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Sam Gupta: Ripe Arbitrage Opportunity In Potential Indian Banking Sector Consolidation
In this episode of China Money Podcast, guest Sam Gupta, CEO of Grand Trunk Capital, explains why he is bullish on the Indian economy and markets, why Indian banks will consolidate in the next two years, and the reason why he prefers to work with the management team.
Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.
Q: First give us a brief introduction of Grand Trunk Capital?
A: Grand Trunk Capital is a private investment partnership, (managing money) for institutions and family offices. We focus on special investments in India. Previously I managed a fairly large fund in partnership with Soros Management called QIF Management. QIF Management was at points in time the largest overseas investment fund in India.
The strategy (of Grand Trunk Capital) is to focus on five or ten best investment ideas across sectors and geographies within the Indian markets. We are not a trading fund. We tend to take longer term and focused positions in Indian companies where we think there is sufficient mispricing and where we see sufficient upside down the road. Our strategy is very search based, value driven and focused on catalysts.
Q: Can you talk about the performance of the (Grand Trunk Capital) fund?
A: The fund was up 42% in 2012. We had a very bullish view on the banking system in India, and started buying some Indian banks towards the middle of the summer. That worked really well for us. We also took opportunities in the media space because of the catalyst of regulatory changes. One of our largest investments, (United Spirits), was bought out by Diageo, the world's largest liquor maker, at a significant premium. That's an investment we got into in early 2012.
Q: Now you are raising more capital for Grand Trunk Capital. What do you think makes India more attractive?
A: What's interesting about India vis-à-vis Russia, Brazil and China is that India is primarily a domestic market. It has a young population. Most of the economic activities are about feeding and satisfying their needs. So when the world slows down, India is impacted much less than other emerging markets.
India also has a very diversified economy. Almost 50% of the Indian economy is services based. So it is a bit of a paradox that the Indian economy is both a more diversified economy and also a more basic economy.
Q: Normally, how big a stake do you take when investing in a stock?
A: We try to take less than 10% of a company, but we've taken more than that in some companies in the past.
Q: Are your investments passive, or do you try to influence the management of the company?
A: Once we take a minority position, we try to stand on the same side with the management. In India, management team tends to control half of any given company. So their well-being and wealth is tied up with the price of the stock. The legal system is also stacked in favor of the management, so as an investor, you can only do so much.
But we feel comfortable with most management teams in Indian companies, at least those managers we like. They generally are appreciative if we give them good advice.
Q: You also offer special situation investment opportunities to investors. Tell us more on that?
A: Sometimes we work with management in unlocking the value of their company. It might involve halving off a division, making an investment in a new project. Of course, we invest along with the management, which is probably the best price you can get to invest. So we give co-investment opportunities in these special deals for our core fund investors.
Q: Can you give us an example of a recent special situation opportunity that you have looked at?
A: We launched a fund in late 2012 to take arbitrage opportunities among Indian banks. Some Indian banks are trading at a massive discount to their larger peers. Some of them are good acquisition targets in the next two years.
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By ChinaMoneyNetwork.com
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In this episode of China Money Podcast, guest Sam Gupta, CEO of Grand Trunk Capital, explains why he is bullish on the Indian economy and markets, why Indian banks will consolidate in the next two years, and the reason why he prefers to work with the management team.
Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.
Q: First give us a brief introduction of Grand Trunk Capital?
A: Grand Trunk Capital is a private investment partnership, (managing money) for institutions and family offices. We focus on special investments in India. Previously I managed a fairly large fund in partnership with Soros Management called QIF Management. QIF Management was at points in time the largest overseas investment fund in India.
The strategy (of Grand Trunk Capital) is to focus on five or ten best investment ideas across sectors and geographies within the Indian markets. We are not a trading fund. We tend to take longer term and focused positions in Indian companies where we think there is sufficient mispricing and where we see sufficient upside down the road. Our strategy is very search based, value driven and focused on catalysts.
Q: Can you talk about the performance of the (Grand Trunk Capital) fund?
A: The fund was up 42% in 2012. We had a very bullish view on the banking system in India, and started buying some Indian banks towards the middle of the summer. That worked really well for us. We also took opportunities in the media space because of the catalyst of regulatory changes. One of our largest investments, (United Spirits), was bought out by Diageo, the world's largest liquor maker, at a significant premium. That's an investment we got into in early 2012.
Q: Now you are raising more capital for Grand Trunk Capital. What do you think makes India more attractive?
A: What's interesting about India vis-à-vis Russia, Brazil and China is that India is primarily a domestic market. It has a young population. Most of the economic activities are about feeding and satisfying their needs. So when the world slows down, India is impacted much less than other emerging markets.
India also has a very diversified economy. Almost 50% of the Indian economy is services based. So it is a bit of a paradox that the Indian economy is both a more diversified economy and also a more basic economy.
Q: Normally, how big a stake do you take when investing in a stock?
A: We try to take less than 10% of a company, but we've taken more than that in some companies in the past.
Q: Are your investments passive, or do you try to influence the management of the company?
A: Once we take a minority position, we try to stand on the same side with the management. In India, management team tends to control half of any given company. So their well-being and wealth is tied up with the price of the stock. The legal system is also stacked in favor of the management, so as an investor, you can only do so much.
But we feel comfortable with most management teams in Indian companies, at least those managers we like. They generally are appreciative if we give them good advice.
Q: You also offer special situation investment opportunities to investors. Tell us more on that?
A: Sometimes we work with management in unlocking the value of their company. It might involve halving off a division, making an investment in a new project. Of course, we invest along with the management, which is probably the best price you can get to invest. So we give co-investment opportunities in these special deals for our core fund investors.
Q: Can you give us an example of a recent special situation opportunity that you have looked at?
A: We launched a fund in late 2012 to take arbitrage opportunities among Indian banks. Some Indian banks are trading at a massive discount to their larger peers. Some of them are good acquisition targets in the next two years.