Quarter 1, 2019

We will keep this one short since we don’t have much to say this quarter. Neither do the Indian business owners we met during our recent travels. There’s a sense of stillness in the community, a quiet anticipation of sorts – itching to make a move, but not quite sure in which direction. Abhi election ke baad dekhenge, “We’ll see after the elections”, is the common refrain. This makes sense. Almost 900m Indians, over 75 days, are selecting 543 representatives, out of the 8,000 plus candidates fielded by 450 parties. No matter which dimension you pick, the scale of the Indian general election looks astounding. So, it’s natural to think that it’s outcome will have an astounding effect on the business as well. We don’t think so. We have looked at the data - market returns, earnings, macro factors like deficits, currency, and other finance-y stuff. None of it has any correlation with the election outcomes.

Some of you have asked us who we think will win. And, who are we rooting for? Our answers: don’t know, don’t care. But if you really insist then Modi, and Modi. The science behind our analysis is zero. In fact, it’s worse-than-zero, given what we hope is exactly what we expect. But here’s why we stand where we stand – first, the characters who fill the opposition to Modi have little chance of sticking together for five years. Ergo, if they win, we’ll most likely have an early re-election. There’s enough precedent for that. We assume that Indian voters know this and don’t want this. We certainly don’t. Second, the current government has put in place systems that will serve the Indian business interests well in the long run. Bankruptcy code, tax reform, mass bank accounts, etc. are all great long-term initiatives with considerable short-term pain. We prefer governments that can do such things, and we would like this administration to see these reforms through. That’s about it.
 
As simplistic as our election analysis is, anything more complex is a waste of time. Instead we spend our time examining whether the earnings of any of our companies are overly hitched to the workings of the government. Do we carry any political risk in our book? We don’t. So, our only wish is for this election to be over, with a stable government in place. We eagerly await the results on May 23rd.       
 
You should expect the pre and post result days to be volatile. History has borne this out, and a 50%+ jump in NIFTY VIX is already predicting it. Our portfolio composition will remain unchanged unless the volatility results in opportunities too good to pass.