The big story this time is not that digital is powerful, but the fact that it is widespread and more interconnected than ever before. The whole system is transforming, says Gopal Srinivasan, Chairman, TVS Capital Funds
Given the kind of FII inflows that we have seen month to date, are you convinced that the market has more legs to go? What makes India attractive right now?
I am going to stay away from the momentum and the excitement that there is around that. The NSE Bank is within 10% of all-time high and we do a lot of investing in banks. The way India has weathered the most difficult challenge of the economic crisis created by Covid is exceptional. So many countries have struggled in so many different ways to surmount this greatest of challenge and India has done a very creditable job.
When I say India, I do not mean the Government of India alone. I just mean the people of India — be it small businesses, mid-sized businesses or large businesses, be it RBI with its exceptionally astute policies on liquidity and be it the government on public health. It has been an all-round good experience. This makes an emerging giant like India more attractive because it has not been damaged and it is actually coming back with more resilience than one could imagine. At a very macro level that is what I would imagine.
FIIs have been coming in October and November far more aggressively compared to the domestic market investors which shows that compared to the rest of the world, they find India that much more attractive.
The world has turned digital in the post Covid era. Where within this phase do you see the big trends or disruptions emerging?
We invest mostly in the B2B and financial services industries. In these s[aces, the digital potential was always there. The fact that we had this massive internet infrastructure was something we never really knew till it was stress tested during the time of Covid. We have had these capabilities for the last few years and the internet bandwidth in the last 20 years but in terms of digital transformation, all that have come to the fore only in the last few months.
Companies that we invested in and which were well managed, actually produced dramatic transformations inside their businesses in the last nine months and companies that were not, tried to but could not do it as successfully. This is always the case whether it pertains to transforming digitally or transforming to participate in global markets or any other kind of transformation.
Companies that are well managed will use digital far better in terms of improving their operational efficiency and in terms of using data. The main thing I look at is the fact that today it is available freely. There was a time 10 or 15 years ago when to access the power of digital one had to be large and one had to be willing to take a lot of kind of blind faith type of large upfront investments and kind of hope that this transformation would work. The entire organisation looked at it as some kind of temple that one had to go with slippers removed. From that time in the early 2000s to now, digital has been democratised. All the employees in the company in their personal lives use digital very extensively, starting with the fact that there is expected to be one billion payments per day in the near future as per the MPC chairman speech last week and the access to digital products are through SaaS and through the massive integrations that we are seeing through APIs. It is a real transformation.
Take our own investment in a company that rents pallets out. You can rent a pallet to put in a truck and go from A to B. Today pallet pooling in India is a good indicator of logistics efficiency. It is 5% at present and it should be 20-30%. That is the reason why India is spending such a large percentage of its GDP on logistics. The last check was 12-13-14%, which should probably be in a single digit number and that unleashing of the efficiency will bring down the logistics cost as well as improve experience and reduce the lead time.
How does one go about understanding the pharma space? How are you visualising your investments investments in this space?
Honestly, this is an out of portion question for me, I do not understand API, I do not understand the US market FDA issues; all I see in the pharma space is a very limited last mile issue. India has got a Rs 1.5 lakh crore pharmacy market. This market has been attracting tremendous investments.
We saw recently the merger of Medlife with Pharmeasy — two of the largest online companies. Our own old business partner MedPlus which is a Rs 2,500-crore pharmacy business with about 10-15% e-pharma is going through dramatic transformation. The biggest news of all is Reliance is buying Netmeds for Jio Mart and trying to digitise the e-pharmacy space. Amazon’s announcements in this space have also come out.
There are rumours that other large, famous Indian business groups are also interested in this space. It is a space with Rs 1.5 lakh crore of business with nearly eight lakh or more retailers. There is a wide variation in prices of pharmacy products across chains, across generic, branded and generic-generics. That part is going through mega transformation.
One of the big stories of e-commerce for the next one or two years is actually going to be the e-pharma business. I am really interested in that space because this will mean consolidation into larger players, weeding out of inefficiencies in the supply chain especially when it comes to the distributors and small retailers. There is going to be huge change and Prime Minister Modi’s vision of getting more generic-generics is going to become real. Enabled by e-pharms, people will now be able to compare medicine prices. So that is the next big step. We are going to a big revolution. The Rs 1.5-lakh crore pharmacy business is getting transformed.