“Show me the money!” – Jerry Maguire

With rising interest rates and tightening liquidity, the environment is becoming tougher for many dodgy businesses. These are companies that use all sorts of accounting shenanigans to report accounting profits even though the business truly does not make any money. Such frauds thrive in bull markets when investors focus primarily on accounting profits, and value businesses using earnings-based metrics like P/E or EV/EBITDA. The more the company is able to inflate its profits, the higher it gets valued. It is difficult for investors to ignore companies that are consistently reporting high ROEs and strong earnings growth.

The trading volumes in India’s capital markets have seen significant growth in recent years. NSE’s Cash Equity volumes have tripled and Futures volumes have more than doubled over the last seven years.

Continue reading Indian Exchanges – Rise Of Options Turnover →

Continue reading Are Management Meetings Useful? →

The disproportionate value creation by the FAANG stocks over the last decade has made ‘Platform’ a buzzword among investors and start-ups. Every business wants to call itself a Platform to attract investors, and dissuade competitors. The most unlikely businesses have called themselves platforms – WeWork (Co-working), Beyond Meat (Synthetic Meat), Casper (Mattress e-commerce) and Peloton (Exercise bikes). In India too, Platform is a highly coveted tag. Almost all tech companies that got listed in the last 3 years call themselves Platforms. The below table outlines the number of times the word ‘Platform’ was used in the Red Herring Prospectus (RHP) of some of the recent tech IPOs:

Continue reading The Platform Delusion →

Last month, the RBI announced a new regulatory framework for microfinance (MFI) loans¹ . In this note, we discuss how these regulatory changes impact the microfinance sector in India.

The new framework removes several restrictions that existed for NBFC-MFIs and creates a level-playing field for all types of MFI lenders (Banks, Small Finance Banks, NBFCs and NBFC-MFIs). These changes could lead to a structural increase in ROEs for NBFC-MFIs and open up new avenues for growth.

Continue reading Microfinance 3.0 →

In 2017, we wrote about Luck vs Skill. This is what we said –

Continue reading Luck Vs Skill – Once Again →

Company A is a listed ‘Consumer-Tech’ business in a highly competitive industry. The IPO of this company was significantly oversubscribed by retail and institutional investors. Excluding the Promoters, this ‘tech’ company has NO Engineers in its top management. The median salary of the employees in the company was less than 2 lakhs in FY21 (2.5 lakhs in FY20). The highest salary that any employee/senior management draws is less than INR 25 lacs per annum (ex of Promoters).

Find anything fishy in the above data?

Continue reading Market Cap Without Human-Cap? →

Continue reading In Defence Of DCF →

Since we started the PMS in 2016, one of the largest sectoral allocations in the 2Point2 Long Term Value Fund has been in the Gold Loan space. Despite having sold a good chunk in some of the names (due to increasing concentration), it continues to be a fairly large allocation.

Naturally, we end up getting tons of questions related to these businesses. Below we share our answers to some of the most frequently asked questions. This should also help to articulate our investment thesis and why we continue to invest in this space.
Continue reading Q & A: The Gold Loan Business →

The equity markets in India (and globally) have had an extraordinary rally in FY21 with Nifty 50 returns of 64%. Mid and Smallcap stocks have done even better with Nifty Midcap 100 return of 79% and Nifty Smallcap 100 return of 98%. Continue reading Portfolio Management Services (PMS) VS Mutual Funds (MF)? →