Interview with Deepak Ramaraju, Sr. Fund Manager, Shriram Asset Management

Radhakrishnan Chonat: Good day, ladies and gentlemen. Today we are back with our Fund Manager Insights Series and I’m privileged to welcome Mr. Deepak Ramaraju, distinguished Senior Fund Manager at Shriram Asset Management Company, who has a brief background spanning over two decades with a foundation in chemical engineering and a remarkable journey from pioneering research at GE India Technology Center to advising global equity strategies at Sanlam Group of South Africa. Mr. Ramaraju brings a very unconventional as well as an unparalleled expertise to the world of finance.

So Mr. Deepak, welcome to AlphaStreet’s Fund Manager Insight Series.

Deepak Ramaraju: Thank you. Thank you very much. Thank you for having me on your show.

Radhakrishnan Chonat: Excellent. Deepak, let’s start off with your interesting personal journey. Your career path showcases a transition from technical research at GE to advising on global equity at Sanlam, now to a fund manager. Please walk us through your journey. And how did this journey shape your approach to fund management itself?

Deepak Ramaraju: Okay, so I passed out in ‘99 as a chemical engineer. So after that I joined AstraZeneca Pharma as a production executive. So my first job was into pharmaceuticals, into production of ultras [Phonetic] or APIs, and after that, the stint was for a small duration. And then I moved into Millipore, which is into manufacturing of filters. So I was hired there as a design engineer to design filters for different applications. But over a period of time, I became an application specialist, handling sales in the entire south region, basically South India.

Then after that, some of the interesting thing that I could achieve in Millipore was more to do with developing filters for different applications, whether it’s for paints or kind of reverse osmosis plants, power plants. So I had a diverse experience, right from auto industries to exposure to the auto industries, to the paint industries, chemicals, then industrial segment as a whole from there.

So from there onwards I moved into GE as a research engineer. So I was there for five years in research with General Electric in the Plastic division. So my entire research was on the plastic side, was working on kind of developing polyester processes, different — making different polyesters in a plant — in a lab scale and then scaling it up to the plant level and working — troubleshooting at the plant level, improving the process, trying to cut on cost of production and then try to work on new polymers. So during this course of five years, I have 10 patents as a co-inventor in GE. So it’s all like developing new polyesters and developing new process of making different polyesters at that point of time.

And this was in — from 2001 to 2006. In 2006, I met two Australian promoters who were setting up an equity research company in Bangalore. So they were more looking at somebody who was working in mining or chemical space, who could understand mining industries or for that matter, the metal industries to a large extent. So I came with kind of my chemical engineering background, so which they liked at that point of time. And then so happened that I became part of the team over a period of time.

So I didn’t know anything about finance at that point of time. So I had to go back to my B.Com books or to start up from the B.Com to understand how the cost work works, cash flows work at that point of time, try to learn how to build a balance sheet. So I started my journey in my financial services as that.

So, started initially as a metal and mining analyst, so looking at the mining sector in Australia, which is one of the largest sector in Australia for that matter. So 2006 and 2007 was an interesting journey for me. And that’s when I learned financial modeling and building models on the mining companies. Then also look at other sectors like your paints or chemical industries, or for that matter, to a certain extent, on oil and gas space. Understand how the reserves are, the difference between a metal company and an oil and gas reserves, how the — the basic difference between these two sectors, how they work, how the [Indecipherable] works in a kind of oil company, whereas in case of the mining company, how the mining works, the underground mining works, what are the risk involved in that. So, got a bit depth understanding of all these sectors.

Then over a period of time, it so happened this company, which was running a small-cap fund in Australia, they could not sustain the Global Financial Crisis at that point of time. So they got kind of taken over by Sanlam Group of South Africa. This was in 2008, during the Global Financial Crisis. So initially, I continued to work on the Australian companies, but over a period of time, Sanlam wanted to expand the equity research capability of this team. So I had become the Head of Research by then for this Australian company. So it so happened, I continued my journey as Head of Research.

So I expanded the team and supported the fund managers in Sanlam across the globe. So we started covering the most liquid market, like the Asia Pacific to the U.S., to the most illiquid market of sub-Saharan Africa also. So we looked at the most liquid and the most illiquid markets and had a team of analysts supporting different fund managers, so as to be a central point of contact for all the fund managers, coordinating with the team, kind of analyzing the research and different styles of fund management basically. Some were like thematic fund managers, we had pure value fund managers, worked with few kind of composite fund managers who were like value and growth kind of combination.

So worked with different geographies and different kind of diverse experience at that point of time, and learned different styles of modeling and kind of valuating different types of companies across — because each country has got its own kind of risk premium, kind of the risk are totally different. And analyzing the companies, having their own country-specific risk, the economic risk, or for that matter, their own kind of financial risk, the management risk. But the kind of psychology or the diverse background, the cultures these guys bring to the table as a management will vary from country to country. The psychology or the kind of management qualities will vary from country to country.

So get an understanding of all these things as a broader perspective. So got a bit deeper into kind of human psychology to a certain extent at that point of time. So, over a period of time, Sanlam also had started a tie-up with SMC Stockbroking at that point of time. In 2010, they had started a kind of AMC business. In 2010, they wanted to set up an AMC business, but that could not continue for long because the marriage did not go well with them at that point of time.

So then meanwhile, they had started a seed fund of $10 million, which another fund manager was advising at that point of time on an advisory basis. So in 2013, that fund came to me on an advisory role. So I started advising that fund. So that’s where my journey as a fund manager began in 2013.

So from 2008 to 2013, I supported the entire fund management community of Sanlam fund managers as an analyst or as a head of research, then started advising the India-specific fund which Sanlam had started in 2013 — 2010. In fact, started as 2013, was seeded in 2010. So it was on $13.2 million, took it up to $42 million over a span of four and a half years, won the best fund manager award in 2016 for the Raging Bull Awards within South Africa for the Far East community, and kind of delivered more than 12% CAGR in the longer term, in the dollar terms, basically, for this part, and could beat the NSE-BSE 500 benchmark consistently there over a period of time.

And then eventually, in 2019, I moved to Shriram Life Insurance because Sanlam is one of the major shareholder in Shriram Group. So Sanlam had invested in 2008 in Shriram Group to set up the life insurance and general insurance at that point of time. So I was part of the Shriram journey as well, along with Sanlam.

So eventually, I was moved to Shriram Life Insurance as the Interim CIO. So I headed the insurance business there on an interim basis. So it was almost a INR5,000 crore of AUM at that point of time, predominantly in debt and with little bit exposure into equity. So that’s where my exposure to factor investing started with Shriram. That’s where we started working on alpha, quality, [Indecipherable] of factor models at that point of time.

So from there onwards, the journey continued on the factor side to a large extent. Then post-COVID to 2020, I continued to be part of Shriram Life and then I was heading the equities part of that. And then we got a new CIO because it was more of an Interim CIO role at that point of time. So — but then I continued to head the equity division in Shriram. And then over a period of time, I moved into Way2Wealth because post-COVID, Shriram acquired Way2Wealth as a business unit.

So that’s where we started reworking on the entire PMS strategy there. So that’s where I started a new fund in the PMS called the Dominion Fund. So that was one of the fund which I started in Way2Wealth. And recently we got a new shareholder in Shriram AMC. So that’s when I was moved to AMC. So it’s kind of wherever the changes happened, I moved in the Shriram Group along with the changes, so I would be part of the change. So change has always been a constant for me, right from the Australian company to Sanlam, Sanlam to Shriram Life, from there to Way2Wealth, from there to the AMC now.

So the current journey right now is in the AMC. It’s very, very exciting for me right now because going through major changes in my life as a fund manager, more responsibility, more opportunity for growth, kind of very interesting period for me. So this has been my journey.

Radhakrishnan Chonat: Excellent, excellent. Change has always been a constant for you. What a way to put it.

Deepak Ramaraju: Yeah.

Radhakrishnan Chonat:  On a related note, now as a Senior Fund Manager, how do you navigate this dynamic landscape of mutual funds? You’re talking to retail investors, the whole — from institutional, the shift has happened, especially in terms of balancing risk and return for investors. What’s sort of the framework that you have?

Deepak Ramaraju: So currently, what we did is initially, when I came into the AMC, when I studied what my peers are doing, so first important thing what I got, the lesson was, primary is to beat the benchmark and deliver alpha, first thing. That’s the primary, most basic thing, what the investors expect us from managing the money for them. So if we are not beating the benchmark, we are not doing the justice to them also. So that was the primary thing that — understanding that I got.

So what strategies work? So my learning in the factor models continued here because the new shareholders on the Shriram AMC — because we got new shareholding happening in 2022. Even I became part of Shriram journey in 2022,  it’s August 2022. So from there on, it took me six months to develop factor models here, developed a quantamental framework. So quantamental is nothing but your quant plus fundamental. Typically, the fund management style is to look at fundamental analysis like the top-down or bottom-up, pure bottom-up from a value perspective or from a growth perspective or from a GARP. Basically, if I want to tell growth, it’s growth at a reasonable price, the GARP as a style. So these are the typical styles from the fundamental point of view.

But here we are utilizing a factor model cum fundamental analysis. We call it as the quantamental. So the quants plus fundamental at play. Now, why we implemented this because post the interest rate hike, we have seen the volatility increasing in the markets. The liquidity is getting dried up. So it’s kind of the liquidity, when I tell dried up, in the sense it’s the institutional liquidity to a large extent, but the domestic India – there’s domestic factors, the liquidity is still very intact. We are seeing the SIP flows very strong, the flows are consistently increasing.

So when I tell liquidity, it’s a broader liquidity at the global market levels, the availability of free cash to be deployed into the equity markets. When interest rates are higher, so people are trying to lock in their interest rates in the debt funds to a large extent. The debt funds get a priority when interest rates are higher. So those gets the higher priority. And also the risk also increases at that point of time. To avoid the risk, people will also be very careful when interest rates are high.

So we looked at the quantamental approach, really helped us because that’s when we developed the entire quantamental framework. So we looked at the different styles of factor models. It might be your quality, growth, low volatility, alpha, momentum. So we boiled down to three different factors. We found that multifactor models really help in navigating through the volatility to a large extent. And we saw that momentum, volatility and value as a three factor basis was playing out in the current environment much better than other factors.

So we started working on that, did the complete back testing. When I tell back testing, it’s not that today I run the model and then look at its past performance, how it has really — that’s not the typical way we would run the quantamental models on the back testing basis. You go back to those days, what were the index composition, you run the factor models on that, and subsequently, the next period of rebalancing, you check the performance.

So it’s like one month. So we started rebalancing every month. We found that monthly rebalancing was much better than a quarterly or half year rebalancing. So for every month when we start rebalancing, we do look at the one-month forward performance of the strategy. So how it performs is subsequent. That’s how we tested the back testing performance.

So if we run the quantum factor models today at the end of the month, so I’m looking at three factors: momentum, volatility and value. So when I run these factors at the end of the month, so whatever the stock recommended by the model, I’ll hold it for the next subsequent month. So what the performance delivers by this model is what I take into my account. So that’s how we back-tested that and we found that this strategy really outperformed the broader markets. It helped us to kind of beat the benchmark consistently.

One, it had got a hit rate of almost 65-35, 65% of the time it outperformed the markets when I’m looking at month-on-month basis, so 65% of the time. And we back-tested it from 2005 onwards. So 2005 onwards till current period, we continue to run the models. So we’ve been seeing kind of 65% of hit rate, month-on-month, kind of positive alpha delivered by the strategy and more importantly, in a kind of crisis, when the volatility is relatively less. I’m not talking of too volatile. It’s not like one day the markets are gaining, one day it’s falling. It’s not about that kind of volatility.

When you have a trending market, either it’s a falling market or a gaining market consistently, when you are seeing a trending market, you tend to outperform the benchmarks. Whether it’s in a falling market or a rising market, you tend to beat the benchmark, but in a kind of volatile phase, when one day you are having a rise in the market, the other day there’s a correction. So neither the markets are landing anywhere, but it’s in a range. So currently we are in that phase.

So in this phase, you generally tend to underperform if you just back only on the models. So that’s where the pure quants normally fails in certain point of times. So to avoid these pitfalls, we looked at both quant and as well as fundamental and normally the rule based — anything that happens during the course of the month, you cannot wait for the end of the month for the correction to happen in your portfolio, you’ll have to take action immediately. So that’s a fundamental call that comes in between. So that’s where we looked at the quantamental approach, where you have both quant and as well as fundamental playing out.

And when you have this both approach, what we have seen is, this has helped to navigate the markets consistently in a better way, deliver better returns than even the quant models at point of times. And we’re able to even beat the models as well and as well as the market and also able to navigate through the competition and beat the peers as well to a large extent. So we started implementing these models from the month of May onwards. So we saw these models were developed. My Board was not ready to implement it in all the funds immediately. So we took baby steps initially. We took step by step to understand how these models behave.

And then over a period of time, from September 1 onwards, we were completely implementing almost 80% into quantamental approach. So — and once we started doing that, what we saw is we started — the performance started turning around. Shriram Mutual Fund performance was in Q4 all the while earlier, so which — we were in the bottom of the ranking. We came up in the ranking to the first quartile. So we moved up to the Top 5 or the Top 10 within the Top 10 positions across all the funds that we manage and we sustained that.

Now the current volatility is there and we know that it’s a short lived volatility that’s there in the market. So it’s the correction which is in a typical bull market. It’s the type of profit taking happening in a typical bull market. So we know that it’s a short-term trend, so we’re not tweaking the portfolio much. We continue to hold our strategy so there’s no change in our strategy. So we continue to believe in our strategy and it’s going to deliver returns in the longer run. So we know that this strategy is what we have implemented in the AMC currently.

Radhakrishnan Chonat: Interesting, interesting. Shriram Asset Management offers a diverse range of funds. You manage close to 10, 11 funds from aggressive hybrid, overnight and all that. The investment strategy you mentioned, the quantamental as well as GARP, are these across all these funds or are there tailor-made investment strategies to suit the objectives of each specific fund? And give us an overview of the funds that you manage.

Deepak Ramaraju: Okay, so there are five equity-oriented funds and one pure debt fund. So pure debt fund is the overnight fund that we are managing. And within the five equity funds, we have three hybrid funds and the two of them pure equity funds. So the three hybrid funds are your balance advantage, aggressive hybrid and multi-asset allocation. When it comes to the pure equity funds, we have the Flexi Cap Fund and as well as the taxable — ELSS taxable fund. So these are the five funds that we manage.

We have the same investment process across all the funds. It’s a quantamental approach. As a fund house, it’s our strategy, it’s our investment philosophy. As a fund house, we implement quantamental across all the funds. The only difference is my benchmark of different funds are different. Now for a balance advantage fund, I don’t have to add mid-cap or small-cap. I only look at the Top 100 companies, build entire quantamental on the Top 100 companies. So in case of hybrid, my benchmark is BSE 200. So I look at only the Top 200 companies, build a quantamental framework around the 200 companies.

So within the universe, I run my strategy, pick the stocks within the universe and try to play. So normally, if anything, I have to go out of the universe, I’ll have to rely on conviction from the fundamental side. We should have done our own homework completely. Once we are convinced on that the stock is good to be added to the portfolio, we are not going to add it until and unless that conviction is built in. So that’s purely from the fundamental side.

And sometimes we do add some of the heavyweights on the index, if required, to balance out the risk and to mitigate the risk and try to reduce the drawdown from alpha perspective, to deliver sustainable alpha. This is what we do as an investment strategy and that’s how we manage the funds across the category, basically.

Radhakrishnan Chonat: Interesting. Just to shift gears a little bit, you mentioned about the recent volatility, the current economic climate, and as you rightly said, it’s not a bear market as such. In any bull market, this happens. So what are some sort of — if I were to ask you or nitpick, what are sort of some of the broader trends or sectors that you find particularly promising for investing purposes? And how are you positioning your funds around these opportunities to capitalize on them?

Deepak Ramaraju: Okay, so now we need to understand what the government reforms are, where the government is or the country is heading towards, so to answer this. The reason is this government is very clear. They want to cut down on the imports to a large extent. We are talking of cut down in the crude oil. You want to cut down on the defense imports that we used to do earlier. Now the self-reliance is what has to — is the emphasis this government is focused on. And second thing is to boost the self-reliance and the ease of doing business is a very critical aspect.

There comes your infrastructure development, your manufacturing push, the PLI schemes. These are some of the things which the government has brought in the reforms. That is what has been driving the growth for the country. And we have seen the capex cycle is only driven by — mostly from the government side. The private capex has not really picked up to the extent it was really expected.

So now where is the government really investing the money? So if you look at the reforms, the GST was a very classical, beautiful reform the government brought in because that’s feeding money to the government on a sustainable basis. So one, from using this money, they’re able to invest on the infrastructure development, whether you are talking of railways, ports, airports, the road connectivity, everything is getting built up.

Now we are talking of bullet train between Ahmedabad and Mumbai. So if I’m not wrong, the government is also wishing to do something like creating a [Indecipherable] connecting it through the bullet trains, so all the metros, the major metro, connect it through the bullet trains so that your transportation time is reduced to a large extent. Your railway network is going to be more reliant to a large extent. And it is also kind of cheaper for the broader masses to travel.

So that’s where the railway as a segment is going to be a major emphasis. And if you look at the creations of Vande Bharat and trying to improve the efficiencies of the trains, that’s going to be a major story for the India. If you look at the speed of Vande Bharat itself, if somebody has traveled in Vande Bharat, he’s not able to maintain the speed sustainably because the tracks are open. You have cow and the people crossing the tracks, and he can’t maintain the speed. It’s risky. Second thing is the tracks are also not capable enough taking the very high speeds. Our stations are not designed for that. Our signaling systems are not designed for that.

So we need to have that kind of infrastructure in place. So that means the entire railway network is going through a major transition. So that’s where the major investment is happening in the railway as a sector. So that’s where your stocks, which are related to railway stocks, have always been outperforming in the last few months.

Similar story we saw in defense playing out because our dependency on self-reliance on defense is what has been pushing our defense. The HALs of the world or the BELs of the world, they are like kind of seeing the new orders, which they were not seeing earlier. So they are getting — the order books are so intact and they’re seeing much more export-oriented orders coming in for these companies. Earlier, this was not possible.

So now we are exporting it to the Southeast Asian countries, or for that matter, Latin American countries. The orders are going out of India. The equipment — the defense equipment, the aircrafts, or for that matter, the artilleries and all those equipments are going out of from India. So that entire service is coming, that order books are coming to the defense companies. And this is going to increase with the increasing geopolitical factors. As the geopolitical factors increase, this is bound to increase. That means to say the decadal story is still intact in these two sectors, whether it’s railways or defense for that matter.

Similar thing, we are going through a major energy transition because if at all, we have to cut down on imports, especially crude is a major import commodity that we import as a country. So this government has always been pushing on reducing this import. So if you actually go back to 2019 and understand what they really did, they moved from BS IV to BS VI. That means to say BS V was totally eliminated. So that actually brought the brakes of the diesel engine production to a large extent. The diesel vehicles production came down to a large extent and the compliance standards increased for the company — auto manufacturers complied to that. That was one.

Second thing is, after the diesel engines was done, it was all about blending ethanol along with petrol. So that actually helped in curtailing the crude imports to a certain extent. One, the diesel imports were reduced. Second thing is, or the crude import was entirely reduced because the diesel consumption has been reducing. Similarly, the petrol consumption is also dropping because we are blending ethanol. Up to almost 25% of ethanol is blended in petrol now. So we are talking of that.

And then now the emphasis is more given on the green hydrogen. So what the government is trying to do is focus on development of green hydrogen. Green hydrogen is a very beautiful concept actually, because as a chemical engineer, I can vouch for that, because we are using solar or renewable energy to break [Phonetic] water into hydrogen and oxygen. So you’re not burning a fossil fuel to create this hydrogen as an energy storage capacity.

So this hydrogen is used as a standalone fuel. It might be your diesel generators at offices or buildings. They can use hydrogen cylinders to run the existing diesel generators with little bit modification to the existing diesel generators. Instead of buying diesel, they can use this hydrogen gas which can be stored in cylinders and transported. They can run the diesel generators as an alternative power source, one.

The diesel engines on the railway network can use the green hydrogen. People are talking of automotives running on green hydrogen, though it’s not completely safe for automotive, because if there’s a collision or an accident happening at automotive and a road accident happening, it can be very dangerous if we have hydrogen. So the safety aspect has to be a more stringent aspect for auto companies to comply with.

But rather than the green hydrogen, I would rely on the electric vehicles because government, which opened up the electric vehicle — so that is actually another beautiful concept, actually. So before I go to electric vehicle, let me complete on the green hydrogen.

So the green hydrogen part is going to be a beautiful story, and it’s going to be the next kind of energy transition phase for the country, though it is not going to replace the electric vehicles or any kind of the fossil fuels completely. So there is kind of inroads of this getting into the kind of the entire energy space. So the transition of energy, the dependence on the crude imports, will reduce drastically because of this.

Now, talking of electric vehicles, since diesel was reduced, petrol has been reduced, and the focus was given to electric vehicles. If you ask me, lithium is not the greenest of the energy — the batteries, to be frank. One, the safety aspect, we have seen the fire incidents happening with electric vehicles because lithium is very unstable. As an element, lithium is very unstable, so it can catch fire. So now how do I reduce the impact of that. And mining lithium and producing the pure quality lithium to make the batteries is not easy, it’s not cheap, and we don’t have a technology today to recycle the lithium batteries to a large extent, though, the technology is under development. But government was very clear they want to initiate the electric vehicle implementation in the country.

Side by side, we have been working on the sodium batteries as a replacement of the lithium batteries. Sodium as an element is much more stable compared to lithium, and more safer, more cheaper, and it doesn’t catch fire like lithium. It’s relatively safer. So that helps in kind of reducing the kind of dependency on the lithium mining to a large extent. We can reduce the mining cost of lithium. It becomes more cost effective to produce sodium batteries, and also it helps in kind of energy storage or the kind of safety of the electric vehicles to a large extent. So that’s something which is really positive for the electric vehicles as a whole, in case of using sodium batteries. So that’s another major theme that’s going to play out in the next decade.

And obviously, the digital revolution in the country is going to be the major emphasis for doing the business, so that means to say the digital lending or the digital fintech companies. These are some of the things that is going to play out. The conventional banking or the finance companies will have to change the way they do the business. It’s going to be more digital-oriented and they’ll have to focus on the digitization of their own processes, and that’s going to be the order of the day. It’s not going to be the conventional banking or the branch banking. That’s going to die out over a period of time. The UPIs of the world is going to take over the way the currency transaction is going to happen. So the transitions are going to happen.

So that’s going to be the next bigger thing of revolution in the financial sectors. And obviously, these are the push that I could talk about in next 5 years or 10 years, what the government is trying to do.

And obviously, the healthcare industry is going through a major revolution, the advent of new variants of drugs that are going to come out. Being an agrarian economy, the agriculture sector is going through a major revolution, especially when it comes to the utilization of fertilizers and the organic fertilizers for that matter, making the productivity of the soil more productive for that matter, and less dependency on the chemical-based fertilizers.

So some of these are the things that we can look out for as a sector that is still going to play out in the longer run. And the capex story is still going to be intact from the government side, and the government spending is what is going to drive the entire story behind all these sectors.

And I’m bullish on these sectors as of now. And clearly, my models are also suggesting that the momentum is currently going to play out in these names, and they’re relatively less volatile to a large extent. But yes, the valuations are a bit stretched in the shorter duration. It’s part of the bull market story. So we might see some kind of profit booking happening in these sectors, but this sector is going to play out in the longer run. There’s going to be still more story left in this space.

Radhakrishnan Chonat: Very, very insightful, Deepak. You mentioned that public capex has been strong and is expected to be strong, whereas private players are still kind of reluctant. I believe government’s expectation was we spend more and we expect the private players also to start, but that sort of seemed to be still in a limbo. Any thoughts as to why private capex has not picked up as yet?

Deepak Ramaraju: See, the thing is, the business has a kind of — it’s not really that sensitive — what do you call — I’m not very bullish on the private businesses to pick up so that I can just put up capex so easily. So any management putting up the business, they’ll be thinking twice, what is the incremental ROIC from those capex that is going to come out? So that has to justify the few capex — the new capex that is coming onstream. So until and unless you have visibility of growth coming in for the companies operating, the competition is increasing, so when you have significant competition coming in every space, so the private capex is going to go down.

So you can’t expect private capex to come in. So you need some kind of consolidation in the industry to happen first and then the private cycles — the capex cycle will continue to play out. So they go hand in hand. It’s not that this will happen first and next the capex will pick up or the consolidation will happen later and the capex will pick up first. They go hand in hand.

So the industries has to go through consolidation. Now the money is cheaper, is easily available, but the cost of money is quite high. The cost of capital is higher. So you need to look at, at what cost, what is the incremental ROIC the companies are going to make, return on investment — invested capital, what the incremental ROIC the companies are going to make. So that’s going to be a big challenge for the private players to justify new capex. Until and unless they have a visibility of the order books or kind of growth in front of them, you’re not going to see the private capex in a bigger way to come in, until and unless your cost of capital is going to come down significantly.

That’s — over a period of time, it’s going to come down. Only when your interest rates cost come down, your interest rates are in a positive territory and it’s going to support even up. That’s when this entire thing will work. If your real interest rates are negative, it’s not going to support any private capex. We are in a range, we just turned — real interest rates have turned positive and once the inflation is coming below the bond yields, that’s the real interest rate, when it’s been positive, that means that the inflation has to come down. That’s when the interest rates will — over a period of time, the lending rates or the government lending rates will start coming down. That will actually boost the private capex coming in. Until and unless that comes down, you’re not going to see the private capex player.

It’s all been driven by the government. And the last two years — as very clearly said that because of the inflation playing out, the government capex is what the country is dependent on.

Radhakrishnan Chonat: Interesting. Again, shifting gears a little bit, let’s talk geopolitics. Two of the biggest democracies, this is an election year, right? So two of the biggest democracies are going, I think by June, we’ll know — I mean India story is there playing out. Right? So the VIX has been very stable. So volatility index has not moved. Do you expect it to move even if there is a small change in expectations versus reality? And what sort of an outlook do you have for the global south as well as what’s playing out in the U.S.? Geopolitically, do you see opportunities or do you see risks this year?

Deepak Ramaraju: For India, I can talk about. But globally, yes, it’s a risk. The risk is building up incrementally. We are seeing more and more risk happening on the geopolitical front. We’re not seeing the risk mitigating anytime soon. In fact, the risk is increasing, especially after the Ukraine crisis. Now we saw the Red Sea crisis and the kind of Israeli crisis. I don’t discount the China Sea kind of crisis brewing up, especially with Chinese trying to dominate the China Sea or the South Indian Ocean region. So you’re going to see this crisis also playing out in the next couple of years probably.

But talking about India, yes, we are geared up for kind of increasing geopolitical risks. So kind of, we are getting ourselves self-reliant on our own defense kind of readiness. And I think India is in a better position compared to our own — the neighbors or for that matter from the defense preparedness. So that way, we are better off. I’m not seeing any major risk for the markets or investors coming in immediately because of this geopolitical factor until and unless India is neutral to most of these geopolitical factors. None of these factors had any kind of bearing on the markets in India. So we’ve not seen any impact of that playing out in Indian markets.

So I don’t see anything coming until and unless India is directly involved in the conflict, I don’t see anything happening on the global geopolitical factors.

Now, talking about elections, the markets are clearly discounted or factored in the BJP government to come back to power. Anything missing on the majority? Very unlikely. The probability is very less. The sentiments are clearly on the direction or the swing towards the BJP government. If it’s going to lead to a hung assembly, then yes, it can kind of distort the VIX or to a certain extent, can create some uncertainty in the markets. But eventually, the markets has to settle down because it’s all about the majority of the government, who has got the majority and how they’re going to drive the kind of relationship with other parties that they have come to power. It all belongs to that, actually.

So in my view, I don’t think it’s kind of any risk. Election is not a risk to a large extent to the Indian market. So — otherwise, if it was a risk, we would have seen the markets tanking much more than from the current levels. We wouldn’t have seen the markets, NIFTY, or for that matter, the mid-cap and small-caps trading at such high valuation.

Radhakrishnan Chonat: Great, excellent. Let’s talk about Deepak as a person. When you’re not doing analysis of companies, when you’re not going through annual reports or looking at the geopolitical risk coming up, what is it that you do? Let’s understand Deepak as a person when he’s off work. So what are your hobbies? What are your interests? How do you chill?

Deepak Ramaraju: So reading books, looking at some movies, these are my typical way of spending time to a large extent. So reading to a certain extent is more towards the technical aspect because still my chemical engineering – or for that matter, my engineering inquisitiveness is still going to drive me towards the science to a large extent, because I like science a bit more. So I tend to be more oriented towards science, new discoveries or new [Indecipherable]. So I like to be reading more about the technology aspect and I try to connect to that a bit more closely because that’s something which interests me a lot, actually.

And talking about personal hobbies, yes, listening to music and then bit of gardening and kind of helping the household work. That’s predominantly the work I generally like to do.

Radhakrishnan Chonat: Great. You mentioned, while talking about sectors, you mentioned about EV and green hydrogen. Sort of green hydrogen will replace the industrials and not so much in personal mobility. But you said within the EV space, Li-ion batteries currently, but you see them getting replaced with sodium. So are you waiting for that update to happen or have you already got yourself an EV? What are your sort of — if I were to ask, where do you see the EV industry five years down the line? Do you still see Tatas and Mahindras competing? Or companies like — BYD recently had a launch in India with the Blade technology and all that stuff. So where do you see the EV market playing out personally?

Deepak Ramaraju: EV market is here to grow. Definitely, here to grow. Lithium as a battery may not be the right technology. You might see sodium also coming in. People have started investing into sodium. Companies like Reliance, many of the other companies have actually started implementing working on the sodium batteries, and I think that’s going to be a reality. The commercialization is going to happen shortly.

So we are definitely waiting for that to happen, because from a safety point of view, for the electric vehicles to be more sustainable, especially in the hotter regions where the country is going to see close to 40 degrees or something, so the EV will not be very kind of — needs kind of stable batteries, for that matter. So that’s where the sodium batteries are going to be a major game changer to a certain extent, and as well, the replaceable batteries.

So like, if I’m driving in a highway, if I want quicker replacement of battery, I can change the battery pack. You get a tray kind of a thing, fix it to your chassis, you pull out the tray, put a new tray, and then continue your driving. It’s like refueling your kind of EV cars. And so that’s going to be the newer thing, the development, which companies are working on.

So I used to read a little bit of the BMWs and what they’re trying to work on, on the EV space and looking at Tesla, what they’re working on. Some of the R&D papers, I used to look at, what are the kind of technology they’re working on. These are some of the replaceable battery packs. You come with your old battery packs, you just replace it, get a new one, continue your drive.

So when you go to your other destination, if you want to change your batteries, you can always change it sometime nearby. So that is something that’s going to be the order of the day in electric vehicles. So that’s going to be the kind of way the EV industry is going to grow. And eventually, you will see the petrol and diesel vehicles coming off the production to a large extent. So the technology is improving. The motor design and the power generated by the EV vehicles are quite — the development work is working on that. People are working on those technologies. I think that technology is going to play out bit more.

So eventually, from a pollution point of view, there is a better way to control pollution from the automotive space at least. And renewable energy is going to be a major impetus by this government, actually. So that’s going to be a major sector that one needs to focus on, actually. So that’s going to be a major revolutionary change happening in the renewable energy.

So rooftop solar is going to be the common order of the day. And this government is going to make it compulsory for every rooftop to have solar on their houses. And every apartment complexes or the housing societies will be made mandatory to have rooftop solars to reduce the dependency on the fossil fuels. So the entire country is going through energy transition. So this is going to be the order of the day for the next 5 to 10 years.

Radhakrishnan Chonat: Excellent. Excellent insights. Deepak, before I let you leave this interesting conversation, I would urge you to give my listeners three book recommendations. Can be across — not just necessarily related to finance. If I were to ask you to pick three books that you would highly recommend anyone who’s interested in reading to read, what would those three be?

Deepak Ramaraju: Somebody who wants to understand the corporate story, evolution, I think the stories of Tatas, I think that’s a good book to read in. Something about The Intelligent Investor, obviously somebody who wants to start the journey in financial services. And I would recommend for investors who really want to be in the investment world to read about the letters from the Berkshire Hathaway, basically, letters from Warren Buffett. I think those gives lot of kind of insights about value investing, how they look at the businesses, grow and then kind of what they’re trying to communicate to the investors, why they continue to hold certain companies, what is the purpose of holding those companies. That gives lot of insights of analyzing companies.

And Psychology of Money, that is something which is very critical where every investors has to read about. It’s about how do you stay kind of rich or wealthy than creating wealth. You try to be wealthier than how the Microsoft Chairman or Warren Buffet kind of made wealth for themselves. So this is all about that. So The Psychology of Money, you need to understand psychology of money.

Radhakrishnan Chonat: Perfect, perfect. Excellent set of recommendations. Deepak, before I let you go, are you driving an EV or a petrol vehicle at this point?

Deepak Ramaraju: I’m still driving an old diesel vehicle. So I’m a bit sentimental about that. So I continue to drive my old Innova.

Radhakrishnan Chonat: You’re waiting for — as a chemical engineer, you’re waiting for the right technology to shape up.

Deepak Ramaraju: Yes, yes. The technology is yet under development. So I think that has to mature a bit more.

Radhakrishan Chonat: Perfect. Perfect. It was an absolute pleasure picking your brain, Deepak, and I would like to thank you for joining this Fund Manager Insights. I personally learned a lot from you and looking forward to more such discussions in the future.

Deepak Ramaraju: Thanks. Thank you. It was really nice talking to you and thanks for having me on your show.

Radhakrishan Chonat: Thank you, Deepak.

Deepak Ramaraju: Thank you. Thank you.