You were one of the early ones to catch on to say the specialty chemicals rally. You are a votary for machine learning and AI for stock picking. What are the machines telling you about specialty chemicals?
Shankar Sharma: We were long on specialty chemicals much before we went into the machine end of the business. That is where the human beings worked well. Since 2013-14, this sector has been an absolute rocket.
Right now, if anything, the outlook looks even better because going back in time, one of the reasons we liked the specialty chemicals space was because China was cutting down on polluting industries and chemicals do pollute and that created a sort of shortage and prices shot above of the end products. The interesting thing was all those chemical companies or most of them were hurting during 2008-2013. They were trading at abysmal prices, abysmal valuations and nobody was interested. Then the China factor came in, the sector took off and it has never looked back.
The next factor which has happened is Covid. A lot of the western world turned anti China saying that we do not want so much capacity lying in China for all these chemicals, we want to diversify outside of China and that opened up way for India because India has the available large capacities and the manpower and technical skills to implement large scale chemical projects.
So the polluting angle and the Covid factor driving people away from China helped the specialty chemicals sector in India. The trend is a lot stronger today than what it has been in the last seven, eight years since we first identified that particular industry. So the man and the machine or the human and the machine are thinking alike on this one.
Given that First Global is not restricted to the Indian listed pool. You invest across global companies and in the unlisted universe as well. What are the companies that you are betting on which are going to leverage now the new style of investing dependent on machines?
Devina Mehra: In investing directly, you will not find that many bets to take though overall the digital space is good. Last year, in the US. the share of investments in digital infrastructure has taken off. In the last one year, the whole digital space has taken off globally and all those companies starting from Zoom to Netflix to Amazon Cloud are huge.
So all those companies have benefitted and will continue to benefit. Whether at this point in time, a certain stock is a buy is a different thing altogether but the trend is very clear that not just in investing but in almost anything, companies are moving away from physical capex to capex on digital. It is true for consumer companies also.
Digital payment across the world has caught on because people were compelled to move to digital payments. Those are themes which on a very long-term basis, will continue to move. But certain stocks have moved up far too much. US tech is a space we lightened up on several months ago. As of today, that is not necessarily the biggest buy.
Where do you see the next disruption?
Shankar Sharma: Asset management the way it has been run, has not delivered for foreign investors in India or worldwide. The model needs to be rethought completely from inside out. It has not worked because in the mutual fund data we have seen that barring last month, throughout the bull market of last year we have had outflows from investors. There has been disenchantment with the way money managers have run public monies. The reason for that is not the problem with those individual fund managers.
A lot of them are very accomplished people and human beings are not meant to have managed money. It is a very complicated thing and the human mind tends to over simplify things which can work up to a point. But beyond a point, it does not work. That is why asset management companies in the US, in Asia, in India have generally disappointed investors and the whole space will be disrupted massively in the next few years. There is absolutely no doubt in my mind that the old guard will give way to the new way of doing things.