Interview with Sumit Poddar, Founder & Chief Investment Officer, Tikona Capital

Radhakrishnan Chonat: Welcome, ladies and gentlemen, to another exciting instalment of our Fund Manager Series. Today, we have the distinct pleasure of conversing with a financial luminary, Mr. Sumit Poddar, the Founder and the driving force behind Tikona Capital. With over one-and-a-half decades of experience in equities, investments, and portfolio management; Sumit has made his mark in the financial industry having held key positions in esteemed institutions like Aditya Birla Sun Life, Star Union Dai-iChi, and TCS. Now as a seasoned professional, Sumit has efficiently managed substantial funds delivering good returns as a fund manager and he possesses extensive experience in analyzing multiple sectors. His impressive credentials include an All India CA Rank and he has successfully completed CFA Level II.  

Today, I have the privilege of delving into his wealth of knowledge and trying to gain insights into the world of investments and financial strategies from him. Sumit, welcome to our Fund Manager Series. 

Sumit Poddar: Yeah, hi. Thank you so much, Mr. Chonat or maybe I’ll call you RC. That sounds much better to me. So, I’ll take that liberty if you allow me to call you RC. Thanks a lot for this fantastic or such a fantastic introduction of mine as such. Yes, no doubt the journey so far has been quite heartening as such and as we all have this wealth creation journey, that’s a continuous journey, needs to kind of keep on going as such. So I mean thanks a lot for inviting me to your show, having this conversation in place per se. 

Radhakrishnan Chonat: Perfect. So Sumit, to start off, right? You have had an impressive career so far. So, can you share some key lessons or let’s call it experiences that have significantly shaped your approach to investments and portfolio management?

Sumit Poddar: That’s an interesting question. And of course whenever we think about our journey, we just go to the roots as such and we just want to go back and see where it really started as such. So, I hail from a Marwadi family and as the whole India knows that being a Marwadi is like the business runs in your blood. So being a Marwadi, I started my overall journey quite early as far as businesses are concerned. So, I joined our family business after my SSC. Once my 10th standard were over, the summer vacations were in our office or gadi as we used to call it. So there I could maybe — being just a 10th standard pass, you would hardly know anything about accounting, finance, and things like that. So it started — all of it actually started from here. And fortunately, I got a chance to work with — of course my uncle guided me a lot. Similarly, many other mentors who were definitely relatives to me, but I could really gather good amount of wisdom from them for businesses per se. 

Then it happened that I was sitting with our family chartered accountant. He is a close friend of ours and he just asked that why don’t you do chartered accountancy? So I just said sir, I mean if you support me, definitely [Foreign Speech]. He said it’s not easy to do. And I said okay, let’s see, let’s start on that particular path. So thankfully, what happened is along with BCom, I could really pass out with flying colors with first class in Bachelor’s as well as got a rank — All India Rank in CA. So, that was quite heartening. And even during my chartered accountancy, I was quite fascinated with how businesses work, how stock market works. So even during examination, I used to sit on terminal and do some amount of trading. I mean we all would have started our careers with trading per se. So, my mother used to say [Foreign Speech] and then investing or trading [Foreign Speech]. So till 3:30, I used to kind of trade at that point in time and this I’m talking about around ’99, 2000 as such. 

So that’s where — thankfully, I cleared Chartered Accountancy and post Chartered Accountancy, I really got a chance to clear the campus and joined TCS, which happens to be an IT company. And everybody would think that a Chartered Accountant — what’s a Chartered accountant doing in an IT company as such? But now that I think back, I think that that has really helped me to at least grab the technological evolution that is taking place, right? So I mean in TCS, of course I worked on various technology projects and that was the initial part. But happened to go to US and that again was an eye opener for me, right? So in the US, I saw that such a wonderful country where they have really corporatized things and they really know how to scale things up, how teams work, what kind of infrastructure can be really built? And it really fascinated me seeing those things out there that India seems to be so underpenetrated, I mean there is such a huge amount of India opportunity that exists. So, that feel was there. 

So while I spent almost around one-and-a-half years in the US of course deputed from TCS, but that was another initial thought that shaped my thought to come into equity markets or maybe help creating wealth out of the current situation. So of course the first part was the businesses, the second part is the country itself, and then I started kind of on my path to join equity markets. I did my CFA level — I joined CFA. Of course books like Intelligent Investors influenced me at that point in time. And thankfully what happened is within TCS itself, I got an opportunity to join the Institutional Investor Relations Department. So, there was luckily that opening at that point in time because TCS had got listed in around 2004 so I got an opportunity in 2005. So, I joined TCS in around 2001 per se. So, I cleared my CA in November 2000 and 2005 this opportunity I got and I could interact with lot of investors, gain out of their wisdom. 

Post that I joined the sell side analyst primarily to really gain out of how this business really works. While one may think quite positively on the aspects of markets, but ultimately it boils down to how it really works. When the opportunity on the business side exist, on the country side exist; ultimately it’s all about the crux, right? So, there I worked on the sell side tracking primarily IT sector. But then around in a year, I joined Buy side which is Aditya Birla Sun Life Insurance. So again, fantastic mentors. I’m really lucky to have fantastic mentors to really teach me or maybe influence my investing thought process or research thought process. So I started with IT sector, tracking IT sector, and then multiple sectors not just IT. It was pharma, it was in construction, capital goods, media, telecom, retail once you are in. Of course I spent almost 11.5 years in Birla Sun Life insurance, which is where I started being — starting as an analyst, then multiple sectors as a senior analyst, as a co-fund manager, fund manager. 

So multi sectors, multi kind of objective funds that I could be looking at so something like a CPPI based fund. I don’t know whether you have heard about that, where highest NAVs had to be kind of given to the investors. So, there were proprietary models that were being worked to get that outcome. Multi-cap funds, midcap fund, large cap fund; I mean all kind of funds I could really manage and help myself kind of learning on that particular path. Post Birla Sun Life Insurance around 2018 with the experience that I had, I got an opportunity with a niche life insurance firm Star Union Dai-iChi. Largely they have non-participating funds as their largest business and which is the most profitable part for them. Or even in the industry, non-participating funds are the most profitable part of the fund. So I got an opportunity there to head the equity team out there, which again further enhanced my skills on not just research portfolio management, but also handling teams, building teams as such. So, that was I was heading an equity desk itself. 

So I always had this, I mean being a Marwadi [Foreign Speech]. Anyway, the plan was to start — get into the market, start as an analyst, senior analyst, co-fund manager, fund manager, head of CIO, and then start your own money management firm. And as we all are experiencing, cycles are getting shorter. That’s where I then thought let’s take the plunge. In any case even after being a CIO, you want to become your own manager as such, right? So that’s where I took a plunge and then started my own company, Tikona Capital as such. And last two years it has been another learning journey, of course starting on your own has its own pros and cons I guess. So we are helping customers, empowering them to make money for them as such. And yes, we are evolving with the times in terms of our research processes, our investing processes, and helping them create wealth as such. So, that broadly kind of sums up my journey as far as career journey is concerned. And yes, further long way to go. It’s just the beginning I would rather say. 

Radhakrishnan Chonat: Excellent. Excellent. Fascinating insight into your journey. Sumit. [Foreign Speech] you decided and then you started Tikona Capital. So can you tell us a bit more about Tikona Capital’s approach to I believe investment advisory as well as you do research analysis and you also have a small case? So, what sets your firm apart in the market?

Sumit Poddar: So, I’m sure as the whole idea out here is to build wealth for our customers per se. And see, we are a semi-registered investment advisor as well as a research analyst. So, the broad thought process for building the portfolio goes behind in terms of identifying companies where huge opportunities are existing, right? The framework largely happens in a manner where we look at business management and valuation as such. So let’s first kind of — again I’ll give a bit of a history out here first. See, when I started my investing journey or my career, earlier we always used to kind of look at maybe either low PE stocks or something which is cheaper or something which has management is quite kind of flamboyant and they are giving huge guidances incrementally while there is growth, but capital efficiency is not there and things like that. 

So over the period kind of, we have been kind of learning cross and that’s where this strategy kind of has shaped up where we look at the business management in valuations. What we want to build is a portfolio — a robust portfolio that can help navigate the markets and create an outperformance per se. Outperformance [Foreign Speech] is all dependent on the markets. But at the same time we make our best efforts to find ideas where there are large addressable markets, growth drivers are in place. Just to give an example, we were early identifiers as far as EMS as a sector is concerned, market growth drivers are in place and there are profitability enablers in place. So what one has to look further is whether it’s a capital efficient outcome or not, whether the business is growing at a rate higher than the GDP growth rate or not, and there are consistent drivers in place. 

While businesses could have their drivers as well as attractiveness in place, many a times what happens is what is the management story is what matters a lot because how do they really see this opportunity and how are they going to really capture this particular moment is what matters much more than the attractiveness of the business itself. Because many times while the opportunity is large, many businesses really don’t — or managements really don’t convert this into an opportunity as such, right? So that’s what happens per se, right? So, we went through an in-depth [Technical Issues] Just 1 minute, I’m just handling this background noise. Some drilling is happening. It will just take two minutes. 

Radhakrishnan Chonat: Yeah, sure.

Sumit Poddar: Sorry about that.

Radhakrishnan Chonat: No worries.

Sumit Poddar: Yeah, I’m back. Sorry.

Radhakrishnan Chonat: Go ahead.

Sumit Poddar: Yeah. So largely we differentiate as far as our analysis, our depth that we have as far as by meeting the companies in our network, and we try to develop our conviction based on our depth of understanding of the business and incrementally checking with our network about the management’s background. And ultimately, valuation is something that we have to — or it’s the summarization of our understanding of the business as well as the management, right? We may deploy different kind of methods; we call it by price to earnings, price to cash flows or DCF. Ultimately the value is dependent on how the business opportunity is and how the management is able to kind of shape this up. And incrementally what is happening is with the advent of maybe technology participating into businesses, momentum is also becoming a bit of a factor, which we do check as a sanity check rather than really a driver of kind of forming the portfolio. So, that’s on the overall portfolio construction side. 

Nonetheless while these are the parameters to filter out on the fundamental business side, but at the same time, I think I’m sure India as an opportunity is a very large opportunity, right? And our driving factors are largely six themes, which is what is the crux as far as the small case is concerned where we are focusing on the themes of India, the large themes of India, as well as kind of young India theme which is a multicap portfolio on small cases. And that becomes a fantastic participant in the future growth of India as a country. And I’m sure we would be discussing a lot about India going forward no doubt in this session. So to put it forward, we want to grab the opportunity that India is providing us. We want to use our — maybe I wouldn’t — part of wisdom that we have got from our mentors and apply that to gain wealth for the future and create wealth for our clients is what the thought process as far as Tikona Capital is concerned. 

I’ll just put another perspective as far as how Tikona Capital was born or maybe if you look at our logo, which is a triangle over a circle. Largely a lot of thought process has gone behind this triangle per se. Over the period what I realized is while being an analyst, you would need lot of knowledge, no doubt about that in terms of analyzing businesses, in terms of interpreting financial statements, interpreting how each business is run, and things like that. And it’s not just the knowledge which will really drive your success in the industry, right? So we or rather based on my experiences and instances, I further kind of tried to drill it down into a framework where it’s a combination of three things; which is knowledge, network, and conviction; and these three actually feeds into each other. 

So it’s not just the — I mean the knowledge that will drive your outcomes, you need to have right network of people who are into this business not just the investing business. But even, let’s say, if it’s a telecom business, do you have someone who is working as a distributor? Or if it’s a consumer durable business, again does anybody have a shop which is about the white goods? Or if it is like in financial, does anybody is there in the banks? So that’s about kind of dealers network or maybe know-how of dealers being there, competitors as such, and how the whole transaction — end-to-end transaction works. And of course sell side analysts, buy side analysts, fund managers, investors, well-wishers like you, and things like that. You need to have that network in place, which is what actually will boil down to your conviction because ultimately you have to take — one has to take a call and drive that knowledge as well as network into an action. 

So maybe over a period of course you start with trading, then one gets hit somewhere, further kind of enhances their process, further develops a conviction, further kind of sizes their positions, further kind of looks at the complete portfolio. So that’s how this framework has been kind of built up where it’s a combination of knowledge at one end, network at another, and conviction at the top. So this is where this triangle actually comes into picture and this triangle is actually cutting across the circle, which is the uncertainty. So, triangle brings in the certainty over uncertainty. So, that has been the thought process as far as this logo of Tikona Capital implies and Tikona itself is triangle as such. So that’s the thought process as far as Tikona is concerned. Yes, we are just starting, we are young and story has just started for us per se.

Radhakrishnan Chonat: Excellent. So Sumit, you mentioned about some pitfalls also along the way, right? So in the world of investments, what are some of the common misconceptions or let me call it pitfalls, right, that you believe investors who are listening to this should be cautious about and how can they avoid them?

Sumit Poddar: See, there are many pitfalls one can say, it’s not just one as such. And within many pitfalls; there are pitfalls maybe either specific to situation, specific to person, and maybe it is in relation to something or the other. So, just to give you an example. What is the biggest risk? In my view, what I’ve learned is not taking risk is the biggest risk, right? So while most of the people would be saying that okay, why to take risk? We should avoid risk as such. I mean take the case of inflation itself, it will keep on eating your money like anything. Take the case of taxation, it will keep on eating your money like anything. So, not taking risk is the biggest risk because over a period of time and in the near term you don’t realize it. But over long periods of 5, 10, 15, 20 years you realize that oh, you didn’t take any risk as such. 

The other pitfall that people think is [Foreign Speech], right? Something which has gone down from INR100 to let’s say INR10, they will say oh [Foreign Speech]. I think classic example is everybody knows of many of such stocks, right? I mean they would have gone from INR200 to INR5 or something like that or INR10 and they would still say [Foreign Speech]. And another thing like I’m sure people see 90% fall, but if it falls from INR10 to INR5 while someone would calculate it as just 5%, but actually it’s down by 50%, right? 

Radhakrishnan Chonat: True. 

Sumit Poddar: So, first is not taking risk itself is a big risk. Second is of course one needs to not look at price, one needs to look at value because seeing price or getting the price is so easy, first thing, easy and being thrown at us rather than other way around as such. So we need to look at the value of such companies, such stocks as such. Right? So another pitfall is what happens is the fall of price really plays on minds of many people as such, right? Third pitfall many of the guys actually have is I have seen in my career or maybe especially after I have kind of started my own firm, either people are overinvested in terms of time, they would be like having just 2% of their portfolio in equities and they are literally overinvested as far as their time is concerned or they are superly underinvested. They would know everything going on in the world and they would not even have — they would not even bother to really get the benefit of the equity markets in terms of beating the inflation, beating the taxation as such, right? 

And the other guy would be like he would be doing F&O, he would be doing trading, he would be doing investing; everything he is doing and then ultimately at the bottom of his or her own balance sheet, we would find that he is actually paying high cost EMIs. I mean why should that person be doing that, right? We find people from both the spectrums so being underinvested or being overinvested. So underinvestment could be in terms of their own portfolio, underinvestment could be in terms of their time, or maybe overinvestment could be in terms of their portfolio and as well as time. The fourth thing is over-diversification. I think if we look at the spectrum of people — very rich people, what is happening is they are being over-serviced, every other kind of wealth manager coming to them with a new product, they would keep on investing, and they would hardly really either bother to consolidate such stuff. They are just kind of churning within themselves and they are literally kind of over-diversified as such. 

Similarly some people who have become DIY investors, they are — I mean I have seen portfolio of a couple of DIY investors. Again they would be investing in domestic fund, large cap fund, midcap fund, ETF, international funds, debt funds, credit funds; and then again within that there is a kind of a diversification of having three funds each for large cap, midcap, and so on. So, this over-diversification is another thing. And lastly, I think as a country we are yet to have a thought process of asset allocation in place. Because what has happened is we are just kind of following [Foreign Speech] or maybe they are hardly bothered about what kind of risk I am attuned to take. A 45-year old, kind of the equity risk that he or she should be taking versus a 25-year old taking the risk is totally different, right? I mean a 25-year old should continue to have same. He or she can really have a very high [Technical Issues] versus a 45 if he’s debt redundant, definitely he need to ensure that debt repayments are being taken care appropriately versus a 55, he really needs to be ready for retirement as well as maybe if any larger expenses in terms of marriage of their children or higher studies of their children is concerned. 

So I’m really surprised or for that matter even when I was in large organizations like Birla or Star Union Dai-iChi, I have been in Birla for a very longest period of time, possibly these considerations are not there. And as I mentioned, even when I talk to fund managers who are managing large sums of money, they are literally not yet attuned to the fact of ensuring that their own goals are being kind of achieved or the purpose of life is being achieved as such. So while money helps you achieve a lot of things, but money is not the only thing in life. That has to be kind of really — one needs to be really aware of such things that money is important, but money is not the only thing to be there. So I mean coming back to your question in terms of pitfall, yes, take risks, know your risks. 

Risk is something that is unknown so don’t go overboard and similarly don’t stay underboard as such. Try to understand things. Not knowing and doing things is a far bigger risk as such and similarly knowing things and betting out of the way on that is also another kind of a risk as such. Because while I might have said not taking risk is the biggest risk, similarly there is another saying which says that people don’t go wrong when they don’t know. But people go the wrong most when they think they know the best out of it as such and they keep on kind of overbetting on that or overallocating their money, time on to it as such. So one has to be kind of not necessarily balanced, but necessarily be aware of where they are in their journey of life, how much risk that they can take, what is the range of risk that they can take; and accordingly kind of invest rather it be just equity markets or any other asset classes that one may kind of see. So that is a prudent way of really living life well as well as not taking undue risks, at the same time participating wholeheartedly as such.

Radhakrishnan Chonat: True. Now Sumit, you have experience in tracking multiple sectors as an analyst, also as a fund manager, right? Now what sectors or industries do you find particularly promising as well as challenging in the current market landscape?

Sumit Poddar: Fantastic question and definitely as a fund manager, we keep on kind of pondering on this question every day and night as such. So, let me again further go back to the opportunities that we really have and of course India as a subject keeps on coming up again and again. So as a strategy and, as I mentioned, that our small case portfolio is also based on this particular themes of India that we talked about. So, India is in actually a very sweet spot. We all have realized during last six to eight years that the potential that India has is multifold. It’s not just that India is one of the countries or third world countries as developed world has been kind of maybe educating us on that or maybe communicating us on that, right? So, India definitely has huge potentials. Post COVID, we have actually been extremely anti-fragile where whatever situations have come, actually have become an advantage to us. 

I mean take the case of COVID, rather our vaccine is one of the most successful vaccines. Similarly the whole population, almost the whole population is kind of vaccinated maybe once, twice, or something like that or majority of the population, let me put it that way, and they carry this certificate to really — digital certificate to show that yes, we are vaccinated. Similarly, during war we again were extremely — the situation actually became a bit of anti-fragile for us where ideally we should have got hit the most, but rather the situation created an opportunity for us to buy crude at a cheaper rate. So, again we could kind of leap through the problems of inflation. The third coming up is of course the inflation thing, which where the global or the developed world actually saw almost 30, 40-year highs kind of inflation. Whereas in case of India, it was just 10 years back we have seen similar kind of inflation and I’m sure we all built in a 10% kind of inflation in our budgeting processes.

So, what we believe is definitely India is in an extremely sweet spot. We have huge opportunities in place, right? And the six themes that we have talked about on our website as well as on building our portfolio are largely kind of intact and they are kind of been attractive for almost a couple of decades or for whole of the Amrit Kaal that we are likely to see. Look at the demographic change, the urbanization that is driving things and climate change which again is an important aspect. Digitization and innovation as well as globalization is what is driving the whole thing in place, right? So, in terms of themes that we are seeing, which is what will be supported by the sectors that we are talking about. Let me just talk about of course first is manufacturing, which also is coupled with globalization where PLI schemes are benefiting companies. 

Also what is another analogy that I generally talk about is see what used to happen is we leapfrogged directly from agriculture to services given opportunities in IT services, to some extent in pharma where we’re talking about CD perhaps. CDM of course is manufacturing, but some bit of services as well; and that is what even banking and financial services. So, we leapfrogged toward services and now manufacturing is becoming a large theme going forward. So we can call it manufacturing in addition to that manufacturing or import substitution, China plus one, supply chain optimization, or globalization. Of course that’s a big theme that is really playing going forward as such. Clean energy whether it be in terms of solar, wind, or even nuclear that is likely to come up. Because I think the kind of power that may be required going forward with EV coming into the picture as well as the tech that is in place like AIML, we would need huge amount of power to really feed in that kind of quantitative power that is required going forward. 

So nuclear in my view is likely to come back, electric vehicle which again is helping on the decarbonization side, clean energy is a very large theme that we are kind of tagging on in addition to manufacturing, defense or globalization that we talked about, formalization is adding to a change in our economy. And while the first leg of formalization we talked about is in terms of GST numbers going up, but another formalization is also things like SME listing, right? Because once the records are getting straight, digitization is taking place in terms of collection of money and things like that, these smaller companies are getting huge businesses and similarly they are also getting confidence to get listed on such exchanges. So, that is further adding to the economy in terms of formalization. These are the major themes. Of course consumerism and technology boom itself is another theme that is likely to add up as such. 

But with these underlying currents, what is another thing that is happening is there are shifts between the sectors itself. So, just to give you an example without taking it as a recommendation. Let’s take the example of banking itself, it offers — private banking itself, right? It offers huge opportunity in terms of formalization itself is going to add to credit growth, GDP growth itself is going to add to credit growth, use of technology is going to add to more penetration as far as the country is concerned, right? So within that if we look, take the case of ICICI Bank versus HDFC Bank, right? So, technology is actually creating huge differentiators. The adoption of technology by ICICI Bank is far different than what HDFC Bank is following. And incrementally like for example companies which are able to identify technology trends much earlier, able to identify and really implement in their sectors, are going to be winners and which is what within sector itself, there are going to be kind of a divergence. 

So while I may say I like banking sector and to some extent I may like X bank versus Y bank, ultimately I need to understand what kind of thought they have on their technology strategy. And on top of technology strategy, it’s also about whether they are able to retain people who can really execute such strategy per se, which is what is going to be the differentiator. So while I took an example of ICICI Bank versus HDFC Bank, it may be applicable let’s say in consumer goods as well, right? So, similarly it would be applicable even for a food company, right? D2C brands are coming like anything. So similarly, auto definitely is getting disrupted by technology in terms of acceptance of technology. So right from top to bottom how technology is kind of being accepted, inherited or not necessarily inherited, but the kind of intimacy that is being created between the technology and the company is going to determine the success of that particular company within the sector. 

So, one may need to really go deeper in each of the sectors as such. So these are the broad six themes and within those six themes again, we go deeper to create differentiation of companies as such. But yes, the strong undercurrents are definitely helping the manufacturing side or the defense side a lot no doubt. And maybe while we have been away from the public sectors given the fact that in the past they have not been able to deliver the way it was expected, but at the same time maybe technology is creating differentiation there, right? I mean of course you might have used YONO app, which is far better than many of the private banks apps, right? Nobody knows of course and the valuations out there are quite comfortable. So yes, maybe they could be the outperformers in the upcoming next two to three years per se.

Radhakrishnan Chonat: Very true. Very hard to predict also. So, do you see these current geopolitical tensions or conflicts as you say it’s only escalating, right? So, how do you navigate these uncertainties and what is your outlook on the geopolitical shift? And with general elections in India coming up, so are you seeing market being volatile or are you seeing this as a temporary blip?

Sumit Poddar: So yes, I mean of course any kind of geopolitical situations are something where — shouldn’t happen as such, right? I mean we as humans should really care about each other and that’s where the human race can really thrive. Of course with start of Russia-Ukraine, we have already seen that such situation actually became a bit of anti-fragile for us and we could benefit out of that situation. Now this situation while as India, we don’t have much economic business with it or if at all it is, then it is quite low single-digit kind of an exposure with a couple of sectors with global sectors in place. But what is I wouldn’t say worrying, but one needs to watch is how it is further kind of instigating other geopolitical issues needs to be watched per se, right? And incrementally also what is happening is such geopolitical situations are also telling another story where the influence of powerful countries over such geopolitical issues is actually declining. 

Like for example Europeans, if they are trying to influence to stop or things like that, things are really not either stopping or they are not going the way this developed world is really trying to put things into matter. Where even for Israel-Palestine issue or Gaza-Israel issue, any kind of commentary from developed world is really not influencing those guys. So that’s weakening of power as such and which is where given the fact that developed world’s balance sheets are not really great, I wouldn’t say it would be a risk. But at the same time this needs to be watched that it really doesn’t overflow into something large. Where we are placed as India, of course there is no direct business exposure. Secondly, possibly it is an opportunity as I mentioned that developed world — the power of developed world is getting weakened. We have already demonstrated on the global platform that given the current commentary given by our External Affairs Minister, we all have kind of gained the confidence to stand on the global platform and talk about our position. Maybe this is another opportunity to add to that. 

Lastly, on the geopolitical side, see, while this may be a very kind of unknown, unknown kind of stuff; hopefully this shouldn’t flow down to technological wars because incrementally businesses just like during COVID or maybe post-COVID, supply chains got disrupted. They shouldn’t get down to maybe technological or Internet kind of I mean somewhat disrupting the technological connections that we have because businesses have started getting dependent on technology. Are you getting my point what I’m trying to say? Some virus or destabilization of logical — cyber warfare or destabilization of the technology infrastructure, I hope it never happens. But the dependency has gone up and which is why maybe if risk mitigation strategies are already in place, that’s well and good by the organizations. But that is one thing that maybe the countries that are involved now are very sharp in such maybe warfare or capabilities as such.

Radhakrishnan Chonat: True. So the other day my friend was asking imagine you’re without Internet for one month, none of your UPI apps work, you don’t have cash, ATMs don’t work; how are you going to survive?

Sumit Poddar: Correct. Yeah, that’s the situation that God forbid never happens, but that is a risk which if we are aware, then definitely it can be taken care as such. So yes, geopolitical issues, maybe inflation cropping up again while we have got used to it as well as we know how we can really manage it. Short-term interest rates going up in US again could be something that needs to be on watch because such repercussions one really doesn’t know what kind of impact it can have because it’s really short-term interest rate, right? And any kind of ALM mismatch by any of the industry — I mean we saw during the SBM bank, which was there, got impacted, right? So those inefficiencies or inefficient way of handling things really crop up when small kind of volatility is in place. So, hope nothing really crops up on that side. 

In terms of medium to long term, I think yes, in terms of risk. We have recently written one article which has featured in Economic Times which talks about what are the short-term and medium to long-term risks as far as Nifty going from 20,000 to 50,000 is concerned, right? So within that what we have spoken is of course the short term we spoke about. More so on the medium to long-term risks that we need to be aware and put risk management in place is of course greed and fear taking over because most of the booms and bust don’t really happen just because of overinvestment, but it is also about kind of greed and fear taking over it as such or greed taking over and those seeds are kind of sown during that greed as such. So greed could be not necessarily buying more stock, it could be like over-guidance by the companies. Mutual fund or maybe large institutional investors keep on buying the same stock while they know that this is overvalued as such just to ensure that it doesn’t fall further. 

Bankers kind of selling overvalued deals, managements really asking for more that one banker is saying this kind of valuation, another banker is saying this; I mean selling down their stake just for the purpose of enjoying wealth and not putting it to productive purpose. So, those are the examples of greed. Similarly kind of we talked about rapid technological changes per se, which can of course impact the employability going forward. The kind of things that AI or ChatGPT is able to do is mind blowing. Or rather when I go back and just think of what I’ve done in 20 years and if I want to just summarize what I’ve done and then I put it in maybe use by using Chat GPT, I would rather say oh, whatever I learned in 20 years is available maybe in one, two, three, four days as such, right? Everything is there as such. So, that’s the thing that is happening with technology. 

And last, but not the least, of course these elections. While we all know that there is a huge majority, but what happens is with the political compulsions if one party starts overpromising and the other party has to because of the political compulsions further promise X plus one. X itself was kind of unreachable promise, now you promise X plus one. The other party promises X plus two, X plus three. Or maybe 2x, 3x, 4x, 5x. Ultimately it will go out from the government coffers, right? And that shouldn’t happen. That shouldn’t really happen and that will be the real big problem because if we look at — see why we are doing well post COVID is because of our fiscal programs, right? The state finances are well in place primarily because of that reason. We should not geopolitize that and it might happen. I mean it has happened in developed world as well. 

I think the other day I was listening to Singaporean Prime Minister who talked about. It happened in Australia that they had their sovereign fund and one party promised X, the other party promised double of that, and ultimately that sovereign fund really went dry. Ideally that was for retirement of government employees also. So, I mean I hope this doesn’t happen. And possibly there is this request to everybody who don’t vote, who happen to be majority, who happen to be worried about this country’s future. I would rather say them to go and vote and please use your rights to elect the right government be it in majority. I’m not talking about any party, but what I mean to say is exercise your right, exercise what is correct for you, your portfolio, your country, your children, please go for it. Our country goes into mismanagement because we leave this part of our life really open, right? So just like not taking risk is the biggest risk. Maybe this is one of the biggest risks that we are taking by not voting. So, that’s something that I would really say as far as the current state of affairs. 

Yes, I wouldn’t say valuations are too high. Maybe what happens is we look at the past returns and then we try to see that the valuations are extremely high. Yes, growth is moderating. That may become a reason to returns being kind of moderated. But then next two quarters is where this consolidation of earnings is likely to take place. I think that will give a good chance for us to maybe have a relook on our portfolio and rebuild our portfolio well because there are huge opportunities. I mean maybe if not with the large caps, midcaps, small caps, and even SME companies that are getting listed. While SME is really not the word to go for many as such, for many it is really creating huge wealth. But there are interesting opportunities, I think one should not really ignore. Be aware, assess the potential and assess your risk taking capability. I think all three things — a combination of all three things really can create huge wealth for yourself. And if we are kind of recommending it to our clients, of course it will kind of create huge wealth for them as well.

Radhakrishnan Chonat: Well summarized, Sumit. Finally, Sumit, what advice would you be offering? Would you suggest to budding investors or financial professionals who aspire to invest and build wealth and are there any recommended books?

Sumit Poddar: Sure. Of course it starts with the books and, as I mentioned, even I got influenced by a book and which is what helped me to walk on this journey of investing, which is where I built my career or rather I have given my whole career towards it or my whole efforts, thoughts towards it. See, if someone is not from finance background, they definitely need to start with books like Rich Dad Poor Dad by Robert Kiyosaki, which is where they will really understand how — what the balance sheet, profit and loss, and things like that are as such. Similarly of course Intelligent Investor is something that is likely to add to it. One Up on Wall Street is another fantastic book where you really learn to look things around and then invest as such. Another book by Howard Marks has really influenced me a lot, Mastering the Market Cycles, because he brings in an interesting point about how each and every cycles are different. It could be revenue cycle, it could be profit cycle, it could be the sector cycle. All of it really adds up to different phases in the particular market as such. So, that has been quite fantastic book that has helped me.

Radhakrishnan Chonat: Finally, my last question. This is something that I normally ask all my guests. What would be one advice that you would give the young aspiring finance professional or investors who are looking to build wealth and a set of book recommendations that will be beneficial for them?

Sumit Poddar: Sure. Fantastic RC. I think this is the most value-adding part for any listener of this podcast, no doubt. I mean if I go back to my own career, rather it started with a book Intelligent Investor by Benjamin Graham, which is where value investing was being taught. But then I’ll also recommend for non-financial people or rather if you are young, you would rather start with a book called Rich Dad Poor Dad by Robert Kiyosaki. I mean this is where basically the importance of wealth would come into picture. Or rather I’m thinking of asking my daughter, who is just an eight-year old, to read this particular book which is where she could get perspective of Rich Dad Poor Dad per se. Further, One Up On Wall Street is another fantastic book where scuttlebutting is talked about. Once you become an intermediate investor, I think books like Mastering the Market Cycle is an important one by Howard Marks. Psychology of Money is another timeless lesson on wealth, greed, and happiness by Morgan Housle. And if you want to be an extremely advanced person if you are part of the financial markets as an analyst, I think Damodaran’s book on Valuation is further quite enriching as such. 

Well, another point that I really kind of want to share out here is see in past like for you and me and maybe at that point in time, books used to be the most useful wisdom tool. But incrementally I think as I mentioned about our Tikona kind of framework where it is about knowledge, network, and conviction. I think for a kind of budding young investor or financial professional, I think they really need to work on this thought process where it’s not just about knowledge, they also need to build good amount of network. It’s easy or maybe it’s not as difficult as it used to be in the past. You can definitely use LinkedIn, Twitter to influence as well as to get influenced. You need to really filter out the right kind of people as such. Get conviction by starting with trading. Do your mistakes, small mistakes of course. I mean even the biggest of the investor still trades. right?

Radhakrishnan Chonat: Correct.

Sumit Poddar: So what happens is with trading, you are in the game as such, but don’t make trading as your earning goal as such, right? So, the whole idea of doing trading is to ensure that your senses are working. You can really do right kind of risk management, you can identify opportunities, and further the whole wealth actually will be made by three things. First is saving and investing, second is by ensuring that you put your thesis well in your place, and third is backing that thesis with your conviction. Conviction may not necessarily be investing more. Conviction is in terms of tracking that company well, looking at that company well, doubling down even if the stock has kind of gone up by 200%, 300%, and similarly coming out if it is down by 30% or so. So, that’s where the conviction part really comes on. Do practice on this particular part. 

And in terms of resources, I think these days it’s not just about books. You need to really follow YouTube videos. CFS Society has a fantastic channel where really wise people, industry people come and talk about how to analyse, what kind of strategies are in place, what are the kind of different asset classes coming in. Similarly, there are many other YouTube channels and of course Alpha Street itself is really helping many investors. Tikona Capital has a YouTube channel where you can access some content where we are. Of course this podcast itself is going to be on that YouTube channel and such resources are there in place. Same way follow Twitter and good investors are there, good wisdom givers are there. 

And lastly, investing tools, of course many tools are available these days. You need to be on top of it as a finance professional. When we started, it was about Bloomberg, maybe Capitaline, or Ace Equity to some extent. These days or in the last two years rather, I have set up most of my processes without having Bloomberg in place. And with AI, I think the knowledge part which I talked about in knowledge, network, and conviction; I think knowledge or information is easily available. Analysis is actually getting democratized now or commoditized now. It’s all about — the differentiation is going to be about the conviction that you have, the action that you are going to take. Your wealth is actually going to get created by the conviction, but conviction won’t come if you don’t have knowledge and network in place as such. 

So I think for one to be really successful whether it be investors, a finance professional, or an advisor, or anyone related to investing research; I think all three aspects of the framework needs to be in place. Gain knowledge using investing tools or technological tools that are in place. Have analytics of that in place by using network, using tools again out there, and build your conviction and conviction is going to come only by practice and there is no other way. I mean last 20 years we have or rather I have been trying to crack a shortcut to it and the only conclusion I could come is you can do it only by practice. You may know it, but still if you haven’t practiced it, you won’t get conviction. You may know it, you haven’t checked it, analyzed it, or maybe with your network; it may still not necessarily work completely. Conviction comes only by practice. You keep on practice, practice, practice. And that’s where you would really come out as a successful investor or a wealthy investor or a wealthy analyst, wealthy fund managers or a successful fund manager. That’s what I would really summarize.

Radhakrishnan Chonat: Wonderful, Sumit. It’s been an absolute pleasure picking your brain in the last 1 hour. Thank you once again for joining our Fund Manager Series and I look forward to more such interactions in the future. 

Sumit Poddar: Fantastic RC. I mean thanks a lot for giving your time as well. Thanks a lot to the Alpha Street team who is making this possible. And wish us all the best in this investing journey and hope for the best. Great. Thank you so much.

Radhakrishnan Chonat: Thank you.