Posted On Jan 25, 2023

Budget 2023: Why the budget should become a non-event

In the US, the most successful capitalist nation on earth, there is no special budget day speech, no attempt to make a spectacle out of it

It’s time to break tradition with this practice we inherited from our imperial rulers and start building towards the India we now want to be--- a thriving developed economy

Let me paint you a picture. It is 11.36am on February 1st, 2023. The honourable finance minister in her budget speech remarks on increasing allocation to solar powered pumps. Two seconds later, as market participants hear this, the stock price of Solar Industries soars by 7%. Solar Industries, India’s largest explosive manufacturer whose largest client is Coal India. Solar Industries has no connection to solar power barring the word Solar in its name. This is not fiction--it has happened in the past and I am sure something similar will happen this year as well.

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This event refers to a broader question though-- in a serious attempt to become a developed economy over the next two decades, what role does the hoopla around the budget day play? If we want to become a developed economy and be taken seriously, we need to start behaving like one.

One may argue about the degree, but we can all agree that the USA is the most successful capitalist nation with unmatched vibrancy in financial markets.

How many of us would even know the start of the fiscal year in the USA? USA’s federal budget is applicable from 1st October of a year to September 30th of the next. There is no special budget day speech, no attempt to make a spectacle out of it. It is a non-event. That capital thrives when the regulatory framework is simple is seen in how US tax structures have shaped up over the last century.

Prior to the great depression we saw an increase in complexity with the number of tax brackets rising from under 10 in 1915 to 56 by 1920. We all know what happened next- a decade lost to the Great Depression. The first steep fall in complexity was seen in the late 1970s with tax brackets falling from 34 to 17 and later to 6 in the 1980s. The 1980s and 1990s saw consecutive decades of double digit CAGR (17.5% and 18.2% respectively) in the stock markets (SPX 500) because regulatory simplicity allowed people to focus on growth. This came on the heels of a mid-single-digit CAGR in the stock markets in the 70s (5.9%).

In India, with the introduction of GST in 2017, the corporate tax reform announced in 2019 (not on the budget day!), and the simplification of personal income tax slabs in 2020, we are on our way to achieving this golden tenet. Yet there are pockets of complexity, especially in areas such as capital gains taxation. Making those structures cleaner while not tinkering at all with the clarity already attained in corporate and personal income taxation would be a step in the right direction.

It is not just simplicity but consistency that businesses love. Capital allocation, especially by industry, is done with a multi- year, if not multi decade view. Combing through fine print notes post the conclusion of the budget speech for changes in indirect taxation or import duties is not conducive for growth. Constant change and interference in norms prevent companies from planning effectively and without doing so, there can be no chance of growth for those businesses. China is a prime example in showcasing heavy handedness of the government, spooking foreign direct and indirect investments. Despite stellar economic growth, private businesses and therefore investors have hardly made any returns in China.

Yet again going back to the example of the USA, the above chart says it all. While looking at the aggregate sales tax in the economy, the USA has maintained similar levels of around 4% for over four decades now. On the other hand, the prime example of a country that is all over the place with their indirect taxation is Venezuela. The choice is obvious for us. Make the budget a non-event, as businesses appreciate consistency.

This budget day I petition to end the charade that was started in 1860. Instead, we should migrate into a budgetary structure akin to an annual general meeting of a company, where the government presents the outcome of their policies and regulations- what worked and what could have been done better? By no means do I wish to undermine the role of government programmes and policy actions, but do they really need to be announced on a pre-decided date or as and when the situation demands so? Does having a definite date for the budget speech and documents induce more action than what is necessary? Perhaps so. It’s time to break tradition with this practice we inherited from our imperial rulers and start building towards the India we now want to be -- a thriving developed economy.

(Harini Dedhia is fund manager with Tamohara Investment Managers) Views are personal and do not represent the stand of this publication.

Read our Chief Investment Officer, Sheetal Malpani's Interview with Moneycontrol for their #Daily Voice column!

Our Head of Research Harini Dedhia interview recently featured on ET Markets Smart Talk. below is the link for the interview.

ETMarkets Smart Talk: Key risk to watch out! FII flows into Indian equities could slow down: Harini Dedhia -

Our CIO Mr Sheetal Malpani's recently featured interviewed on ET Markets Smart Talk.

After every sharp rally, it is important to go back into the past and take stock of how the market behaves and especially how corrections both time and price occur. Since history has a tendency to rhyme if not repeat itself, our CIO, Mr. Sheetal Malpani in his latest piece for ET explored this data further.

"Analysing data spanning the entire 21st century, which encompasses the past 23 years, we observe that major stock market indices such as the Sensex and Nifty 50 have experienced a minimum 10% correction on an annual basis (with the exception of CY2021), a roughly 15% correction approximately every 3 years, and a more significant correction ranging from 30-40% occurring once every 10 years."

Read more at:

In investing, especially in heady times like the kind we have witnessed over the last few months, process is key to ensuring sustained performance.

In her latest piece for LiveMint, our Head of Research, Harini Dedhia talks about the need for having a process in place for equity investing. She says, “ Many people view processes as an initial input, but I see them as an outcome resulting from a deep understanding of your investment framework. This outcome is shaped by recognising your circle of competence, your investment time horizon, and, consequently, your risk-reward profile.”

Read more at:

Our CIO, Mr. Sheetal Malpani's take on M&A in the pharma segment featured in Financial Express Print Edition today:

Two Years Gone - No Returns In Stock Market What Is Really Happening ?

Posted On Jan 11, 2023

Vivekananda, a Netflix show and investing

Pursuing a simple idea ferociously is the key to success in business and investing

“Take up one idea. Make that one idea your life — think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. This is the way to success.”

– Swami Vivekananda

I was recently reminded of this quote while watching ‘Chef’s Table: Pizza’, a show on Netflix. The first episode in the series brings to us glimpses of arguably one of the best Pizza Chefs in the world- Chris Bianco. His entire life’s work is focused on elevating the humble poor man’s dish from Italy - the Pizza.

Focus on a simple idea: Pizza!

Prior to the arrival of Chris Bianco, pizzerias across America almost unequivocally used canned tomato sauce and generic flour to make pizzas, yet they expected their pizzas to turn out different than the one from the next shop.

Chris Bianco decided to dedicate his life to making the best Pizza ever by going back to first principles. He realized very quickly that one could not expect a different outcome having used the same input. To make the best pizza, one simply needed to have the best dough, best tomatoes and the best mozzarella cheese possible. In doing so, the simple pizza could be elevated to greatness. Greatness can be achieved through simply focusing on a single idea.

What does that mean for us as investors?

When I started out as an investor, I didn’t have a single idea that I pursued with such ferocious intensity. I have in my days of working at a hedge fund in New York bought put options to play earnings volatility (though never for clients, thankfully!). In my early days as an investor, I thought, naively so, that I could have a portfolio with a mix of everything- special situations, asset plays, fast growers, etc. I quickly realized that I had no edge. Far away from developing a knowledge and an information edge, the only edge I knew I could teach myself to develop was a temperamental edge. Buy good businesses and sit on those longer than the average market participant would.

This realization prompted me to distill our investment philosophy to simply enable me to define what a ‘good business’ would be where I would have to demonstrate better than average temperament. The answer was simple- a business with growing cash flows. Today we can define our philosophy in two words- growth and cash flows. We therefore spend the majority of our time understanding how the cash flows work in any business and whether a particular company can continue growing those cash flows.

Pursuing a simple idea ferociously is the key to success in business as well.

Successful EPC companies have learnt from this principle.

While looking at EPC (Engineering, Procurement and Construction) businesses recently, we realized that focus alone created successes in the sector. The business we bought focused on construction of buildings alone. Their incessant focus on timely delivery along with a high quality output resulted in them getting a wider set of clients, and larger orders from those clients. Completing those projects resulted in them unlocking higher pre-qualification status and thereby being eligible to bid for larger projects.

An examination of the misdeeds of the EPC giants of the past showed us that this was the only way to thrive in the long term in the segment. The larger failures can be attributed to losing focus in one of three ways:

- Overextension- taking on more orders than one’s execution capabilities and balance sheet supports (lack of focus on execution)

- Diversion- taking on large orders in segments that are not a core competency of the company (lack of focus in project selection)

- Asset ownership- diverting balance sheet to own assets, getting tempted by the successes of their customers (lack of focus in business model)

If the ‘Bad Guys’ companies had focused on delivering 1.5x-2x of GDP growth consistently by simply executing on projects that it had complete knowledge and control over, forsaking any misadventures of capital allocation from their balance sheet, they would have been through.

Achieving perfection through simplicity should be the endeavour for businesses and investors alike. For us as investors simplifying our philosophy emerges from realizing what is best suited for our skill set but more importantly for our temperament. For business owners it is a realization of where they have the largest competitive advantage.

Take one idea, but take it seriously.

Harini Dedhia is a fund manager with Tamohara Investment Managers. Views are personal and do not represent the stand of this publication
Posted On Oct 25, 2023

India Is a Growth Market, Tamohara Investment Says

Varsha Valecha, senior vice president of investments at Tamohara Investment Managers, discusses the outlook for Indian stocks and the opportunities she sees.

Posted On Nov 15, 2022

Personal Finance: What investment and running a marathon have in common

All that is required of us, as investors, is to determine if we are running the race that we are truly meant to, and if we are dedicating enough thought to it

Eliud Kipchoge is a name that will be etched in history books. He is the first human being on record to run a full marathon of 42 kms (better visualized by Mumbaikars as Nariman Point to Borivali) in under 2 hours. This imputes a constant running speed of over 21 km per hour, certainly faster than what cars manage on Mumbai roads.

In his journey to achieving this feat, there is a lesson for all investors.

Eliud Kipchoge’s Lesson

What many don’t know about Kipchoge is that the full marathon was not the first race that he trained for. He started as a 5000m runner, who came out of nowhere to win the 2003 world championships in the sport. He followed that up with a bronze in the 2004 Athens Olympics and a silver in the 2008 Beijing Olympics. Be it world athletic meet or the Olympics, he never got his hands on the elusive gold in the 5000 m race again. By the time of the London Olympics in 2012, not only had podium finishes become a thing of the past but he was failing to qualify for the Kenyan National Team for the games.

After almost 10 years on the global stage as a professional athlete, the string of setbacks would have pushed anyone into retirement. The same can be said for investing as well. A series of wrong calls/ missteps can throw us off our investing journey. We may even start believing the market to be a ‘gambler’s den’. We start questioning the wisdom in ‘staying invested’. Yet all that is required of us is to regroup, determine if we are running the race that we are truly meant to, and if we are dedicating enough thought to it.

The M&M Story

Mahindra & Mahindra is an example of this. Prior to the trend of urban SUV picking up, M&M dominated the niche of the rugged, all weather, durable SUV that were prevalent in India for the first decade of the century. As urban customer preferences moved from cost to comfort, SUVs became the natural choice. Giving in to what the competition was up to, M&M tried to run a race that it fundamentally was not geared towards. They launched a sedan in 2012 and followed it up with multiple compact SUV launches. Not only did they lose that race, but they also confused the existing loyal customer base, who did not know what M&M stood for anymore.

Mahindra’s share of the SUV market fell from a peak of 55% in FY12 to 14.5% in FY20. The stock price delivered zero returns from the end of FY12 to the end of FY20. I repeat, zero. Maruti Suzuki India was up over 3x in the same time frame.

In FY21, M&M understood the need to go back to the race it was built to not just survive in but thrive in. With the launch of the new THAR in FY21, it set in motion a return to its strength. Since then, every subsequent launch has been true to the Mahindra character; a strong rugged car with a dominating personality on the roads- THAR, XUV700, Scorpio N, XUV400. And voila! M&M’s stock price is up over 60% since the end of FY21 vs. just over 30% for Maruti Suzuki.

Just like Mahindra, instead of retiring from the sport, Kipchoge simply switched to a race he realized his body was better suited for: the full marathon. In April 2013, Eliud Kipchoge won his debut marathon in Hamburg with a time of 2hrs 5mins 30 seconds. He dedicated the next six years to shave off the additional 331 seconds from the time board, thus completing a task that scientists believed to be humanly impossible-- the sub two-hour marathon.

In October 2019, Kipchoge achieved the impossible. He completed a marathon in under 2 hours. For achieving the impossible, there was an immaculate amount of attention to detail. Kipchoge ran the 42km+ on the 9.6km circuit designed across the city. He ran behind a group of seven pacemakers that included some of the best long-distance runners in the world. At the end of every lap a fresh group of pacemakers rotated in. Five of the seven pacemakers ran in an open V format (guided so by a thick green laser beam) so as to provide the maximum possible aero-dynamic advantage to Kipchoge.

Once Kipchoge picked his race, he focused on every single detail that might deliver him an advantage. This is akin to M&M’s turnaround. Once the race was chosen, they gave themselves every possible advantage by having the first launch be that of the new THAR--a car that not only stands for adventure and rock and roll but also has a significant nostalgic value associated with it, making it an easier sell.

Berkshire Hathaway and Apple

Berkshire’s acquisition of Apple shares was no different. Once determined that they were in the race of owning and partnering with great businesses for long durations of time if not forever, they picked the one business in the technology space that had a fan following like no other- Apple.

Investing is a facet of personal finance and most of us build a halo around finance, thus losing sight of the word ‘personal’. Your constraints and circle of competence should define your portfolio more than anything else.

Warren Buffett always felt shy of investing in technology stocks. It is not because he didn’t attempt to understand those businesses but more so because he felt that he had no insight in understanding what becomes obsolete when in the tech business. He did not give into the feeling of missing out and lap up tech companies. When he finally understood the merit in Apple being a consumer company rather than a technology company, a business he felt he was more equipped to understand and own, he went all in.

Berkshire Hathaway bought its first shares of Apple Inc. in Q1 of 2016, Buffet kept adding on to his position till 2018. He trimmed some of it in 2020 and added it again in 2022. Today Berkshire Hathaway owns 895 million shares of the company-- Berkshire’s largest bet yet. Their holding value of Apple shares accounts for over 22% of Berkshire’s market cap. The initial investment is up over 7x despite the correction in global markets in 2022. The initial investment of $36 bn yields over $800mn in dividends annually.

Incidentally, Apple has been one of the better performing stocks in the tech rout in the US in 2022. Year-to-date losses for Apple sit at just over 17% vs. over 33% for Alphabet (Google), over 65% for Meta (Facebook) and over 40% for Amazon. Mr. Buffett recognized he was built to be a permanent owner/ partner of businesses that believed in betting the ‘house’ unlike other investors who could afford to be nimble and move in and out of stocks. He picked his race, his outcome 6 years hence shows he was right to think the way he did, he slept peacefully in the meantime.

Choose Your Race

We tend to get swept up by how others act on positions we own as investors. You will never know why someone truly bought or exited a stock at that very point of time, their cost of acquisition, and the net worth they have allocated to it. Why get caught up in which fund manager (including myself) claims what and which friend of yours got a killer ‘tip’ to buy what? Play the game you have picked for yourself.

The lesson for us from Kipchoge’s journey or that of M&M’s turnaround doesn’t stop at never giving up or choosing the race you are built for. It extends to putting in enough work and thought to give yourself every advantage once you have picked your race.

Harini Dedhia is a fund manager with Tamohara Investment Managers. Views are personal, and do not represent the stand of this publication.
Posted On Oct 20, 2022

GuruSpeak| How simple stock-picking strategies helped Harini Dedhia generate alpha

'' Training myself to think like a business owner and not just a stock market owner has enabled me to digest volatilities with far lesser acidity. ''

There are a few examples in the Indian markets where a fund manager left their fund management job in the US to work in India. Leaving a job in a hedge fund in the biggest financial market is not an easy decision to make.

Homesickness and her love for mangoes were too overpowering for Harini Dedhia, making her catch a flight back home.

Armed with a degree in Economics, Political Science and Advanced Mathematics from New York University (NYU), she worked for two years in a hedge fund in the US before deciding that India is the market she wants to explore.

A fund manager with Tamohara Investment Managers, Dedhia mixes her US experience of top-down investment with a bottom-up approach she picked up in India.

Harini is an avid reader with an interest in a wide range of topics from history to genetics. If not reading, she spends time with her camera and exploring single-origin coffees from various estates across India. Camera in hand, if she is visiting a new city, she makes it a point to first visit a local coffee shop, then a local bakery, followed by a visit to the local bookstore.

In this interview with Moneycontrol, Harini Dedhia talks about her investing journey and the process of stock picking.

Q: A brief background and your tryst with investing

Investing was not my first or the most logical career choice by a long shot. My parents are doctors who run a hospital in Mumbai. Probably because of the proximity, I had mentally decided early on that I would not become a doctor, though I didn’t know what I would do.

When I was in 8th grade, I got enamored by history and politics. I was fortunate enough to study economics, politics and advanced mathematical models at New York University after school.

When I first went to college, my mother was hopeful that I would follow a career in academia - add a Doctor to my name one way or the other. But forever the younger child and rebel, I realized I was a generalist. I was at my happiest when I was allowed to read across the board.

Every summer holiday, I tried my hand at different career paths. Teaching after my first year, working at a think tank (CMIE) after my second and I finally landed an internship at a hedge fund in my third. Being a generalist, it was the hedge fund I enjoyed the most.

After working at the hedge fund in New York for two years, I came back to India. In the two years I worked there I realized that every other floor in Midtown Manhattan had a fund management company. The market was far too saturated.

Not being close to my family and not having easy access to Alphonso mangoes was too high a price to pay for being a part of the crowd. I believed then and I do so till date, that if I had to make something of myself, India is the only place to be.

Being close to my family has helped me immensely in my investing journey as well. Investing is more temperament than skill. To remain calm and collected in the face of any adversity is something that I learn from my brother, Rushil, daily. He is a wealth manager who always chooses simple over complicated and discipline over excitement. The clarity of his thought process has helped me evolve as an investor more than anything else has.

Born to Gujarati parents, I was exposed to the idea of markets from an early age. CNBC was a TV channel my father used to watch very often.

I first realized its power when my parents bought their current house-- not from their professional income but the proceeds of a single equity investment. However, as a child, I always thought of markets as a topic of interest for my father which ate into my history story time.

I first thought of it as a career only when I started interning at a hedge fund. There was however a single interview, rather a single statement in an interview, that cemented my belief that I wanted to be an investor all my life.

This was an episode on Wizards of Dalal Street where Durgesh Shah said, ‘Investment is the ultimate liberal art’. That statement may be a cliche, but it resonated a lot with me and has stayed with me since.

After 2 years of working in the US equity markets, and 8 in India, I can say that my conviction in that choice has never been higher.

Q: Can you throw some light on the rationale behind your first few investing ideas?

Disney-- I was an intern at a hedge fund in New York, massively naive. I had just finished reading One Up on Wall Street- and the product I thought had the best pull among consumers was the Walt Disney Company. If a company can create the number of smiles that it does, how can it not be a good company? I didn’t know back then that a good company and a good investment weren’t the same.

When I came back to India, my first investment was Nucleus Software. A Rs 550 crore market cap company with a Rs 60 crore PAT and over Rs 400 crore in cash back then.

While the company hadn’t been able to grow its topline in the 5 years preceding my investment, it had made some changes to its sales model that I believed would yield results. In hindsight, I didn’t have much conviction in the changes working but certainly had the conviction that I would not go wrong at that price. I looked at value before business back in the day.

Q: How have you evolved as a fund manager?

My investment journey can be defined in two buckets- one in the US and one since I came back to India.

In the US I used to work for a macro hedge fund. So we would spend a lot of time determining the top-down themes and then buy the best-in-class companies to play that theme out.

For example, if we hypothesized that crude oil would see a price surge, we would go and buy the best-in-class oilfield services company.

My brain was however completely rewired at my first job in India, at Valuequest Investment Advisors. At the end of my first day, I was called in by our Portfolio Manager and asked to discuss an idea I had worked on in the past.

After I finished my short pitch, he asked me the first question that now I always demand answers to- how does the promoter/ owner of the company treat you, a minority shareholder?

The starting point for this he said was to find out when all the promoters raised money from minority shareholders. What did they claim to need the funds for and what did they use them for? And just like that, I was told to look at businesses from a bottom-up perspective vs. my previous top-down lens.

Today, the way I invest, while I endeavour to maintain the rigor of bottom-up research, I prioritize my ideas to work upon based on my top-down understanding of the world.

Within the time I have spent investing in India, the biggest evolution I have seen is- I say no a lot more today than I did in the past. The second change is a behavioural one- I see a reduction in my need for activity vs. my past.I have made terms with the fact that I will most likely never have an information edge in the market. What I can have is a behavioral edge and that comes from understanding businesses from a longer/ structural lens.

In terms of process, the biggest shift has been in the primary frameworks now being tools to distinguish good and bad businesses vs. the earlier mindset of looking for the cheapest asset available and simply sorting for value.

Training myself to think like a business owner and not just a stock market owner has enabled me to digest volatilities with far lesser acidity.

Q: What have been your best and worst investments?

Best idea- M&M. For all the bottom up research we do, it is surprising that a large cap idea is what I feel the highest sense of pride in and not a unique, undiscovered small cap idea.

Perhaps that is the reason itself. I bought the business in October 2020 when perhaps no one was willing to discuss the idea. Reading the FY20 annual report, prompted me to go build a deeper understanding of the company, especially of the underlying changes.

A company of that size admitting complacency, admitting they used to be great and can get there again but are not there today was exemplary to me. This was coupled with a board willing to showcase focus and decisiveness in capital allocation that had been missing for a while.

Worst idea- Long list, but one in particular- Kesar Terminals & Infra. Bought and sold in 2015-16. The company back then had a bulk liquid storage business at Kandla port and was working to complete and commission India’s first multi-modal logistics park.

The first time I met the management at the AGM- there was enough evidence provided on execution and narrative not adding up. It finally took meeting them again to sell the stock.

While I didn’t lose too much money, it is the complacency that I showed in sitting on the business despite not being convinced that makes it my worst idea yet.

Q: How do you presently invest?

Our starting point is a higher rate of change vs. the rest of the economy. If you are growing faster than the economy's nominal GDP growth, you are gaining wallet share with the Indian customer. Within such businesses, if you grow faster than your peers, you should gain market share.

Fairchem Organics is a business that fit the bill for us. As the end-user industries of paints and nutraceuticals are growing faster than the economy, and the additives- oleochemicals (derived from natural fats) are growing faster than petrochemicals, given environmental concerns.

Wallet share and market share gains combined with prudent capital allocation ensure growth with incremental return on equity being higher than in the past. Incremental RoEs for Fairchem are around 40% of the capacity commissioned in this financial year.

If the company’s cash generating ability is robust, incremental growth should be funded largely by internal accruals vs. debt. As is the case with Fairchem.

Simply put- higher growth vs. the economy + improving return on equity + declining leverage. This is a very simplistic reduction of our framework.

Before we zero in on an investment idea we do a pre-mortem.

We assume we have made the investment and regret the same two years hence; what would be the possible reasons for the same? What are the endogenous risks to the company? For a chemical company, we have found that clearances from respective state pollution control boards is a big scare point.

In Fairchem we found a company that does good for the environment and helps in controlling pollution as its raw material is the waste product obtained from cooking oil refiners.

The Gujarat Pollution Control Board published a paper in 2014-15, hailing the work done by the company. Our concoction of higher growth + improving return ratios + declining leverage was topped off with an operational margin of safety- we went all in. (We still own the stock so please do not treat this as a recommendation. We are biased).

Q: What are your plans for the future?

Continue reading and learning as an investor while creating an institution at Tamohara that adheres to the tenet of investing being a liberal art. I dream that Tamohara becomes a reputed research-driven investment organization and hopefully if we stay the course, in the process, we create significant wealth for all stakeholders involved.

Another dream of mine is to have our research operate out of a smaller town- perhaps a Goan village; away from the noise and cacophony of Bombay. As long as we are an hour away from an airport, we are better off as researchers in more peaceful areas.

Posted On Sep 27, 2021

WealthBasket Manager Portfolios: Sheetal Malpani
(CIO, Tamohara Investment Managers)

The growing Indian stock market can be attributed to the positive impacts of government policies like PLI, GST, etc., discusses Mr. Sheetal Malpani (CIO, Tamohara Investment Managers). He also talks about how Tamohara Equity WealthBaskets can help you create wealth.