podcast on Monday where we talk about all of the stocks picked. So don't worry if you've missed the conference. We're going to be talking about everything we learnt, all the stocks that were spoken about, so you won't miss out if you're listening to the Equity Mates Investing podcast. But Bryce, let's get to Ashish before we do a reminder that whilst we are licensed, we are not aware of your personal financial circumstances. Any advice here is general only? This show is for education and entertainment purposes only and always do your own research and if you feel you need it, seek professional advice. With that said, let's get to Ashish. 

Bryce: [00:03:16] Ashish, welcome to Equity Mates. 

Ashish: [00:03:18] It's my pleasure. 

Bryce: [00:03:19] Thank you. Now today we're going to spend a bit of time speaking about Hearts and Minds, then dive into all things emerging markets as we end 2023 and then have a look at two stocks that are either in your funds or that you find interesting at the moment. So let's start at the top. You're preparing to pitch at the Sohn Hearts and Minds Investment Conference. Why is participating important to you?

Ashish: [00:03:44] Thank you. Thank you for the question. Good question. I think emerging markets traditionally are seen as a very risky asset class where quite a few investors are usually scared away because of the volatility of the asset class. While we believe emerging markets actually offer excellent, you know, potential for returns long term and the way we invest in is that we want to protect the downside while thinking about, you know, good sort of upside long term. So we want to demonstrate this investment approach, or at least on this topic, but at the same as my approach to investors. And that's why we think it's important to highlight that there is a less risky way to invest in a asset class, which is seen as very risky traditionally. 

Alec: [00:04:29] I love that. I mean, the broad umbrella term that is emerging markets is, you know, the majority of the world at this point. So there's so much diversity within that category and we'll get to that. But let's start with your investment philosophy. You mentioned, I guess, a key element there is, you know, approaching an asset class that is seen as traditionally risky, but approaching it in a way that protects the downside. But how else or what are the other elements to your investment philosophy? 

Ashish: [00:04:58] So, yeah, I mean, the first thing, like I said, is a prediction of risk is quite important. So the way we think about risk is not just, you know, minimising the permanent loss of potential, the permanent loss of capital, but also knowing the what. Of the outcomes for investors. And we think this keeping people invested is half the battle, because what happens most of the times is people sort of sell out at the wrong time from the market. They get scared away. So we think of this downside risk prediction, which is lowering both by loss of capital or risk from the loss of capital as well as low level. Both are actually important. Now how we do it is quite interesting as we look for companies where we think there is a major shareholder. So we usually invest in order, manage companies and maybe think people have or the owners have stolen the game. So it's not just that the entire network is invested alongside us as minority investors in that company, but their sense of self-worth is associated with that. So if something goes wrong with that company, they sort of suffer the loss of almost like existential crisis, personally. So that's the type of the companies we look for where people have soul in the game and which basically means from our perspective that those companies are managed in a very highly risk of bad fashion. So, you know, the order is taken care of because the entire self, what is associated with that, then we can also see well, at night, the last thing here is that we also are quite valuation sensitive. So what we call our approach is quality at a reasonable price where we don't compromise in quantity of the owners of the companies, and at the same time never overpay for those companies. And so that's really the approach. Hmm. 

Bryce: [00:06:37] And so actually, when you're preparing for the Hearts and Minds conference, you're looking at a high conviction stock for the next 12 months. How do you wrap up that investment philosophy and and and then choose something that's going to perform over the next 12 months? 

Ashish: [00:06:51] Yeah, it's a quite tricky question. So, you know, it's a very long term investment approach. So we usually have 5 to 7 years waiting period for any companies to be buying a portfolio at some of the companies in the portfolio being held for, you know, more than ten years. So we really take a long term view. But usually what we have seen is that the stocks that work on a slightly shorter term view, like, you know, 12, 18 months, are the ones where the valuation anomaly is extreme. You know, where something is going to change or correct over the next 12 months, which will, you know, help the market price it more appropriately. So we apply this additional sort of criteria when we thought about which stuff to pick for, you know, Hearts and Minds. Confidence. 

Alec: [00:07:33] Love it. Well, looking forward to your pitch on the 17th of November. If the Equity Mates community are interested in hearing the pitch, there is an option to be there live and buy tickets. There is also an option to buy an online subscription and watch it digitally. All the information for both will be in our shownotes So check it out if you're interested in hearing Ashish and all the other experts pitch their stocks on the day. But Ashish, you mentioned that you are an expert in emerging markets and you know, as I said earlier, it's a categorisation for the majority of stock markets around the world that covers, you know, the majority of the world's population. So it's such a broad categorisation. Let's narrow it down a little bit. Were there any particular emerging markets that you found interesting in 2023? 

Ashish: [00:08:28] Yeah. I mean, again, it's a very, very good point because emerging markets again, you know, they sort of club together for no sort of rhyme or reason. You could say that like why Colombia or, you know, sort of Mexico is flat together with China or India, just totally different countries, different points in the economic cycle. But I think one common element which sort of unites these countries is the fact that these countries do not have as strong a rule of law or as developed markets like Australia, UK or U.S. Also the quality of institutions like, you know, old system, the institutions around economic policymaking, the democracy, those type of institutions are much weaker in these markets. So what basically means from a minority investors point of view like us is that a lot of things that you take for granted in markets like UK, Australia, USA do not exist here. So there's no prediction, not much prediction for minority rights. There is no sort of activist investing and so on. So therefore we think our investment approach, which is just focussed on backing what you call high quality, you know, sort of high quality sort of owner managed companies work very well because actually what you're doing is finding good entrepreneurs, good wealth creators and, and sort of, you know, backing them long term. Now the problem what we've seen is that, yeah, a lot of times we do not find any of these entrepreneurs in countries, a lot of countries. So for example, in Russia, they've had zero investments for last year because every listed Russian company we looked at and analysed from bottom up perspective turned out to be very close to President Putin. So that's the right law we applied where a. Every, if any company be a backing. What entrepreneur will be backing is close to the political power or politicians we have here because you don't really know when the political power shifts. So therefore, yes, abrupt, but it's a very bottom up approach. But from a top down perspective, we generally like countries with better rule of law, or at least some sort of, you know, a checks and balances in the system. So yeah, so answer your question. A lot of countries are ruled out and that in this approach so I mentioned Russia but Saudi Arabia the same thing because every company that is sort of linked to the royal family a lot of friendly markets are ruled out because they do not offer a strong enough governance from our perspective. So the country we find interesting, obviously India is quite interesting to us. I mean, India obviously is a democracy there. The rule of law is not perfect, but it is slightly better than most other markets in our universe. And there is a huge private sector or like the culture of entrepreneurship, where you see a lot of companies listed in the stock market. We also find interesting companies in China at the moment. So China is harder for us. So our success rate of finding again, purely private companies with no links to politicians is very low in China. So we reject almost 99% of companies. We look at China, but they are 1% of companies where we think they are interesting and China, India is quite out of favour. So it is quite an interesting valuation of Portuguese to us. So I would say probably China and India looking very interesting. 

Bryce: [00:11:42] So one of your key principles in the fund is not to try and predict the economy or the stock market. And you just mentioned that, you know, India, that's a that's an interesting example because you know so many investors that we speak to the sort of the basis or the thesis for investing in India is the the economic potential and prospects over the next sort of decade or so or even more so then how do you take that principle? And then Marriott with, you know, investing in emerging markets where so much of the company's fortunes are tied to the economic potential over the next decade, or, as you said, political fortunes?

Ashish: [00:12:21] Yeah. So no, we do think about the economy, but we do think we think it in terms of purely bottom up perspective. So we don't really run a sort of country allocation model where we sort of decide, let's go over to India or China if you don't do that. But when we are looking at from a bottom up perspective, let's say a bank in India, we do think about what's the future set of long term growth potential for the bank. And if you're thinking about that, then you have to sort of somehow think about the economy. So we think about the economy in a slightly different way, which is many other investors, because we think that a lot of times the high GDP growth, you know, do not translate into high stock market returns. And so if you actually China is a very good example of that, where if you look at China's GDP growth for last 15 years, it is growing the economy at six 7% CAGR. But if you look at the stock price don't it's almost close to zero. So your GDP growth has not turned out as good for, you know, your shareholders are minority. So what we look for is GDP growth combined with wealth creation opportunities. So, I mean, the reason it didn't work out very well in China was a lot of GDP growth was driven by government institutions or large government owned banks, which sort of, you know, created our GDP through construction or property market and so on, which was not really that wealth creation. So what we look for is are the companies bottom up perspective benefiting and then are do they actually create wealth to create value for shareholders? And we think India actually is interesting country because not only the growth prospects are actually quite bright, like you pointed out, but also we think there's plenty of opportunities from a stock market perspective which are, you know, private sector oriented, where entrepreneurs have a wealth creation track record whom you can back and, you know, back for a long time. 

Alec: [00:14:20] I love that. So we want to get to a couple of case stocks later in this conversation and that might draw out some of the themes that you're touching on there when it comes to your approach. China and India have certainly dominated the conversation around emerging markets, and it makes sense. Those two countries together are a third of the world's population. But are there any other emerging markets or any other themes that are emerging in these economies that you find yourself in the team spending more and more time on?

Ashish: [00:14:51] Yeah, I mean, again, a very good point. So I mean, the broad piece I think we will play long term again is I mean, it's not based on really a revolution is consumption and and sort of gradual sort of wealth creation in these economies. China and India are not the only ones, like you said, is actually Indonesia is very interesting as well. Indonesia is quite a large country. And and. Going down the path of economic growth for other countries followed in the region. Not just that. We also think Mexico is looking very interesting. Mexico is also benefiting from the assured load of companies which are moving out of China. The manufacturing out of China are trying to now locate manufacturing in Mexico, which is very close to America. Mexico is benefiting from that. We also like Chile in Latin America, Brazil. So there's quite a few countries. But the broad payment on this is that what we like is trying to play or trying to benefit from gradual middle class expansion, creation of wealth, you know, And then the other thing which is happy to see time is that at least in China, the population is ageing. So you might just have people who are getting richer, but also order, which creates opportunities in sectors like health care, which is quite interesting to us. I think the one other thing, which is usually people don't talk about when talk about emerging markets is technology, where what we see and especially, you know, I live in UK, so I can just see the contrast between the UK and India. So, you know, India, if for example, if you go to a lot of times you don't have to use cash, so you can just use your phone to make payments. And same thing in China, China, you actually can't even use cash if even if you want to, because most places wouldn't pay cash, because what you expect you to pay to your mobile, which is so different from, let's say, you know, sort of older or slightly more advanced economy like UK where a lot of people use cash. So we think a lot of these markets are leapfrogging in terms of the technology adoption and they are certainly a lot more advanced, which is, you know, the traditional economies when it comes to use of technology and things like mobile payments, which actually opens up quite interesting opportunities from a you know, from investing perspective. The last thing I would say is that these economies are not just consumption centres. I like to say obviously consumption centres because you know, large part of the population live there. But not just that, because once you have a winning business in, let's say, China, India, Indonesia, then you want to then win the world, you want to then expand your business outside your country and try to win market share elsewhere. So you see that all the time. The lot of Chinese businesses are now trying to trying to go out and when they like you see bytedance's, Tik tok, you see Pinduoduo. You know, with so many companies trying to go out and win market share abroad and that's what you see more and more so Indian i.t. Services companies, Indian pharma companies, Chinese tech companies, they want to be global winners. And that's another theme which we try to benefit from where you if you identify a very high quality entrepreneurs, business family who was very ambitious and driven and hardworking, then you just back them for not just not just within their own country, but also going abroad. 

Alec: [00:18:05] Yeah, I love that. Well, let's let's turn to two specific companies and unpack some of these themes, understand what the companies do and why you like them. There are two companies that we've got from different parts to different parts of the world. They're both from Asia but from different countries Uni-president from Taiwan and then Kotak Mahindra Bank from India. 

Ashish: [00:18:27] They're both very good examples and they also illustrate the investment abroad. So Uni-president is a spiderweb and essentially one of the key tenets of our investment approach, like they mentioned before, is, is basically, you know, invest in companies which are slow and steady. So they're not going to grow 50% in a year and then, you know, collapse next year. So that's not I started so I style is really invest in companies with just steady compounding companies which give you you know these in return every year and for next you know 15, 20, 30 years. So that's a unique position to practice this. So it's super broad. Most people ignore it because it's so boring. 

Alec: [00:19:08] Let's get to it. But let's start with what the company does, because I haven't heard of it before and I'm sure a lot of others haven't. So let's start at the basics. What does it do? And then let's let's get into it from that. 

Ashish: [00:19:18] Yeah. So basically Uni-president Enterprises, they sell noodles and so they sell noodles. And in Taiwan and China, they also run convenience store chains in Taiwan and Philippines and China. And they also have a food business in Southeast Asia. So it's a very boring business. You know, it's nothing really changes from year to year. What they do, they actually dominate it. So they have very high market share in convenience retail in Taiwan, in the Philippines, and they have very high market share in noodles and in China. So that basically economics are very stable. It's a family owned business where, again, family, that large part of the network is linked to this business. So they have really what you call soul in the game in in keeping making sure that this business stays well. So from our perspective, from a shareholder perspective, what it does is. It gives you you know, if you look back 15 years, for example, it has given you like 15% annualised dollar returns in that with this type of, you know, very stable business. And the returns are a mix of earnings growth, cash flow growth and dividends pay out. So a dividend payout is quite handy as well. And what we like, we think if you actually look forward to next year, there is a very high probability the company will deliver the same, you know, 14 to 18% U.S. dollar returns from a free cash flow perspective. This is about, you know, 12 down to 13 times free cash flow, which is excellent valuation in our view. Yeah. So that's what we like about this. 

Alec: [00:20:50] It's funny, we spoke to another Hearts and Minds Speaker Tom Naughton, a couple of days ago, and he also had a he's also from the U.K. and he also told us about a company, not the same company, but an Asian company that was big in the noodle business. Yeah, first Pacific from Hong Kong. So I'm not sure how familiar that company is, but I guess which company makes better noodles? Uni-president First Pacific. 

Ashish: [00:21:17] Yeah. So, no, no, no. I really quite. I mean, we know for specific very well it just that we from, from an ownership perspective that when boss at governance is first Pacific, it will not pass because we think there are issues around the owners of that company. 

Bryce: [00:21:33] I think First Pacific was also family run wasn't it. Yeah. 

Ashish: [00:21:37] Yeah. It's owned by the Salim family in Indonesia. And, you know, Salim family's not something new to that. 

Bryce: [00:21:42] Yeah. Fair enough. Fair enough. So how big can a noodle company get? That's the question. What's the prospects for Uni-president over the next decade or so? 

Ashish: [00:21:51] Very interesting. So, like, if you look back, if you go back 20, 30 years regionally, they sold noodles in Taiwan and you know that's what regions of the company and then they have convenience retail chain in Taiwan. So we think this is one of the first sort of companies where the figured out that if you control the retail channel, which the convenience retail, I mean if you go to Taiwan, convenience is basically the main retail format because you know, every apartment block has a 7-Eleven, which these guys run. And people use 7-Eleven for everything to pick up their breakfast. If they walking out of the door to their office, they pick some dumplings in the morning from 7-Eleven for breakfast. And when they come back, they pick up, you know, milk, groceries. They want to use 7-Eleven to pick up the economic spices or, you know, ship it back on the bus. And so it's basically their life. So when did they realise that once you controlled for such a big hold on people's lives, then you can actually also sell more food products. So then they kind of started using them in stores to sell their own food product, which is noodles and dairy in Taiwan. And that was around, I think that's basically around the 80s and 90s when they built this business up in mid-nineties. The Indo-China saying that, look, China is the next market so we need to be here today then started growing in noodles and business in China but still growing and it's quite surprising that the volume growth is maybe not that high, especially Chinese because the consumer was in D already. But what they've been doing for the last ten years is the premium izing the product. So they did. For example, they launch different variations of helium, so less sugar tea and and more sort of, you know, advance these in the sense that if you use less, you add into the flavour, it has to be even better because people then taste the flavour because without sugar, sugar people don't taste the flavour. They just gave sugar. So, so that you can charge higher price for the same thing with noodles. If you put more meat, more more vegetables, you get high price. You can actually that what they're moving towards ready to eat food. So not just noodle, you can have a hotpot, you can heat it up and then eat it. So it's actually high price again. So that's really up to us. It's an example of constant innovation, constant innovation, and gradually sort of, you know, with your same time customers, you could, you know, that you can actually get more want to share with those customers. And that's usually the approach. Then about 20 years back around 2000 and did Philippines think that Philippines offers what Taiwan offered in the early 50s, which is early stage economic growth and much larger population than Taiwan, and began as an island country, which they can deter, they can dominate. So they are now there with 50% market share of convenience retail in Philippines, and they plan to do the same thing in Philippines, where they again launched, you know, as India and Philippines and gradually dominate the market. Once they do that, the next stage is Vietnam, which they're trying to enter. So it is just they've sort of have the formula which they have perfected in Taiwan, and now they're sort of gradually rolling it out across Asia, which is what we love. Yeah.

Alec: [00:24:56] You say, you know, you downplay it a little bit. You know, they they go into a country and they slowly grow. But having 50% market share in a country of I'm not sure the Philippines population, but I'm guessing somewhere between 100 and 200 million like that's. A massive market and a meaningful market share in that market. 

Ashish: [00:25:16] Well, yeah, they're very good at what they're doing. They are one of the best operators of 7-Eleven globally in terms of economics that we did on their stores. And this idea of constant innovation. So, you know, last time I went to Taiwan, I visited on their stores. They have now launched, you know, things like fresh food, fresh juices in their stores. So you could go to Taiwan, 7-Eleven and get depressed. Juice made for you. They have really nice variety of coffee in 7-Eleven. They can actually pick up coffee from 7-Eleven stores, which is amazing. So just this constant innovation is what I am. 

Alec: [00:25:48] Yeah. 

Bryce: [00:25:49] I haven't been to Taiwan, but I have. We've experienced that service at 7-Eleven in Japan. Yeah. Yeah. Unbelievable. They had a deep fryer next to the cash register because their carriage was that fresh. So. 

Alec: [00:26:06] So, so one thing you mentioned there. So there are Taiwanese company and you mentioned that they had a presence in mainland China. How do you feel? Is there risk there for Taiwanese companies with, you know, a percentage of their business coming from mainland China? What's the geopolitics of that? 

Ashish: [00:26:23] Yeah. So I mean, that's something we think about a lot. So in this case, the way we get some comfort is that the Chinese company has a Hong Kong listing. So it's sort of seen as a very local business, although they have some equity stake in it. But they've got also they have a local listing and the Chinese company is entirely managed by mainland Chinese. So there is no sort of, you know, remote control or manage from Taiwan, said the CEO of Chinese company the mainland Chinese, who has worked there for 20 plus years and been under Chinese business management village, is quite extremely important. And beyond that, those two things. And also we think especially something like food items is one of the things where this is definitely not top of the agenda for Chinese government because they are already about technology, things which matter from their security perspective. So noodle the dishes, perhaps the last thing they need to worry about. 

Bryce: [00:27:18] So that was Uni-president Enterprises. Now, Ashish, we're just going to take a very quick, quick break. And then on the other side, we're going to dig into an Indian company. So we'll be right back. Welcome back to Equity Mates. We're here with Ashish Swarup, portfolio Manager and investment analyst at Key Investment Management. Now, we've just heard about one of the largest noodle manufacturers in Asia. We're going to take a bit of a different turn and move to banking in India. So the company is Kotak Mahindra Bank. I guess it's in the name, but what does it do? Ashish And then. And then why is it attractive to you? 

Ashish: [00:28:01] You know, so, so it said, it's a bank, I said and it's, it's, it's basically founder order managed or no run bank. It's, it's founded by this individual that Kotak who we think is one of the smartest entrepreneurs in the world, definitely in our universe. So if you go back in 1980s, he started this bank with an auto lending business. It was used to be only focussed on lending for cars and vehicles in India, and then eventually he turned it into one of the leading banks in the country. And the way he did it is actually amazing, said quite interesting story. So the way he runs the bank is actually two principles. One is that he wants to have a very strong deposit base or simply take care of the customers. The service of the customers is excellent. You know, the leading bank in terms of the service. But at the same time, he runs the lending book with a very high level of risk control. So, you know, his track record in terms of credit costs or in terms of, you know, loan losses is the one of the best in the country. And this is what we like. We had if you step back a little and think about Indian banking industry, the Indian banking industry is quite interesting because about 70% of the Indian banking industry is dominated by state owned banks. And state owned banks usually, you know, are not created for minority shareholders. They are done for, you know, policy objectives. So if the government wants those banks to lend and juice up the economy, that will be lend. And and but they losses that are enormous because they'd already taken the lending to because not their money. After all, it's here, it's taxpayers money. So therefore a lot of those banks that from time to time blow up and their service is not very good. You know, if you go to those state owned bank branches in India, the service is not good, So people are not very happy, so they lose their customer deposit customers quite easily. The 30% of the market is dominated or controlled by private banks like Kotak Bank, and Kotak is one of the leading private banks. And gradually those private banks are gaining market share against those state owned banks, as you would expect. Now, the other interesting thing about Indian banking industry is that Indian banking penetration is extremely low. So India is still a poor country and lot of people do not have proper bank accounts. Even if they do, they don't take loans. So the lending penetration is one of the lowest in the world, especially for consumers. And that's where they would they would recommend to bank, which is on its largely consumer driven bank. They're not really driven by corporate and consumer and small medium enterprises where, you know, their bread and butter is. So if you didn't summarise if you, you know, go back 25, 30 years, they compounded their book value at close to 15, 20% US dollar terms. And we think given the nature of a basket in front of them, they can easily do it for next year or 20 years. And for that, you know, you think the valuation currency is very attractive. 

Alec: [00:31:07] It's a fascinating story. We've had an expert speak about HDFC Bank is Oh yeah yeah, yeah. And yeah, they they spoke, I guess some similar themes, you know, in a large country with an underbanked population. And they spoke about it being a well-run bank and there was a lot of opportunity there with such an underbanked population. And you know Reliance Jio is pushing ahead with like the world's cheapest smartphone and it feels like India is primed to for a lot of people to embrace digital payments before traditional banking with these cheaper smartphones and as they get people online. How do you think about the competitive threat from a Reliance Jio and some of these tech companies that I believe they're also pushing into banking? I think Jio has its own bank. How do you think about the coming competition there? 

Ashish: [00:32:04] Yeah, I mean, again, very good question. So we did say two things there. One is that, yes, a lot of these payment companies you've seen, not just in India, I mean, elsewhere in our universe come up and these, you know, be very successful in opening new accounts with big clients, customers. And you know what? These threatened the banks from a deposit taking perspective. But what you've seen is that banking is bit more than just deposit taking or payments because banking is lot more about. Managing risks. And in a country like India, where, you know, there is not much history really of lending and borrowing, what you can see is that lending money is very easy to get. You know, you can give money to anyone you want, but collecting is very difficult. So, you know, people just just taking them and getting their money back is very, very hard. I mean, you have models like off the bay in India where, you know, people just giving money because you just buying online. But then those default rates are massive in those cases because collecting money is very, very difficult. So that's where we see a lot of these newcomers in the industry may falter because they're coming from a tech background, the technology companies, and they're not financial companies. And as a technology company, your discipline around collection, discipline and credit risk control may not be as strong as a traditional banker. So that's a I think, the first point to highlight and you've seen it elsewhere. So you've seen it. A lot of the new banks in Brazil, for example, blew up recently because they just couldn't control their credit cost. And you've seen that actually in case of some other markets. But now the second thing, which is actually makes us a little bit more comfortable on Kotak is Kotak is the leading digital bank now in the country. So they had their app, they call it one one app. And that sort of digital bank is actually the leading bank and collecting lots of sort of new age customers in their 20s. And they are also one of the biggest payment processors. So they also embrace technology and they're really quite advanced in that. So that gives us a second level of comfort. 

Bryce: [00:34:05] So if you're looking at Kotak, you know, if it successfully executes, how do you expect it to grow over the next decade? What, what, how big can this kind of get?

Ashish: [00:34:16] Yeah. So we think that India Indian GDP growth, which we think quite conservatively can grow six, 7% a year in terms of, you know, dollar of, you know, real GDP growth and then slightly more in nominal terms is a dollar terms to 9% nominal GDP growth. And we think what India the stage of the economy is usually the banks or the bank credit grows at a multiple of GDP growth like 1.5 times typically. So banks, the system of credit can grow 20% easily. Kotak On the other side, actually gaining market share, like you said, systematically gaining market share against the state owned banks. So Kotak will grow 1.3, 1.4 times the system growth, which is, you know, 16, 17% loan growth with a very high return on equity. So the equity is, you know, is actually very high. The capital base is very high, so they don't need to issue more, more equity. So we think it can easily compound its book value at 20% plus over the next decade. And this is what actually is done if you look back of the history of the bank. So and if you know, and it's always kept its multiple price to book multiple and so it sort of gives you at least 15, 20% return in dollar terms. That's why we like it so much. 

Alec: [00:35:34] It's fascinating. Ashish, before we wrap, while we're speaking about Indian banking and financial services, I want to ask you about one other company. And if you haven't looked at it much, that's that's okay. We had a an expert come on the show a couple of months ago and talk to us about Bajaj, Finserv and the amount of data they were collecting and what they were trying to do with that data and how they were trying to predict like customer behaviours and then allocate, I guess, their resources accordingly. Have you had much of a look at that company and what do you think? 

Ashish: [00:36:09] Yeah. So I'm, you know, I'm actually a computer engineer by training, so I'm quite a bit a sceptic when people talk to me about how do you use algorithms to predict stuff. So. But look, I mean, we have looked at Bajaj Finance, if you analyse the company and it's a great company. They have a very good track record, at least in the near-term. So what we look for in addition to, you know, those algorithms and technology, is that what we look for is an evidence of successfully navigating down cycles. So we think your lending book audio quality of lending book is not really proven till the time you've actually gone through some bad economic times or, you know, just to see how your book behaves when times are tough. Because in good times everybody can claim to be high quality, you know? So when the bad times hit, only then you test who's actually good and who's bad. So we think in the case of Bajaj Finance, they have not really been tested through bad economic cycles yet because India has been only doing that since 2000, 1213 when they actually became big. So we think we just waiting for them to see how they behave during bad times. Kotak, on the other hand, has successfully navigated several bad cycles. That's why we like it. 

Bryce: [00:37:22] Well, we did a deep dive on that company with Saurabh not too long ago. So if you're interested in hearing more about it, check it out in our podcast feed. But Ashish, that does bring us to the end. Of our conversation today. Thank you so much for your time. We're very much looking forward to what you're going to pitch at the Sohn Hearts and Minds conference. And if. If you're listening along and you'd like to find out what Ashish, along with many of the other experts from around the world, will be pitching at the conference. There is a link in the shownotes to grab tickets. The discount for the equity mates community is Equity Mates 2023 All one word and that'll give you 20% off the virtual tickets. The conference is on November 17th and all proceeds go towards medical research. So it's a fantastic conference. We wish you all the best. Ashish. Picking stocks for a 12 month period is probably one of the hardest things in the day. 

Alec: [00:38:13] Yeah, we don't we don't envy you at all. We wish you all the best and we hope to see you when you're in Sydney. Yeah, Thank you. 

Ashish: [00:38:20] Thanks for having me.