Bull market has resumed after bottoming out; PSUs will still lead the market but pockets have changed: Ramesh Damani

I have learned this from you, that whenever a big event is coming, read, read and be prepared. So, I read Adam Smith’s famous book, Great Nations on the impact of globalisation and this is completely opposite of what financial history has taught us in the last 200 years. This is completely a recipe of what not to do rather than what to do. So, what should investors do now? Divide the world into two, look at companies and sectors which will benefit from their internal growth rather than external growth and avoid anything which is directly or indirectly dependent on the US?

Ramesh Damani: I think you are right. This whole principle of comparative advantage is so important in the world. It has made the world prosperous. It has made the world expand. We have not had a great war in 75 years and you are going back on all of that. So, to answer your question more directly, what should investors do? I think, first, do not panic. India has its own strengths and we will recover from this blow as markets are even suggesting right now.

When we were young in the 80s and 90s, we always looked for export-oriented centres, people that earned in dollars. I think we look now at people who are prospering in the domestic economy, people who are not impacted by tariffs or tantrums that Trump is throwing at them. So, you look at those sectors, you look at sectors with some intellectual property. China seems like a big loser right now, but China is already building the capability to take on America and it might seem like heresy, it might seem like too fast a pronouncement, but we could see the rise of China in the next 20 years to take on America as a rival.

Clearly in terms of what they have done to their economy, in terms of technology, in terms of trade, they are now trying to match America and America is not understanding. The fact that they have got DeepSeek out there suggests that they have made very rapid advances in chip technology, very rapid advances in artificial intelligence, which was America’s winning point. Trump is overstating his strength. Instead of working and bringing the world along, he has found a world suddenly where the US has no friends. Canada, his best friend, is no longer a friend. NATO and Europe, best friend, no longer a friend. And China, on the other hand, is building alliances. Silk route, Brazil, even making an overture to India. People are moving on.

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So, you are right, you need to rejig your portfolio a little bit. But I do not think there is any reason to panic. India is a domestic, internal-facing economy. It has enough strengths and we do not want to go back to the India of the 70s and 80s in which we grew up. We had the Ambassador car when we had tariffs and protectionism. Do you want to go back there? People do not remember that, but in 1977-78 when Japanese imports started coming to America, the American cars were a joke. They were of such poor quality that people would not buy them even at 20-30% discount.

So, once you have protectionism and tariffs, the quality will start deteriorating, the prices will remain high and there will be a stagflation quagmire which is going on in America. So, I am pretty hopeful sitting today that A) the US will reverse course, and B) the world will go on though.

That brings me to my next obvious question, which is the market reaction on Wednesday. Banks are up. They are domestic-facing businesses. IT is down because it is dependent on global factors and especially Indian IT companies are dominated, and are getting a dominant amount of business from the US. So, is the market reaction justified where you need to switch out of at least IT and pharma and back to perhaps domestic-oriented sectors?
Ramesh Damani: Yes, to fit to domestic-oriented sectors, your portfolio should be allocated there. Somehow, I do have exposure to technology and they are down, as you correctly pointed out, but it is a fairly rigorous sector for the next few years. I would not be in a hurry to get out. I think they will do fine. The whole world runs on software and you kind of get that processing power in India, the GCC capability in India. So, it is hard for me to see the sector going through a very strong recession. This is probably a more of a knee-jerk reaction.

You always said that every time when there is a reboot in the system, a crisis will always create opportunity. So, in this reboot right now, where in the market an opportunity is getting created for long-term investors? I am using the word long-term investors.
Ramesh Damani: Yes, I am glad you are using that term because that is really the good way to look at the markets and we tend to look at markets in three, five, seven-year snapshots rather than what will happen in a quarter. One theme that has pervaded this bull market for the previous five years has been the leadership among the public sector stocks because they have shown that corporate governance can improve, order books can improve, and they can deliver on the results. They are largely domestic facing, so I will continue to bet on some of those sectors. One sector that stood out was the pharma sector because it has been exempted from tariffs for now at least. But within the pharma sector also, we are finding enormous opportunities in Indian companies that are building intellectual property for the first time. So, within that sector, we will look at those companies too. There is something in physical digital infrastructure that I have been mentioning about, which probably will get a boost, given the fact that we are going from analogue to digital.

So, there are plenty of pickings. You decide what you want to bet on. If it is exported directly to America, I would probably reduce my weightage there. But having said that, I remain optimistic about India and optimistic about the bull market continuing.

At the peak of pessimism, you said, I am a buyer in PSU stocks and last time when we met, you said that the leadership in the PSU stocks is not over yet. So, are you still confident that PSU stocks have a long way to go? If yes, why?
Ramesh Damani: I have changed some allocation. I have gotten out of some old stocks, got into some new stocks. If you look at, say, the two sectors that I am particularly bullish on, the defence and the construction space, have very strong order books, very strong visibility. Good dividend yields coming through, better corporate governance and they are completely domestic facing, so they will do fine over a period of time. So, we continue to like those sectors. I also believe that the last two-three months saw a very severe correction in the bull market. The bull market has started again. I think we bottomed out and started again. And this was just one more road block on the way to the bull market, which the market may have conquered today or may conquer within the next few weeks.

You also mentioned last time when we met that I am fully invested and the bull market is not over. So, are you fully invested right now and why do you continue to maintain that the bull market is not over given that the economy has slowed down, given that the base effect has kicked in, given that now we are staring at a probable slowdown in the world because of tariffs?
Ramesh Damani: To be perfectly candid with you, I had taken some money off the table when we had the wobble in October, November. I was getting nervous, so I also took some money off the table. So, as a matter of fact, I am not fully invested, but I am looking to get fully invested. I am looking again to place my bets in there. Why do we think the bull market is continuing? Because that was the first correction we got after four-five years.

So it is typical that you would go through corrections and shake out. So, only people who are convinced will be able to make the true money that a bull market offers you, so that was just a shakeout I believe. See, the market peaked out at the end of September. By October, November, you were finding individual stocks, large, quality broadly traded stocks started making new highs. Bajaj Finance, Shree Cement, United Phosphorus, a lot of stocks were making new highs, and that cannot happen in the bearish phase of the market. It had to mean that the market was just rotating in and out of stocks. So, the fact that they were making new highs was very hopeful to me.

Secondly, I spent the last three-four months visiting a variety of companies, just knocking on the doors, trying to find out what is going on. Everywhere I went, I found people talking about expansion, growth, profit, margins, and taking on the world. I see no reason to be bearish because the entrepreneurial class has taken hold in India and there is no leverage in the system. Bull markets typically end with this excessive leverage. You had leverage of the size of a midcap company in the Indian stock market. So, all the signs indicate that what we experienced in the last three months was just one of the very severe corrections and the market will probably resume and I would dare say take out the old highs in a matter of time.

Every time a shakeout happens in the market, leadership changes. I am going to quote you again. This is a quote I heard from you 10-12 years ago. Courses remain the same, horses change. So, the course is India. Where are the new horses?
Ramesh Damani: Again, it is a fluid question. I believe that the leadership will still rest among the public sector stocks, as I mentioned before to you. Among this digital infrastructure, people who are building the digital infrastructure – the basic UPI, KYC, Aadhaar, DigiYatra, those kinds of applications – there are multiple companies that you should look at because this country is leap frogging. It is going from the analogue age to the digital age. So, while our highways and dams and stadiums may not be on par with the rest of the world, in digital infrastructure we are leading the world. The companies that are doing that are still broadly unrecognised and still offer a lot of opportunities, not only in the domestic market, but also in global markets, because some of them have variable models of revenue and as the base increases, the revenues will increase out there. So, that will be a good sector.

Pharma was a sector that stood out today. Surprisingly, I have not had a big understanding of pharma, but increasingly I find that the Indian companies that do CDMO and those kinds of works will probably make money. Increasingly, the companies in India are doing intellectual property work, patented work, work which will patent the molecules and they could be anywhere from antibiotics to vaccines to other drugs for Alzheimer’s and the like. I think these are good times to buy those businesses.

One of the businesses that we bet on recently was a company that explores mineral rights, because there will be a full-on interest in people that can control rare earths. So, you want to try and find positions and bets accordingly. Yes, I do not really find a dearth of opportunity, to be honest with you. When I go and visit the companies, I am fairly encouraged. I unfortunately do not belong to the camp of people who say there is no value here. I mean, value is in the eye of the beholder as beauty is and typically I am not fully invested. But I want to be fully invested and generally for me, it is a slow process. I cannot be bearish on day one and day two, be fully invested, that is just not my style. I move in more gradually. But it is not certainly that there is a dearth of opportunity that is preventing me. It is just my style that is preventing me from being fully invested. I hope in the next three to six months, I will be fully invested.

Markets follow a cycle; sometimes there is panic and sometimes there is excitement and sometimes euphoria. If you have to look at the market from your vantage point, which end of the market right now has scope to get derated in the next three years and which end of the market could get rerated? It could be earnings, PE or both.
Ramesh Damani: The world will now break free of America. The hold America had on our psyche was very good. I lived in America for almost 15 years of my life. I understand American culture. I actually believed in American exceptionalism and all this and it is very painful for me to see what President Trump has done to America. I would tend to think that America is likely to peak out more than the rest of the world.

I will just give you another example; in 2003-04, India was dominated by technology shares. Infosys kept giving bad numbers. I had a conversation with a late friend, Rakesh Jhunjhunwala and I said, unless Infosys delivers good results, the market is not going to be able to move, and then he taught me a lesson in life. He was saying that if Infosys would not deliver bad results, the market would discount it and then move on with other stocks that are delivering good results and that is exactly what happened.

If you remember, in 2004, the market discarded Infosys with a very bad set of numbers and instead of collapsing that day, the market moved ahead with the cement shares, the infrastructure shares, the real estate shares, which was then to make the bull market leap higher. So, beyond a certain point, the market will not pay attention to America. We always watch the Dow and watch the foreign flows as indicative of what India would open at. The foreign flows already have a lesser impact on India. The Dow and the Nasdaq over time will lose their relevance. They will be like the FTSE or like the DAX or like the Nikkei stock market, one of the many markets that we watch. I think the emerging markets, China, Japan, will now grow despite America not growing and clearly those that are a bit more domestic focused will probably do better.

How can young India, people in their 20s and early 30s really benefit from the power of compounding? What makes a great investor? Is it intelligence? Is it patience? Is it psychology? Or is it luck?
Ramesh Damani: I love answering this question because it is a subject very close to my heart. I think Warren Buffett has a famous quote. He says all it takes to go from the middle class to the money class in one generation is compounding. And if you just understand that principle, you will benefit. Now let me put it in context for you. India is a young country. I think the median age of India is 25, 26. So, you are in your investing years. So, instead of praying for higher prices, you should pray for lower prices. People like me who are 65 plus prayed for higher prices because we want to exit. But if you are young and the crisis brings prices down, that is a great time for you to invest because you are looking to invest for the next 10, 20, 30 years.

So, the basic advice to you is what is true all along: first invest in appreciating assets, not depreciating assets, because they have a chance to make you money and invest for the long term. If you go and see over the last 30, 40, 50 years, equities have outperformed almost every asset class, whether it is gold, whether it is real estate, whether it is bonds, by maybe 200-300 basis points and that over a 20-30-year period is an astronomical difference to have.

Whenever I asked the great investors of our time, what has been the best time to invest? Was it the 1990s when Manmohan Singh liberalised India? Was it 2000 when it became apparent that India became a TMT power? Or is it today? They always tell me that the best time to invest is the next decade, because the next decade offers a plethora of opportunities that were not available to us. So, there will be more companies built, more brands built, more billion dollar businesses built, and more opportunities to make money, as good as the opportunities that I had and I truly believe that when I came of age in the 80s in India, I was part of a blessed generation in India.

The minute I came, the Berlin Wall fell, globalisation took effect, liberalisation happened. So, we are part of a blessed generation. But I truly believe that in the next 10-15 years, if we stay our course, remain true to our feelings, not get carried away by protectionism and tariffs and inward looking stuff, India will prosper and do well which we need to do to bring our 1.5 billion fellow citizens into prosperity.

I believe we are on the course to that. I do not believe that will change in India and America will learn a lesson that it has taught the rest of the world. It really pains me to say this particularly on national television, America was the shiny city on the hill we all looked up to and in 100 days, Donald Trump has destroyed what everyone aspired to be America.