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The diary: Neptune’s Kunal Desai

Kunal Desai is manager of the Neptune India fund. His diary runs from 21-27 April.

Kunal Desai

Sunday I arrive in Mumbai early on Sunday. The taxi journey across the city from the airport has been cut by 90 minutes thanks to the seaborne ‘Sealink’ bridge – evidence that infrastructure can work in India, even if delayed by five years. Later, I meet two cousins that have returned home from the UK to join their family’s construction company. Business is tough, but they are looking through this cyclical downturn and using it as an opportunity to become leaner and more efficient


Monday
I touch down in Bangalore with a small group of investors. Many of them are ‘value’ investors. To them India looks cheap with the market’s price to book multiple at 2.1 times versus 4.9 times in 2007, whilst the country’s relative premium to Asia has fallen to 4 per cent from 50 per cent. They believe that an economic turnaround is coming and they want to be part of this re-rating story. We visit Infosys’s flagship campus; the CFO was impressive – upbeat, positive yet realistic. Could this much maligned stock be the one that surprises this year? We then visit United Breweries HQ (makers of Kingfisher Beer). The CEO complains about the myriad of regulation on a state-by-state basis, but on reflection does this benefit them given their strong relationships with state governments? Indeed from a stockpicking angle, perhaps the strong get stronger.

Tuesday Our pre-dawn flight takes us on to Chennai. Our first meeting is with a rural branch of the HDFC Bank, a core holding of the Neptune India fund. Microfinance has had bad press recently, but I am impressed with both HDFC Bank’s efforts (rural areas represent 70 per cent of new branch addition) and the non-urban entrepreneurialism of the female borrowers. Our afternoon meetings are held at the hotel and we struggle to come to terms with how poorly the state power sector is run. The state has finally hiked power tariffs by 37 per cent after five long years. The lights ironically cut out half way through the presentation.

 

Wednesday We catch a flight to Ahmedabad, the largest city in Gujarat. The region has been a darling for investors as the state’s leader, Narendra Modi, has run it efficiently. Growth has beaten the country’s average consistently over the last decade. Our meetings with government officials and think-tanks cover the topic of whether this growth template can be replicated across India if Modi wins the General Election next year. Later on I meet entrepreneurs from the IIM University. Each one confirms Modi would be their choice for Prime Minister. As the election looms, I would expect the market to get excited if this appears more likely.

 

Thursday We leave for Chandigarh, in the Punjab. It is the nation’s ‘breadbasket’ with land prices being driven higher and higher as remittances from Punjabis abroad flood in. Our afternoon meetings involve discussions with journalists, consultants and local businessmen. The theme of unskilled labour becomes the focus and we discuss how the development of exports will be critical for the country, not just in terms of creating jobs, but also on the Balance of Payments side.

 

Friday Next stop Delhi and a full day of meetings with The Economist, rating agencies, the Planning Commission and the government. The highlight was the discussion with the government over the introduction of biometric ID cards, known as ‘UIDAI’. Every citizen will hold one and it will significantly reduce subsidy leakage by cutting out the middleman. The scheme seems to be past its financing problems and has the full support of all political parties.

 

Saturday We wake up early in Agra and wander down to glimpse the Taj Mahal. I then speed along the Agra-Delhi expressway to catch my flight back to London.

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