With today’s evaluation, I am not really excited about any sector: Nikhil Kamto

How are AIFs a better place to deliver better returns than mutual funds?

One cannot hedge in mutual funds. In Mutual Funds, if one wants to hedge 30% today and then in a month, one wants to convert the hedge to 60 -70%, one cannot do that. So, this ability to hedge is a huge advantage. This sets AIF apart significantly.

You are not a fan of Initial Public Offering (IPO). Why is it like this?

I think the problem is with how the IPO is being priced. Neither of these companies is leaving anything on the table for retail investors, especially tech IPOs like CarTrade or Zomato. There are many savvy investors who come early in the journey of these tech companies—VCs (venture capitalists), and all these people. And in the IPO stage, a lot of them sell off a big chunk of equity that they’ve had over the years, and they want the best money to hold it and invest quickly. So, I think all the IPOs listed in the recent past are very expensive. They may be good companies, but at the valuation they are getting listed, there is no point in locking money for a week and I expect returns. Don’t think it’s worth the trouble to enter a company that is so expensive.

Looking at the recent sluggish listings, do you think the sentiment in the primary market is being affected?

One of the very big ones in the past has been the Zomato IPO, and the memory of Zomato will not be erased very soon. So, tomorrow if someone Paytm or Flipkart comes up with an IPO, people will remember Zomato, remember the benefits of listing, and probably have an appetite for it. Therefore, the memory of investors is of very short duration. So, tomorrow if there is a huge IPO, which gets listed at a discount from its listing price, there will not be much demand for the following IPOs. But for now, I think there will still be an appetite, given the fact that Zomato is still pretty much the same.

Coming to secondary markets? We are reaching all-time highs almost every day. What’s your call there?

I am very skeptical about valuations today. But globally, stocks are rising. As long as the US, Europe and Southeast Asian markets are performing well, we will not be perfect in isolation. Something has to change globally to lead the next reform. I don’t know exactly what it could be. It could be inflation, loan defaults, given how leveraged some loans are around the world. But at this point, I’m very skeptical, and so, when I said we’re 50% on defense today, it’s kind of a testament to how I’m feeling today.

Any other sectors you would like to bet on for 10 years?

I am getting bearish on things like metal and auto companies right now. These people have run away a lot, and in my own view, if there was a third wave all over the world, there’s no reason we wouldn’t have one in India. We were satisfied after the first wave, and thought we were different. I don’t think we should be making the same mistake with the third wave. And if there was a third wave, these things would fall again – demand for metals, demand for automobiles. I am bearish on auto, commercial real estate and metal companies which have gone up a lot.

Valuation decides whether you want to call for long term or not. With today’s valuations, I am not really bullish on any sector. Everything is pretty expensive. IT companies are trading at 30 times multiplier, which has never been heard in our own history. Sure I like the IT field, but should I like it 30 times, maybe not.

If the revenue comes from crypto trading then we have seen that trading platform in US is getting good share. Are you planning to present it on your platform?

There are no plans to do so right now. I think the rules around it are also not very friendly, so no plans to do crypto yet.

If the rules turn out to be positive, would you consider it?

Then we would probably consider it if the rules are clear, and there is a clear order of what one should and should not do. Then we can take a look.

Why is Zerodha not going public?

We are a very thin company. We really don’t have any debt. Nor do we have any outside investors. We also don’t have acquisition costs because we don’t do marketing to engage our customers. It is mostly word of mouth. So there is no need to raise capital.