September 28th, 2021

Current Indian market dynamics, how the COVID 19 impact is seeping into the financial markets and its impact on individual businesses?

The catastrophic effects of the pandemic were disastrous and will leave a lasting legacy across industries and throughout the world, India is no exception. However, it also paved the way for many trends to accelerate growth and development. Profit pools, market share pools, and revenue pools have further consolidated, for example, ~90% of incremental non-bank mortgage lending is facilitated by two lenders. This consolidation is apparent across many other sectors and categories.

Most interesting for us is the exponential push and pull growth of the digital sector, where new digital products and services are showing exponential opportunities and development. This can be seen in the rapid scale-up within the e-commerce channel from some of the existing FMCG businesses and the rapid growth of D2C businesses.

There is a range of opportunities, especially in the digital ecosystem and we believe that as discerning investors, we are uniquely positioned to be able to identify and participate in many of these.

Investment Strategy for Bay Capital?

Bay Capital is inherently long-term across the business, our investment philosophy and approach is to buy and hold a concentrated portfolio of high-quality businesses and allow them to deliver superior risk-adjusted compounding returns over an extended period.

Our flagship investment vehicle invests across public and late-stage/pre-IPO businesses. These are businesses that have long runways for growth, are judicious capital allocators, and have a large and dominant leadership position in the segments that they operate in.

India finds itself at a unique inflection point and just as the India of 2021 is very different from the India of 2010, we are certain that the India of 2030 will differ substantially furthermore, so we are as excited by the India story today as we have ever been. The composition of the economy and the financial markets will undergo a dramatic change. This has profound implications for long-term investors and we believe that we are uniquely positioned for this.

What are the key identified opportunities within India’s ecosystem?

We are very excited by the rapid digital transformation in India and see a wide array of interesting opportunities to invest there. Our primary focus at present is on consumer internet businesses but we remain agnostic and open in our approach. If you stand back and remind yourself of the very basic numbers, India was and remains one of the biggest opportunities for digital growth in the world.

Outlook on global market capital outage?

Bay Capital is not a macro investor and therefore doesn’t tend to make investment decisions that have specific views around flows. That said, the pandemic has resulted in a global surge in liquidity as many extraordinary measures were put into place last year. Much of that liquidity has found its way into asset markets.

Emerging markets (EM) have certainly benefitted from this as well. If one looked at the returns of Developed Markets (DM), especially the US, versus EM over the last 5-7 years, DM have outperformed. We do think that given the abundant liquidity and the compelling opportunities available in markets such as India, particularly with its digital transformation, India will attract larger flows going forward. This could mean that past underperformance of EM (and versus DM) can be likely corrected.

Recent reports also indicate that India will become a part of the global bond indices (possible early next year), which can result in a massive surge of flows into Indian fixed income. All of this augurs well the long-term outlook for India’s financial markets.

We will continue to be bullish on India, notwithstanding near-term bumps, and continue to look out for best-in-class businesses run by best-in-class founders/teams to buy and hold for the next decade and more.

Advice to founder and promoters on building long term business?

Bay Capital likes businesses that are efficient allocators of capital, display strong governance standards, and illustrate strong competitive advantages either on account of brands or distribution, or technology.

Our advice to entrepreneurs is to focus on building something that endures and to build to solve uniquely Indian problems in uniquely Indian ways.

Also to think in terms of (i) evolution, the spirit of constantly seeking, discovering, and learning afresh and (ii) adaptability, flexibility in thought and action that ensures that one can course correct rapidly, to spot the opportunities of the future and position oneself accordingly.

Excerpts from the interview have been covered here on the India Infoline website :- https://www.indiainfoline.com/article/editorial-interviews-leader-speak/siddharth-mehta-founder-cio-bay-capital-121092800296_1.html

Posted by Siddharth Mehta, Founder & CIO