Dalal Street Voice: Budget 2022 was a major development for a “Sustainable India”: Anshul Rai of Earthwise Investors

Anshul Rai, Founder, Earthwise Investors said that we believe this transformation towards a sustainable world is the greatest investment opportunity for the next 20-30 years.

Anshul has over two decades of sustainable investment experience in Emerging & Frontier Markets spanning Asia, Africa, and Middle East, in a broad range of industries including renewable energy, water, waste management, healthcare, transportation and telecoms.

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In an interview with Zeebiz's Kshitij Anand, Rai said that investors seeking long-term returns and wealth accumulation must therefore align their investment strategies with the paradigm of Sustainability. Edited Excerpts -

Q) RBI maintained status quo on rates and maintained a dovish stance which came as a welcome surprise for markets. What is the trajectory you foresee for rates in near future?

A) We feel that the need of the hour is to nurse, promote and sustain the nascent economic growth. The RBI also seems cognizant of the same and hence the dovish stance.

We do not expect the RBI to be too aggressive in rate hikes at least in this calendar year. Inflation is a worry, but as the base effect wears out over the 2HFY23, it could moderate and that is what the RBI is betting on.

Having said this, an oil shock due to prolonged geopolitical tensions can be the spanner in the wheel.

Q) Indian market picked up momentum post Budget after initial US Fed jitters stabalised. What are your views on markets for 2022? What will be next trigger for markets?

A) The domestic backdrop for the Indian equity markets is constructive for 2022, even though the global conditions look less favourable given the impending interest rate increases in the US and tighter monetary conditions in all major economies.

In the short- to medium-term, the only certainty can be volatility with pronounced, news-driven moves (as seen on Monday).

Over the next 12 months, though, we expect the fundamentals to reassert themselves. Most companies that we speak to are bullish on the demand conditions.

Margin pressures will remain for a couple more quarters, in our view. As companies come out of this through increased realisations, markets will start to focus on that and may probably start an uptrend in anticipation.

Q) Budget 2022 was focused on boosting growth – do you see sectoral rotation taking place? Which should long term investors focus on?

A) As a growing economy with a low per capita GDP, there are growth opportunities in nearly all sectors. From consumption to CAPEX, the budget should help all the economy’s engines to contribute to broad-based growth.

Sectoral rotation is something that market participants always like to talk about but, as long-term investors, we prefer to play the longer-term, structural trends.
 
As an investor, more than a sector-focused approach, one should look at business models or franchises which are sustainable long-term and have the ability to grow faster than their peers and generate ROIs higher than their cost of capital.

Such companies will create wealth (almost) irrespective of the macro backdrop.

Q) Which theme will dominate markets in 2022 – value or growth? We saw a lot of liquidity chasing many mid and small cap stocks in 2020-2021 to tap growth. What are your views?

A) As stock market investors we are buying businesses, so no one will invest in companies where they don’t see value creation.

As investors, we buy businesses that have the potential for long-term value creation. Putting companies in “growth” or “value” buckets is quite subjective and, frankly, lazy in our opinion.

What is growth for one, could be value for another. Capital moves where it perceives relative value, so maybe it chased mid and small caps last year, because the opportunity for delta was high.

This year will mostly be a year of consolidation and movement will be very stock-specific in our view.  

We believe that, as an economy and market, India offers excellent relative value for global investors, and we do not see that trend changing – despite the current reversal.

Q) Any new age developing themes which investors can look at for next 2-3 years? And the ones which one can avoid amid high valuations?

A) Our advice to investors is to avoid investing on the basis of a theme or fad. They tend to be momentum-drive affairs and most investors don’t have the agility to time the moves perfectly.

This is particularly true of stock markets with the current excess global liquidity exacerbating moves in both directions.

So, always focus on high-quality companies with strong business models which can grow sustainably and create long term value.

Many investors don’t have the necessary time (or, possibly, skills) to do the required “deep dive”. If that’s the case, please hand your money over to professionals.

Q) The world is focused on ESG or sustainability investing, but for India it is relatively new. Take us through the journey of ESG investing and way forward?

A) The so-called “ESG” investing (we prefer the term “sustainable investing”) has gone mainstream relatively recently, has remained a niche concept until the adoption of SDGs by the UN and the signing of the Paris climate agreement in 2015.

Since then, there has been explosive growth in ESG-labelled investment products as well as fund managers claiming to adhere by ESG principles.

This reflects genuine investor interest in sustainable investments as well as more opportunistic attitude of fund managers “jumping on the bandwagon”.

Looking forward, we believe investors will become far more discerning in their product selection. They will seek genuine differentiation in investment strategy and process – which are led by sustainability principles.

Q) Which companies according to you rank highest in ESG framework and why?

A) The characterisation of a company as sustainable is done around multiple dimensions encompassing a broad range of environmental and social factors.

It is not enough to just look at carbon emissions or air pollution or waste generation. We also need to look at the impact on society – on dimensions such as job creation, skill development, working conditions, and access/inclusion.

Sustainability analysis is also highly contextual – driven by socio-economic factors of a country/economy. In the Indian context, the most sustainable companies are the ones that generate high levels of economic value addition with the lowest carbon footprint and minimum pollution.

They provide a large number of [highly-paid] jobs while treating their staff fairly and promoting an inclusive workforce.

Examples of such companies are to be found in sectors such as Software/IT, Telecoms, Renewable Energy, Healthcare and Financial Services.  

Q) Why should investors focus on ESG/sustainability score before investing?

A) Beyond the digital transformation currently underway, the world will also witness another transformation over the next few decades – a transformation to a sustainable world.

There is ample evidence confirming the current patterns of production and consumption are unsustainable – to enable people in Asia, Africa and Latin America (representing 85% of world population) to achieve the basic level of prosperity common in the “developed” world.

The adverse environmental and social impacts of economic growth must be mitigated to ensure that our planet and our societies are still around for the future generations.

At Earthwise, we believe this transformation towards a sustainable world is the greatest investment opportunity for the next 20-30 years.

Investors seeking long-term returns and wealth accumulation must therefore align their investment strategies with the paradigm of Sustainability.

Q) What are your key takeaways from Budget 2022? The government has taken a lot of initiatives around pushing green energy. What are your views?

A) The budget was a major development for a “Sustainable India”. The announcement of inaugural sovereign green bond is a major milestone.

It demonstrates the government’s commitment to sustainable development. Achieving UN SDGs requires access to capital and green bonds have emerged as a preferred mechanism for the same.

Continued support and expansion of the PLI schemes is crucial for India’s quest for jobs-intensive economic growth and a major pillar of government’s sustainable development strategy.

We also found the announcements on Parvatmala (cable car based transport systems), battery swapping policy and inclusion of energy storage systems in the definition of infrastructure as significant positives.

The budget also expands the scope of “Circular Economy” – by laying greater emphasis on issues such as reverse logistics and integration of the informal sector.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)