Indian Economy

[Haryana]

India Reclaims Spot as World’s Fifth-Largest Stock Market

 

https://www.bloomberg.com/news/articles/2023-05-29/record-bound-indian-stocks-reclaim-spot-as-world-s-top-5-market

 

"A rebound in Adani’s stocks has gathered steam turn after a court-appointed panel said it found no conclusive evidence of stock price manipulation as alleged by US short seller Hindenburg Research."

 

[nwoodman]

This recent article in the Economic Times provided a good summary of some the key initiatives of the last 9 years of Modi’s government.  Key areas of reform: GST, Unified Payment Interface, Direct Benefits Transfer, Insolvency & Bankruptcy Code, Make in India

Nine years of Modi government: What India witnessed & how its economy has changed

 

This nearly a decade-long period has changed India's economy in definite ways as Modi took decision after decision that made deep, lasting impacts on the economy. With India divided sharply between the supporters and detractors of Modinomics, it may be a matter of debate how good Modi's measures have proved for the economy. But few would disagree that Modi brought an unprecedented zeal to his reformist agenda. 

Below are a few of his decisions that changed India's economy:

The Goods and Services Tax

 

The GST was the reform of reforms, and Modi did pull it off with great success. The taxpayer base has nearly doubled since its launch and collections too have risen. The GST collections in April rose 12% from the year earlier to an all-time monthly high of ₹1.87 lakh crore. Majority of large states have reported a 20% plus GST growth over the same period last year, indicating a broad-level growth across sectors and states. Ninety million e-way bills were generated in March 2023, 11% higher than 81 million in the preceding month.

 

The India stack

 

Modi is probably the first Indian prime minister to leverage technology so much for his welfare programmes. His government's Unified Payment Interface (UPI) has revolutionised India's economy by facilitating digital payments even in villages. Behind the huge digital payments infrastructure that has come up in India is India Stack, a set of open APIs and digital public goods that aim to unlock the economic potential of identity, data, and payments at population scale, such as Aadhaar, UPI, Digilocker and, more recently, CoWin Vaccination Platform.

The core idea behind India Stack is to lower the cost of transactions so that 1.3 billion people get access to socially and economically important services and that those services can be delivered by the private as well as public sector. It enables private innovation on the back of public infrastructure. India Stack created a set of open protocols or standards that are implemented by the institutions concerned. The UPI has helped private sector companies to rely on business models based on digital payments.

India's tech-enabled governance is now admired the world over. India has developed a world-class digital public infrastructure to support its sustainable development goals with its journey having lessons for other countries embarking on their own digital transformation, IMF has said in a working paper recently, noting that digitalization has supported formalization of India's economy and Aadhaar has helped in direct transfer of payments to beneficiaries while reducing leakages.

Merchant payments on UPI are expected to reach $1 trillion by FY26, driven by a growth rate of 40% to 50%, Bain and Company has said recently in a report. Point of sales terminals are expected to double to 13 million by FY26 from around 6 million currently.

 

Direct Benefits Transfer

 

Direct Benefits Transfer (DBT) was another revolutionary scheme that the Modi government utilised for financial inclusion of India's masses. In the 1980s, then PM Rajiv Gandhi had said that out of every rupee sent by the Centre government, only 15 paise reaches the poor. The DBT has changed that. With the help of the JAM (Jan Dhan + Aadhar + Mobile) trinity, the Modi government achieved the feat of transferring subsidies directly to the people through their bank accounts. 

Direct transfer of subsidies reduces leakages and delays while bringing transparency and accountability to the process, thus saving the 85 paise that used to go missing from a rupee. Financial inclusion not only helps with disbursal of benefits but also increases India's market size and financial inclusion. India saved $27 billion in key central government schemes through DBT as it is swift and eliminates corruption, the government informed in March. 

On an average, over 90 lakh DBT payments are processed in India daily to send money directly into the account of eligible beneficiaries of government schemes, the government had said last year. More than Rs 24.8 lakh crore had been transferred through DBT mode from 2013 to last year.

 

The Insolvency and Bankruptcy Code

 

Before the Insolvency and Bankruptcy Code (IBC) came into force in 2016, companies under bankruptcy proceedings would take inordinately long time to be liquidated. Nearly half of the cases took more than ten years and 15% more than 25 years to complete. The IBC provided for a market-linked and time-bound resolution of stressed assets. The IBC made it easier for banks to recover their defaulted loans. It offered a one-step mechanism for distressed businesses to resolve insolvency in an efficient and time-bound manner. It was a necessary reform when India's PSU banks were saddled with bad loans. 

However, the new bankruptcy resolution process has not delivered significantly improved outcomes from older debt recovery mechanisms although it has increased overall institutional capacity. The number of cases entering legacy debt recovery channels is growing five times faster than in the IBC, but it is still the most efficient channel available, handling the biggest chunk of soured credit. The insolvency resolution process mandated by the IBC has seen lengthening delays amid rising legal challenges and a shortage of tribunal benches.

According to IBBI data, the 611 bankruptcy cases resolved under the IBC until December 2022 took, on average, 482 days, barring the time excluded by the NCLT. The IBC stipulates a maximum of 270 days to resolve corporate bankruptcy. Creditors recovered Rs 2.53 lakh crore, or 30.4% of their admitted claims, in these 611 cases. To be fair, in the case of 516 companies, the realisation was 84% against the fair value worked out when they were admitted to the process. The government is seeking to change the IBC to make it more efficient. 

 

Make in India

 

Modi's Make in India project aimed to transform India's economy which has been serviced-led traditionally. Services have contributed more than manufacturing to India's economy. The Make in India programme was boosted recently with the announcement of Performance-Linked Incentives scheme in more than a dozen manufacturing sectors especially electronics and semiconductor chips. 

The PLI Scheme incentivizes domestic production in strategic growth sectors where India has a comparative advantage. This includes strengthening domestic manufacturing, forming resilient supply chains, making Indian industries more competitive and boosting the export potential. The PLI Scheme is expected to boost production and employment significantly, with benefits extending to the MSME eco-system.

When Modi had launched the Make in India programme in 2014, there were many nay-sayers that doubted if India could emerge as a manufacturing power. It required a trained labour force and lots of capital. Nine years later, The Make in India plan seems to be finally on track with Apple setting up its manufacturing unit in India, a potent gesture to western companies that want to diversify their manufacturing away from China. One can say that Make in India was launched well in time. In eight years of its launch, global geopolitical situations have changed in India's favour. 

National Logistics Policy
The logistics cost in India is 13 per cent of the GDP as compared with 8 per cent in developed economies, making it difficult for Indian exports to compete globally.

Together with Modi's massive drive to build roads, trains, railways, ports and bridges, a logistics policy is set to revolutionise India's trade by making goods move faster across India. Under the recently launched National Logistics Policy, infrastructure ministries including rail, highways, ports and steel, will prepare sector-specific plans to increase logistics efficiency in consultation with various stakeholders. 

The policy aims to reduce the cost of logistics in India to be comparable to global benchmarks by 2030; improve the Logistics Performance Index ranking; and create a data-driven decision support mechanism for an efficient logistics ecosystem. India climbed up six places in the World Bank's Logistic Performance Index 2023, as investments in soft and hard infrastructure as well as technology helped the country improve its port performance. India is now ranked 38 in the 139 countries index, up from 44 in 2018. India's target is to be among top 25 countries by 2030.
 

[Haryana]

An entertaining video on the economy of India's Capital.

[Haryana]

On 5/29/2023 at 4:28 PM, nwoodman said:

This recent article in the Economic Times provided a good summary of some the key initiatives of the last 9 years of Modi’s government.  Key areas of reform: GST, Unified Payment Interface, Direct Benefits Transfer, Insolvency & Bankruptcy Code, Make in India

Nine years of Modi government: What India witnessed & how its economy has changed

 

This nearly a decade-long period has changed India's economy in definite ways as Modi took decision after decision that made deep, lasting impacts on the economy. With India divided sharply between the supporters and detractors of Modinomics, it may be a matter of debate how good Modi's measures have proved for the economy. But few would disagree that Modi brought an unprecedented zeal to his reformist agenda. 

Below are a few of his decisions that changed India's economy:

The Goods and Services Tax

 

The GST was the reform of reforms, and Modi did pull it off with great success. The taxpayer base has nearly doubled since its launch and collections too have risen. The GST collections in April rose 12% from the year earlier to an all-time monthly high of ₹1.87 lakh crore. Majority of large states have reported a 20% plus GST growth over the same period last year, indicating a broad-level growth across sectors and states. Ninety million e-way bills were generated in March 2023, 11% higher than 81 million in the preceding month.

 

The India stack

 

Modi is probably the first Indian prime minister to leverage technology so much for his welfare programmes. His government's Unified Payment Interface (UPI) has revolutionised India's economy by facilitating digital payments even in villages. Behind the huge digital payments infrastructure that has come up in India is India Stack, a set of open APIs and digital public goods that aim to unlock the economic potential of identity, data, and payments at population scale, such as Aadhaar, UPI, Digilocker and, more recently, CoWin Vaccination Platform.

The core idea behind India Stack is to lower the cost of transactions so that 1.3 billion people get access to socially and economically important services and that those services can be delivered by the private as well as public sector. It enables private innovation on the back of public infrastructure. India Stack created a set of open protocols or standards that are implemented by the institutions concerned. The UPI has helped private sector companies to rely on business models based on digital payments.

India's tech-enabled governance is now admired the world over. India has developed a world-class digital public infrastructure to support its sustainable development goals with its journey having lessons for other countries embarking on their own digital transformation, IMF has said in a working paper recently, noting that digitalization has supported formalization of India's economy and Aadhaar has helped in direct transfer of payments to beneficiaries while reducing leakages.

Merchant payments on UPI are expected to reach $1 trillion by FY26, driven by a growth rate of 40% to 50%, Bain and Company has said recently in a report. Point of sales terminals are expected to double to 13 million by FY26 from around 6 million currently.

 

Direct Benefits Transfer

 

Direct Benefits Transfer (DBT) was another revolutionary scheme that the Modi government utilised for financial inclusion of India's masses. In the 1980s, then PM Rajiv Gandhi had said that out of every rupee sent by the Centre government, only 15 paise reaches the poor. The DBT has changed that. With the help of the JAM (Jan Dhan + Aadhar + Mobile) trinity, the Modi government achieved the feat of transferring subsidies directly to the people through their bank accounts. 

Direct transfer of subsidies reduces leakages and delays while bringing transparency and accountability to the process, thus saving the 85 paise that used to go missing from a rupee. Financial inclusion not only helps with disbursal of benefits but also increases India's market size and financial inclusion. India saved $27 billion in key central government schemes through DBT as it is swift and eliminates corruption, the government informed in March. 

On an average, over 90 lakh DBT payments are processed in India daily to send money directly into the account of eligible beneficiaries of government schemes, the government had said last year. More than Rs 24.8 lakh crore had been transferred through DBT mode from 2013 to last year.

 

The Insolvency and Bankruptcy Code

 

Before the Insolvency and Bankruptcy Code (IBC) came into force in 2016, companies under bankruptcy proceedings would take inordinately long time to be liquidated. Nearly half of the cases took more than ten years and 15% more than 25 years to complete. The IBC provided for a market-linked and time-bound resolution of stressed assets. The IBC made it easier for banks to recover their defaulted loans. It offered a one-step mechanism for distressed businesses to resolve insolvency in an efficient and time-bound manner. It was a necessary reform when India's PSU banks were saddled with bad loans. 

However, the new bankruptcy resolution process has not delivered significantly improved outcomes from older debt recovery mechanisms although it has increased overall institutional capacity. The number of cases entering legacy debt recovery channels is growing five times faster than in the IBC, but it is still the most efficient channel available, handling the biggest chunk of soured credit. The insolvency resolution process mandated by the IBC has seen lengthening delays amid rising legal challenges and a shortage of tribunal benches.

According to IBBI data, the 611 bankruptcy cases resolved under the IBC until December 2022 took, on average, 482 days, barring the time excluded by the NCLT. The IBC stipulates a maximum of 270 days to resolve corporate bankruptcy. Creditors recovered Rs 2.53 lakh crore, or 30.4% of their admitted claims, in these 611 cases. To be fair, in the case of 516 companies, the realisation was 84% against the fair value worked out when they were admitted to the process. The government is seeking to change the IBC to make it more efficient. 

 

Make in India

 

Modi's Make in India project aimed to transform India's economy which has been serviced-led traditionally. Services have contributed more than manufacturing to India's economy. The Make in India programme was boosted recently with the announcement of Performance-Linked Incentives scheme in more than a dozen manufacturing sectors especially electronics and semiconductor chips. 

The PLI Scheme incentivizes domestic production in strategic growth sectors where India has a comparative advantage. This includes strengthening domestic manufacturing, forming resilient supply chains, making Indian industries more competitive and boosting the export potential. The PLI Scheme is expected to boost production and employment significantly, with benefits extending to the MSME eco-system.

When Modi had launched the Make in India programme in 2014, there were many nay-sayers that doubted if India could emerge as a manufacturing power. It required a trained labour force and lots of capital. Nine years later, The Make in India plan seems to be finally on track with Apple setting up its manufacturing unit in India, a potent gesture to western companies that want to diversify their manufacturing away from China. One can say that Make in India was launched well in time. In eight years of its launch, global geopolitical situations have changed in India's favour. 

National Logistics Policy
The logistics cost in India is 13 per cent of the GDP as compared with 8 per cent in developed economies, making it difficult for Indian exports to compete globally.

Together with Modi's massive drive to build roads, trains, railways, ports and bridges, a logistics policy is set to revolutionise India's trade by making goods move faster across India. Under the recently launched National Logistics Policy, infrastructure ministries including rail, highways, ports and steel, will prepare sector-specific plans to increase logistics efficiency in consultation with various stakeholders. 

The policy aims to reduce the cost of logistics in India to be comparable to global benchmarks by 2030; improve the Logistics Performance Index ranking; and create a data-driven decision support mechanism for an efficient logistics ecosystem. India climbed up six places in the World Bank's Logistic Performance Index 2023, as investments in soft and hard infrastructure as well as technology helped the country improve its port performance. India is now ranked 38 in the 139 countries index, up from 44 in 2018. India's target is to be among top 25 countries by 2030.
 

 

 

With regards to last 9 years, this is a well-made video on infrastructure developments -

 

 

[Haryana]

 

[whatstheofficerproblem]

The first thing Pakistan does after getting an IMF bailout is spend 40Cr of that money on raising a flag bigger than India. . There is truly is a difference in leagues between having your flag on the moon and having a moon on your flag.

[Haryana]

 

https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.html/#what-lies

 

"India, meanwhile, enjoys a Goldilocks moment as it sees its economic activity gaining momentum amid continuing global uncertainties. The last quarter’s GDP data was pleasantly surprising but not completely unexpected. The GDP growth in the fourth quarter has pushed up the full-year GDP growth of FY2022–23 to 7.2%, 200 basis points (bps) higher than the earlier estimate. The recently released Annual Economic Review for the month of May 2023 highlighted that the postpandemic quarterly trajectories of consumption and investment have crossed prepandemic levels."

 

[whatstheofficerproblem]

https://www.outlookindia.com/business/apple-airpods-to-be-made-in-india-at-foxconn-hyderabad-factory-news-310877

 

"Foxconn has approved an investment of USD 400 million for Hyderabad plant which is expected to begin mass production by December 2024"

"Foxconn Hyderabad factory will make AirPods. The factory is expected to begin mass production by December"

 

My Hometown is changing.

[nwoodman]

A couple of pro India (or should I say Bharat) pieces from Bloomberg today, they are positively ebullient

 

1. India Has Become a Beacon of Macro Stability: Chinoy

Sajjid Chinoy, chief India economist at JPMorgan, discusses India’s economy and the upcoming G-20 and inflation in the country. He speaks on Bloomberg Television.

https://youtu.be/Rlu53BOEwWo?si=AuuJH7gcKaT5_BNx

 

2.Foreign Funds Reverse $17 Billion Record Exodus in India Stocks

 

Stocks in India are in the midst of a multi-year rally with the key benchmarks S&P BSE Sensex and NSE Nifty 50 Index headed for their eighth consecutive year of advances. A strong corporate earnings performance, robust economic growth and political stability are drawing investors even as they flee other Asian emerging markets.

 

https://www.bloomberg.com/news/articles/2023-09-05/foreign-funds-reverse-17-billion-record-exodus-in-india-stocks?srnd=india-v2#xj4y7vzkg

 

 

Edited September 5, 2023 by nwoodman

[gfp]

With the Chinese currency breaking down to new lows at 7.317 to the USD (despite continued intervention by Chinese commercial banks at the behest of the government) - there is no way the INR will be able to hold the ridiculous line in the sand that Indian authorities have defended all year.  CNY, JPY and INR are all being taken town by demand for USD in Asia.  Looks like INR has some room to weaken after breaking this manipulated "floor" at 83

 

 

1- year USD-Rupee

 

2- year USD-Rupee

[hardcorevalue]

no change in the stock price over 8 years. 

-30% since 2017.

 

I get the discount has gone down but wow this has been pretty terrible returns for shareholders. 

 

not sure that the anchorage ipo (which never comes) will close the discount

 

kind of frustrating supporting fairfax on this one. 

[Haryana]

Being hardcorevalue should be able to appreciate the decent and consistent increase in book value.

 

This is while the book value is arguably conservative and the underlying holdings hold good value.

 

The frustration would be understandable if trading short term or if the book value was going down.

 

Supporting on faith or blind belief will cause frustration but understandng value can bring peace.

 

Regardless, Indian economy is running goldilock strong and flying freakin hot to moon and the Sun.

 

[Viking]

4 hours ago, hardcorevalue said:

no change in the stock price over 8 years. 

-30% since 2017.

 

I get the discount has gone down but wow this has been pretty terrible returns for shareholders. 

 

not sure that the anchorage ipo (which never comes) will close the discount

 

kind of frustrating supporting fairfax on this one. 

@hardcorevalue i am not sure how long you have followed Fairfax India. The stock has just had an amazing run higher from $9.65/share a year ago to over $14/share recently. Yes, since December the stock has moved mostly sideways. 
 

I have followed Fairfax India for years. I have no idea how the stock trades. I do think Fairfax India has an exceptional management team. They continue to make good decisions and build value for shareholders. I own some shares (not a big position).
 

Where will the stock go from here? I have no idea. But my guess is in 5 years time shareholders will probably do well (from current levels) - and possibly very well. But week to week or month to month (and perhaps year to year) the sideways movement is hard to make and sense of (for me anyways). So i don’t try.

Edited September 7, 2023 by Viking

[SafetyinNumbers]

For FIH.U, the stock going sideways while intrinsic value grows used to be what investors looked for as an opportunity but now mostly everyone thinks the market is efficient. I don’t think Fairfax let investors down here. They did their job in terms of buybacks and additional purchases by Fairfax as soon as the shares started trading at big discount to BV. With the third performance fee period ending on Dec 31, I think the odds are decent (50-50 at least) we see another SIB before year end which would effectively pre-fund the performance fee and shrink the float.

 

The group that let us down are the original institutional shareholders who negotiated the fee structure on our behalf. OMERS, Fidelity and Markel (I think) were presumably supposed to close the discount every three years so that shareholders wouldn’t risk dilution on paying the performance fee and so far they haven’t shown up (and I don’t expect them to).

[TwoCitiesCapital]

12 hours ago, hardcorevalue said:

no change in the stock price over 8 years. 

-30% since 2017.

 

I get the discount has gone down but wow this has been pretty terrible returns for shareholders. 

 

not sure that the anchorage ipo (which never comes) will close the discount

 

kind of frustrating supporting fairfax on this one. 

 

That's not Fairfax's fault. Book value growth has been admirable over that period of time - especially considering EM as a whole hasn't done fantastic and that covid kind of wrecked every for everyone for a year or two. 

 

The share price on the other hand - entirely the fault of people. People who were willing to pay a 30% premium to NAV right after it's IPO who are no longer willing to pay a 30% discount to NAV after the team has proved itself very capable. 

 

I can't blame Fairfax for that. I can blame other people and take advantage of their myopia. Im glad to see Fairfax do the same with repurchases and tenders 

[gfp]

20 hours ago, gfp said:

With the Chinese currency breaking down to new lows at 7.317 to the USD (despite continued intervention by Chinese commercial banks at the behest of the government) - there is no way the INR will be able to hold the ridiculous line in the sand that Indian authorities have defended all year.  CNY, JPY and INR are all being taken town by demand for USD in Asia.  Looks like INR has some room to weaken after breaking this manipulated "floor" at 83

 

 

1- year USD-Rupee

 

2- year USD-Rupee

 

 

Well I purposely didn't post this on the Fairfax India thread but of course the topic of discussion went straight to Fairfax India.  Apart from being way too illiquid for most large investors to get involved with a meaningful investment in FIH.U, I think the currency dynamics are a big part of why investors would reduce the size of their exposure.  If the INR chart were a stock chart people would be chomping at the bit to short the shit out of INR for the breakdown.  The intervention line on USD-INR is even more obvious than the CNY dynamic, where the Chinese just keep fixing the midpoint of their target WAY higher than CNY is trading.  Recently the market has just over-ruled the Chinese gov.'s wishes and taken CNY down to 2008 levels.

[This2ShallPass]

23 hours ago, Viking said:

I do think Fairfax India has an exceptional management team.

Not sure about this. BIAL was great. But one of the IIFL has been recently called out for securities fraud (or something pretty bad), how did management miss something like that. Sanmar was loaded w debt when they bought it, an IPO helped but really what makes it a high quality company? Last year, they made two investments <$50M and now I guess they'll swing at a whale like IDBI, what's the investment strategy here. Are we giving too much of a pass to Fairfax India because of how well Fairfax management has done?

 

If you look at performance, even looking at BY, it's doubled in 8.5 years (~8% cagr). Average at best. I'm holding on due to BIAL but the Anchorage IPO keeps getting delayed.

 

 

[TwoCitiesCapital]

7 hours ago, This2ShallPass said:

Not sure about this. BIAL was great. But one of the IIFL has been recently called out for securities fraud (or something pretty bad), how did management miss something like that. Sanmar was loaded w debt when they bought it, an IPO helped but really what makes it a high quality company? Last year, they made two investments <$50M and now I guess they'll swing at a whale like IDBI, what's the investment strategy here. Are we giving too much of a pass to Fairfax India because of how well Fairfax management has done?

 

If you look at performance, even looking at BY, it's doubled in 8.5 years (~8% cagr). Average at best. I'm holding on due to BIAL but the Anchorage IPO keeps getting delayed.

 

 

 

Considering most EM funds are flat-to-down in USD over that period of time, I'll take 8.5% annual alpha, after fees, to let Fairfax manage a large chunk of that exposure for me. 

 

8.5% after fees is exceptional in that environment and we HAVEN'T IPO'd the crown jewel yet. 

 

Paired with the fact you can buy it at a 30+% discount to that NAV, it's a no brainier. 

[SafetyinNumbers]

2 hours ago, TwoCitiesCapital said:

 

Considering most EM funds are flat-to-down in USD over that period of time, I'll take 8.5% annual alpha, after fees, to let Fairfax manage a large chunk of that exposure for me. 

 

8.5% after fees is exceptional in that environment and we HAVEN'T IPO'd the crown jewel yet. 

 

Paired with the fact you can buy it at a 30+% discount to that NAV, it's a no brainier. 

INDA (MSCI India ETF) just hit a new 52-week high today while FIH.U sells off. It’s a great example of nervous active investors which represent the entire shareholder base of FIH (no quants, no passive, not much institutional) trimming while asset allocators keep buying passive exposure to India. 

[This2ShallPass]

10 hours ago, TwoCitiesCapital said:

Considering most EM funds are flat-to-down in USD over that period of time, I'll take 8.5% annual alpha, after fees, to let Fairfax manage a large chunk of that exposure for me. 

The one major India focused MF is 13.8% CAGR in 10 yrs. In USD. 

 

https://global.matthewsasia.com/funds/mutual-funds/asia-growth/india-fund/

 

Let's do a 5 yr comparison, MINDX is 8.3% CAGR, 48% cum vs. -11% for Fairfax India. Discount or not, they're getting lapped. FFXDF is a one trick pony, until they can replicate the success of BIAL it's hard to say they're great management..

 

[SafetyinNumbers]

14 minutes ago, This2ShallPass said:

The one major India focused MF is 13.8% CAGR in 10 yrs. In USD. 

 

https://global.matthewsasia.com/funds/mutual-funds/asia-growth/india-fund/

 

Let's do a 5 yr comparison, MINDX is 8.3% CAGR, 48% cum vs. -11% for Fairfax India. Discount or not, they're getting lapped. FFXDF is a one trick pony, until they can replicate the success of BIAL it's hard to say they're great management..

 

They are playing a different game but comparing prices for a fund that trades at NAV to one that doesn’t and using that to analyze management performance doesn’t make a lot of sense to me. BIAL is a big chunk of returns but actually has performed below the return on public investments. FIH is playing the public markets game better than Matthews. At June 30, 2018, BVPS was ~$13.26 and with it likely still over $20 now, the returns aren’t that different over the past 5 years. You seem to own it because you think BIAL is marked too low and I think it’s likely that’s true for the rest of private book too. On that basis FIH returns have destroyed Matthews returns and they are doing it with almost 100x more capital.

 

 

[This2ShallPass]

1 hour ago, SafetyinNumbers said:

They are playing a different game but comparing prices for a fund that trades at NAV to one that doesn’t and using that to analyze management performance doesn’t make a lot of sense to me. BIAL is a big chunk of returns but actually has performed below the return on public investments.

If you look at my earlier post, I said Fairfax India made 8.5% using BV in 8.5yrs and MINDX is 14% in 10 years. So even if you compare at NAV, they're doing bad. Btw, most closed end funds trade at a discount. So, in practical terms, we need to think 20% discount and if you do that it looks even worse.

 

Everybody wants to invest in India now and even with that tailwind discount has not closed, granted it came off the lows. I don't know how you're saying Fairfax destroyed Matthews. 8.5 yrs is a long time, soon they have to figure out a way to surface value, we're not here for moral victories. What's taking so long w Anchorage?

 

With every performance period, where parent Fairfax calculates performance on BV and gets stock at market value, minority shareholders are getting screwed. Adding salt to the wounds..

 

 

[SafetyinNumbers]

5 hours ago, This2ShallPass said:

If you look at my earlier post, I said Fairfax India made 8.5% using BV in 8.5yrs and MINDX is 14% in 10 years. So even if you compare at NAV, they're doing bad. Btw, most closed end funds trade at a discount. So, in practical terms, we need to think 20% discount and if you do that it looks even worse.

 

Everybody wants to invest in India now and even with that tailwind discount has not closed, granted it came off the lows. I don't know how you're saying Fairfax destroyed Matthews. 8.5 yrs is a long time, soon they have to figure out a way to surface value, we're not here for moral victories. What's taking so long w Anchorage?

 

With every performance period, where parent Fairfax calculates performance on BV and gets stock at market value, minority shareholders are getting screwed. Adding salt to the wounds..

 

 

I did look at your earlier post. I also noted that since June 2011 the CAGR was only 7.56%. I haven’t done the math but seems like the performance was so terrible between June 2011 to July 2013 that it pulled returns down by over 600bps for the full 12 year period from the 10-yr number you cited. Maybe that’s why they only manage $35m in the strategy despite India’s recent popularity.
 

The discount only started 5 years ago and since then the company has bought back over 15m shares at a discount. Way more than they have issued in performance fees so it doesn’t hurt as bad as you make it seem. They are doing their part to close the discount. The problem is the world changed and investors switched to passive and quant strategies both of which want nothing to do with Fairfax India which isn’t in any benchmark and doesn’t screen well. The hurdle rate for active investors went up considerably and many investors (perhaps like yourself) think markets are efficient. They tend to analyze growth in price instead of intrinsic value so a security price that goes sideways while IV goes up is bad instead of an opportunity which just helps reinforce the discount. 
 

The group that really let us down so far are the original shareholders (OMERS, Markel etc…) that negotiated the original terms. They are supposed to close the discount every three years in front of the performance fee by buying stock and unfortunately they have abdicated their responsibilities it seems although they still have 2.5 months left. I continue to think we’ll see an SIB or a large buyback before year end which will offset the performance fee and shrink the float, giving us a chance to close the discount but it takes active investors to actually close it.
 

As for the Anchorage IPO, the value has only gone up while waiting to list it which I assume has been held up by regulatory delay. Whatever the reason, the opportunity that has been created is what’s important going forward (to me at least). 

[ICUMD]

4 hours ago, SafetyinNumbers said:

I did look at your earlier post. I also noted that since June 2011 the CAGR was only 7.56%. I haven’t done the math but seems like the performance was so terrible between June 2011 to July 2013 that it pulled returns down by over 600bps for the full 12 year period from the 10-yr number you cited. Maybe that’s why they only manage $35m in the strategy despite India’s recent popularity.
 

The discount only started 5 years ago and since then the company has bought back over 15m shares at a discount. Way more than they have issued in performance fees so it doesn’t hurt as bad as you make it seem. They are doing their part to close the discount. The problem is the world changed and investors switched to passive and quant strategies both of which want nothing to do with Fairfax India which isn’t in any benchmark and doesn’t screen well. The hurdle rate for active investors went up considerably and many investors (perhaps like yourself) think markets are efficient. They tend to analyze growth in price instead of intrinsic value so a security price that goes sideways while IV goes up is bad instead of an opportunity which just helps reinforce the discount. 
 

The group that really let us down so far are the original shareholders (OMERS, Markel etc…) that negotiated the original terms. They are supposed to close the discount every three years in front of the performance fee by buying stock and unfortunately they have abdicated their responsibilities it seems although they still have 2.5 months left. I continue to think we’ll see an SIB or a large buyback before year end which will offset the performance fee and shrink the float, giving us a chance to close the discount but it takes active investors to actually close it.
 

As for the Anchorage IPO, the value has only gone up while waiting to list it which I assume has been held up by regulatory delay. Whatever the reason, the opportunity that has been created is what’s important going forward (to me at least). 

The past 5 years where the discount to BV arose were tremendously affected by COVID.  BIAL, Fairfax India's prized asset was impaired during that time. 

 

I am optimistic that the next 5 years should see torrendous ridership growth and airport development progress.

 

Trading in such low volumes, makes FIH.U a buyout candidate at some point.  That is the main and perhaps only reasonable exit strategy for any significant holding by retail investors IMHO.  

[SafetyinNumbers]

1 hour ago, ICUMD said:

The past 5 years where the discount to BV arose were tremendously affected by COVID.  BIAL, Fairfax India's prized asset was impaired during that time. 

 

I am optimistic that the next 5 years should see torrendous ridership growth and airport development progress.

 

Trading in such low volumes, makes FIH.U a buyout candidate at some point.  That is the main and perhaps only reasonable exit strategy for any significant holding by retail investors IMHO.  

I think your thesis on why the discount grew is actually just a narrative that masks the technical change in markets as so much money has flooded to passive, quant and crypto/meme. Anything liquid has bounced back post Covid, airport stocks have high valuations and BIAL is doing fine.

 

I don’t mean to discourage ownership but I don’t expect Fairfax to ever take FIH.U private. There is too much optionality in being public for an asset manager and the capital treatment is better inside the insurance companies. 
 

I think there are a couple of ways, FIH closes the discount or gets to a premium. First, FFH gets to a big premium and as PMs come up with their reasons for finally buying it at 2x+ P/BV one of them will be because of India exposure so they might add a little FIH on the side. Second, the Anchorage IPO goes well, and it becomes a growth vehicle for FIH in India as it has a much lower cost of capital. NA investors may buy FIH to get exposure to Anchorage but also because FIH could then grow much faster.
 

The next 5 years will be interesting.

Edited September 9, 2023 by SafetyinNumbers