Transcript: Why Trump’s Tariffs Shook India’s Markets & How Modi Turned Russian Oil Into Profit – Shashank Udupa

They don’t want volatility in the market. Small investors don’t care about volatility. But large investors, when they’re investing billions of dollars, they want things to be stable.

Now what happened was when this whole tariff situation came in, the FII started realizing that all markets started becoming very volatile. It was not just Indian markets, it was Chinese markets, it was US. Everything became very fluctuating, right? And that’s when they started moving their money away.

So if you follow the flow of money, money went out of India at that point, and not just India, out of most emerging markets. Where does it go into? Starts going into fixed income assets. What are fixed income? Either gold or bonds. These are the two things that were there. And Donald Trump actually wanted this, where people come and invest in the US bond and all of that. But that didn’t happen and people started going into gold.

Now that was the first trigger that started in September, October, when people realized that this whole tariff situation was happening. And then people start fighting back. Like China fought back. India is fighting back now. Earlier we didn’t fight back, but China fought back. And that’s when central banks started buying a lot of gold at that time.

SHARAN HEGDE: How do you fight back when something like this happens?

China’s Response: Standing Their Ground

SHASHANK UDUPA: So China, first of all, I think US is a little bit right now in Deluland also because they keep saying that, you know, you make more money from us. But like for example, in Vietnam, people were making Nike shoes for peanuts on the dollar. But Nike was selling that all across the world for huge profits, billions and billions of dollars. Add that to your tariff war as well, right? That doesn’t come like iPhone. We manufactured it, but we’re buying it for one and a half lakhs for iPhone 17. That’s damn stupid, right?

So that is something was not factored in. And China was the first one to fight back. Russia obviously had sanctions on them, but China said, “Do what you want, we’re going to be here only.” And I think there was a statement by one of them that said, “China was here 5,000 years ago. We’ll be 5,000 years ahead also. We’ll be there so you can do whatever you want.”

And that’s where the whole bond between US China became fine again. India now did the same thing. And we’ll get to that also. But that was also a good master stroke by them. But I think that creates volatility in FIIs. Right. Whatever happening in the geopolitical standpoint, war started coming in more frequently at that point.

That creates this problem where FIIs are like, I want to chill. I want fixed income assets. And markets are becoming very volatile. And we saw that dip September 2024 to March end. We had a very bad market. We had the Iran Israel war going on. We had our Indo Pak war. That happened few days, but it happened.

So all of this starts creating a problem and we go into fixed assets. So FIIs have not come back properly till now. But in the same time, Indians were investing a lot, our SIP income was going up. DIIs were getting a lot of money. But even today, most of the DIIs…

SHARAN HEGDE: Which is like mutual fund, mutual fund.

SHASHANK UDUPA: Companies, like, it’s your money but with mutual funds. Right. Most of them are still in cash even today. Now there is the micro reason, like one I spoke about macro. That whole nonsense is happening all across the world. So FII has moved to the fixed income. Now what about India? Now India.

SHARAN HEGDE: Before you come to that, I just wanted to ask. So summarizing it is that Donald Trump is the reason for all of these things.

SHASHANK UDUPA: Yes. Right. Yes, just summarizing it.

Trump’s Incentive: Understanding the Strategy

SHARAN HEGDE: So then what is his incentive for doing this? Because a lot of people are saying that it is collateral damage.

SHASHANK UDUPA: Right.

SHARAN HEGDE: Because if you die, I die.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: So what is Donald Trump’s incentive for doing all of these things? By increasing the tariffs and all of that?

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: What problem is he trying to solve in the US by doing all of these things and imposing all of these sanctions, which is affecting India?

SHASHANK UDUPA: Yeah. So first things first, is US kind of screwed up on their entire economy from a very long time. And we knew this, this debt bubble was creating in Europe, in US. Right. They have to pay so much amount of interest that billions and billions of dollars just in interest. And this was mounting, mounting, mounting. And how were they solving this before? Printing more dollars. I’ll just print, roll over the debt and roll over the bonds and I’ll keep going. Fine. Right.

SHARAN HEGDE: So just to add a point here, when you mean US is having more and more debt.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: It basically means that US is spending more money than the tax that it is collecting from the population.

SHASHANK UDUPA: Than the GDP tax. They don’t have enough money to…

SHARAN HEGDE: So there’s a big deficit that is climbing up and I think today that debt is almost $30 trillion.

SHASHANK UDUPA: Yes, right.

SHARAN HEGDE: Which is like ridiculous. Like India’s entire GDP is 4 trillion, 3 trillion.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: So 10 times of India’s GDP is the US debt.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: So that is the problem.

The US Debt Crisis: Printing Money to Survive

SHASHANK UDUPA: That is the biggest problem. And that is why when these bonds, these US bonds, what is a bond? Right. US comes and says 4% 30 year bond that they have, which is around 4.9, 4.8 today. So they’re like, you can come and invest in this 30 year bond and US will give you an interest of four point. And we take that money, US takes that money and grows their economy kind of a thing. India’s bond is slightly more because we’re emerging market.

SHARAN HEGDE: So that is how the debt keeps increasing.

SHASHANK UDUPA: That is how the debt keeps. So they are liable to pay that money out to the bond holders. And who are the bondholders? Mostly was Japan used to hold bonds, treasury bonds of US. China used to hold. China was the biggest bond holder of US. That’s why, I don’t know why they try to screw up with China. India holds a little bit of it. UK holds a lot of it. Right.

So we were all holding US bonds because it is considered Federal Reserve and it was considered safe and all of that. Now with all of this happening.

SHARAN HEGDE: So the problem happens when US starts printing more money.

SHASHANK UDUPA: Printing more money to pay this debt. Yes. And they’re doing this.

SHARAN HEGDE: That is like cheating because it’s like you are taking loans in your own currency and then to pay back that money, you’re printing more money. So that is a power which only US has in the whole…

SHASHANK UDUPA: Only US has because the demand for dollar is so high. And whenever there is, you know, whenever there’s a war, the biggest profiteer from that war has always been US companies.

SHARAN HEGDE: Because they have the defense companies.

War as Business: The Defense Industry Profits

SHASHANK UDUPA: They have the best defense companies. Honestly. Right. There’s no one else to rival. Yeah. So they were always making money. And all the deals that happen, which is even Ukraine, I think almost 6 to 10 billion dollars of aid or money transfer has been happening with these defense companies in US. So that’s $10 billion of revenue coming because of the war. Right.

That is all there. It’s all possible. War is a beautiful business for people who are in defense. So that even India’s defense companies have done well because of that. Right now the problem is when this term of de-dollarization came in.

Now I’m printing dollars, I’m happy, I’m paying my loan again and again. And demand for dollar is also there. So we are always losing. Emerging markets lose a lot because our USD INR was what, 40, 50 rupees. Now it’s at 80 rupees. So we’re always losing. Right. So even though you’re printing more dollars, you’re not going into hyperinflation, you’re fine.

SHARAN HEGDE: So just to explain that. So basically I’m US.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: And I have to pay a loan to you. I don’t have the money, I start printing more money. If I start printing more money, more money in the economy which means inflation goes up.

SHASHANK UDUPA: Yep.

The Inflation Export: How US Printing Affects India

SHARAN HEGDE: Now if there is more money here in the US I can also spend more money outside the US which means I’m spending more money to buy things like oil things, basically exporting other things because of which the price of oil also goes up. And because of that for India also the price of oil goes up and also then because of that the dollar to INR that ratio also keeps getting increasing.

SHASHANK UDUPA: Yeah. And another problem is most of the emerging nations, whether it’s Africa, whether it’s India, when we take loans from the World Bank or other, we take it in dollars. Now when I have to pay back, I’m actually paying back more. Right. Because for me the INR rupee, what I’m generating from my GDP it keeps depreciating because of the dollar appreciating that way. Correct.

So if I take a 100 million dollar loan, let’s say at 50 rupees now I’m paying that same thing back at 80 rupees. India has to pay more outside. So all of these problems were there but this was all sustained because there was a demand for dollar as the world trade currency. That is why it was, they could print as much as they want and they could, you know US aid which was there that came out, they could just give $100 million to some country and say “pulto” like you know, just change the government over there and all of that. Now what is happening is I think…

SHARAN HEGDE: Even during COVID US was just giving thousand dollars to its citizens just like that, they don’t care.

The De-Dollarization Movement: BRICS Currency

SHASHANK UDUPA: Because as long as dollar demand is there in the world they don’t care. They’ll keep printing. Now the problem came in where China and Russia realized that this was a ceiling that they’ve hit. Right. And that is when they started creating this de-dollarization.

There was a very famous meeting that Russia and China did when they got re-elected. Chinese Prime Minister got reelected and then North Korea’s leader also went there and they had this photo of a new currency as well. Now they’ve realized the BRICS currency. The BRICS currency.

Now they realize that if we even move 10% of the global trade away from dollars, that whole printing money and getting away with it will start crumbling.

SHARAN HEGDE: Will start.

India’s Strategic Oil Play with Russia

The house of cards will start falling down. And sadly, US today is apart from the tech part, which is the max 7, everything is outsourced. Right. What? Even your AMD and Nvidia chips are not made in US, it’s made in Taiwan. Right. That is why they want to protect Taiwan so much. And that is why China wants to take Taiwan so, so badly. Right. TSMC will go away.

What does US actually manufacture and provide to the world? China does literally everything. They just said rare earth material stopped. The whole world came to a standstill and said, sorry. Including India at that point. Right. If you look at Ola and all of that, they were struggling to get those rare earth materials. So China knows they have that inherent power to survive. US is only surviving because of all this. The best thing that US has right now is defense as of today. Best. Right.

So all of this kind of came in and with the de-dollarization coming in, that’s when all of this happened. And I don’t know if you want to get into it, but the whole Russian oil tariff, you remember India getting Russian oil tariffs. There’s a nice story to that.

SHARAN HEGDE: Basically, India kept buying oil from Russia.

SHASHANK UDUPA: Yeah. There’s a story to that. And there’s a real reason why this is very beautiful in macroeconomics.

SHARAN HEGDE: So just to say I read somewhere that Trump is saying the reason why he’s imposing these tariffs on India is because India is buying from Russia.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: And then that money is used to fund the Ukraine war.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: That is the reason they’re giving you stupid. Because they’re only funding all of these wars as well.

How India Turned Russian Oil Into Profit

SHASHANK UDUPA: But I’ll tell you what, India was not the real target from US standpoint. It was not India. It was actually Russia and China was a real target. We were just getting hit as a pawn in the proxy. Right. And I’ll tell you the reason why.

In 2022, I don’t know if you remember, there was a deal that was going to happen between Reliance and Aramco, which is the Saudi company, didn’t go through for a lot of reasons. Immediately after that, Russia, Ukraine sanctions were going on at that point. And Reliance in the Jamnagar facility used to get around 5% of Russian crude at 2022. Today, 50% of the Russian crude is coming in. 50% of the crude oil in Jamnagar is from Russian oil.

And it is not just Reliance, but it is also few other public sector companies like BPCL, this and that, but not at that quantity. Now we took the cheap Russian oil, which is cheaper than Saudi oil. Okay. We took it at a discount. We used to refine it at the biggest refinery in the world and then sell it back to Europe and Ukraine as well. In fact, I think last month there was a data that came out that we are the highest diesel suppliers to Ukraine right now. Okay.

So who is winning in this? Definitely Russia is winning. India is definitely winning in this. Now obviously US has got a little pissed off. And the whole reason why US wanted to put sanctions on India was to say that take some oil from me. It was not that stop funding this Ukraine war. It was mainly to take some oil from me also by only taking it from Russia. Right.

So it was an indirect hit to Russian economy. Indirect hit to Chinese economy as well. Because we’re all allies kind of a thing. So that was the whole reason behind the reason was very stupid. Because we’ve been doing this from 2022. Today you’ve got up and realized that this is the case. No. But we are making vulgar profit. I think 94,000 crores was the number that came out recently. So we made good amount of money as in India.

And India is very clear if you see Jaishankar had said this, Dr. Jaishankar had said this, that we are being opportunistic about it. We have to look at our national security and our energy resources. Why would India want to buy expensive oil from US? If I’m getting it at a cheaper rate, we will buy it at a cheaper rate. So all this happened. So that is why I say India was basically an indirect hit. They were trying to do to Russia.

SHARAN HEGDE: Basically the moral of the story is it’s all business.

SHASHANK UDUPA: It was all business. Yeah. Right.

SHARAN HEGDE: So basically countries by themselves are companies.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: And all of these things that is happening, tariff war and all of that is just business wars being played out.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: And how it affects you as a citizen completely depends on which country you live in.

The De-Dollarization Trend

SHASHANK UDUPA: Yeah. It’s so sad because see, US is now slowly realizing that what they did till now was not right. Right. They have deployments in Australia. So Australia has one of the biggest US deployments because it’s the closest to Taiwan. If there’s anything happens they can actually do. But now the defense spending of US is actually going down. Right. They’re reducing it. They’re pulling back troops.

I think this came out two weeks ago that they’re pulling back troops back to US for their own internal security. And they’ve realized that we can’t now print dollars like this and just throw it all across the world. And if this de-dollarization starts, which has already started by the way in some parts of this side, the east, it has started. They’re doing trades in non-dollar dominated currencies and that became the first, I…

SHARAN HEGDE: I think India started buying oil from Russia using INR, right?

SHASHANK UDUPA: Yes, yes. Now the game really starts because if you are now going away from the dollar, we still need a backup. What is the backup? Gold. That is the biggest backup. So Chinese central government has been buying for a very long time. India has just started buying now because India had a very big amount of forex reserves in USD. So if USD does bad, India’s money actually goes away.

Now we have shifted to buying gold. I think this month we have shifted to buying gold. That’s all good news. But honestly, if you ask me there’s going to be a very big problem in the future. I don’t know when, but de-dollarization is not going to happen so easily. Right. If you’re saying America is going to lose and most of our IT services, our GDP of India is via US IT and Europe IT and if they lose, India is going to take a big hit. Right.

So we have to now, that is why India is now focusing on manufacturing so much. Like in the last five years our manufacturing has gone like crazy and we’re moving away from IT dependence a lot. But yes, it will take a hit eventually.

India’s Economic Slowdown: What’s Really Happening?

SHARAN HEGDE: So we spoke about the geopolitical landscape now within India. Let me, I want to understand what exactly are we doing? Because the economy is slowing down, the returns are not that great in the stock market. So are there any India specific issues which is happening within the country which is causing the stock market not to grow as much as it was growing post COVID time?

SHASHANK UDUPA: Okay, so I don’t like being political because we’re pure fundamental and research analysts. Right. So we will talk only numbers and kind of thing. So India did grow very well from COVID. Obviously everyone printed money. The money supply in the world went up 2020 to 2024. Everyone made a good amount of money killing. You put any stock, it’s flying up and you’re all making money. Right.

But that also created that extra amount of bubble and froth in the economy where most of the companies were supremely overvalued. Most of it anyway. Large cap, mid cap, small cap overvalued. Yeah, it was all overvalued by 2024. Right. And that point we had FII money in India, which was foreign institutional money. And we had so much SIP coming into India DII money that it was too much at that point. Right?

And the froth was you have to deploy it somewhere. Now, DII is if you are doing SIP today, you don’t want your fund manager to sit in an FD, right? You want him to deploy. Now, he’s forced to deploy at high valuations. Now, it is not his fault. It is because you are doing that kind of SIP, which is not a bad thing. But now he has to put that money into it.

SHARAN HEGDE: Basically, there is more money in the economy and that money has to go somewhere. Since everybody is doing SIP, it is going into those companies only. And the companies are getting inflated.

The SIP Effect on Market Valuations

SHASHANK UDUPA: Inflated. Now, let’s assume I am a DII. I’m a mutual fund. Okay? You have given me 10,000 crores to invest. Now, if I go into the market, I have to buy the shares from somebody. There’s only three places I can buy the shares from. Either I buy it from some foreign institutional investor and tell him, give me this 10,000, you exit one second. I have to buy it from the public. Public. If I start buying 10,000 crores, the stock price will go flying, right? I can’t do that.

Third, I have to go to the promoter and say, you have 60% stake, right? Give me 5% for 10,000.

SHARAN HEGDE: The promoter gets the money.

SHASHANK UDUPA: I mean, promoter dilutes 5%. We put 10,000 crores into the business. Little bit to him, little bit to the company to grow. But a mutual fund has to either buy from an FII and remove him out or he has to buy from the promoter. Now, that was happening last two years. We are only seeing that FIIs are moving out. But they were moving out, but they were giving the money to Indians only at that point, they were selling it to DIIs.

Promoters are selling so much stake, but they’re selling to you only. Which is the DII, which is the mutual fund. They’re not selling stake in the public market and running. So, and that was why. That was because of you. So when they were doing exactly what you designed them to do, people are getting the promoters are getting abused, saying, how can you sell? FIIs are leaving the country. Oh, my God, it’s so bad.

But please see the other side that SIP is growing. DIIs are investing today. I think DIIs hold more than FIIs in India. Yeah, that is a shift that has happened after so many years that DII holdings, mutual funds in India are holding more stake in India and still sitting on cash of 10, 15%. So that is what has happened.

So it became very overvalued. First things first. Second, what happened because of higher taxes at that point we got tax on almost everything. Right. Because of higher taxes at that point the companies are not making good returns. And honestly, returns drive the market. If the company is making money, the stock price goes up. Returns were flat, not doing well.

And that is why we saw the immediate response from the government. Because for government now it is very, very important for the stock market to grow. Because if the stock market doesn’t grow, we don’t become the most attractive emerging market. Brazil is almost at an all time high. So if I’m a foreign investor, why will I come to India? I’ll go to Brazil. I’ll go to Hong Kong.

Government’s Response: Tax Reforms

SHARAN HEGDE: Do you think that is the reason why the GST changes?

SHASHANK UDUPA: Not just GST, this started long time ago. There’s a sequence of events that happened. Right. First the 12 lakh income tax slab came in. So that spending will start. Did spending start? No, it did not start.

SHARAN HEGDE: Why the spending did not start? Because people would have assumed that, okay, up to 1 lakh per month income, zero tax.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: Earlier I was paying 10,000, 20,000 rupees to the government. That’s zero. So shouldn’t that increase spending?

SHASHANK UDUPA: So how much were you saving with 12 lakhs? 10,000 rupees a month. That was going in faltu spending, not actual spending savings. Yes. DIIs. We were seeing SIP data go up. But we were also seeing Dream11 revenue going up and other nonsense going up. So that, so you see how everything is now linked. First we had the 12 lakh change. Market did not move. Then they decreased also.

SHARAN HEGDE: Maybe because the inflation was so high that it just balanced it out.

SHASHANK UDUPA: Yes.

SHARAN HEGDE: People are like, okay, anyway, things are expensive.

SHASHANK UDUPA: Yes.

SHARAN HEGDE: Now I can finally buy those things which I was buying two years back. But I cannot increase my spending.

# Why Trump’s Tariffs Shook India’s Markets & How Modi Turned Russian Oil Into Profit

The Perfect Storm: Tax Cuts Meet Job Losses

SHASHANK UDUPA: Yeah. And two things happened at the same time. You made the 12 lakhs slab, which is great. 12.75 income tax. You remember that budget was crazy. But at the same time your IT companies in India were not doing well. All companies were not reporting good earnings. We remember the layoffs that were happening in TCS and Infosys. Huge layoffs. 15,000 people, 18,000.

So you’ve reduced the tax slab. But people don’t have a job. So that was kicking in as well. Right. At the same time then the government realized that this is a problem. So we need to make the companies make more money. How do you do that? You reduce the interest rate on the loan, which is also what they did.

So they said, told all the banks we will put 90,000 crores. That was at RBI. OMO injection it was called. They put 90,000 crores into all the banks and said lend at lower rates. Tell all the companies that we are ready to lend at lower rates. Let the companies take this, put a new manufacturing plant, take a new office and you will hire more people at all eras of the pyramid.

So that came in but the companies did not take the money and they did not do private capex. Why? Now if I’m a private company and I want to put like a new manufacturing plant and then suddenly you say tariff is 50%, I am, I obviously I’m going to get scared, I’m not going to like do the capex right now.

SHARAN HEGDE: Then the loan also you’ll have to pay.

SHASHANK UDUPA: Loan I still have to pay.

SHARAN HEGDE: And I was going to buy from you because of the tariff in the U.S. exactly.

When Four Economic Levers Fail to Work

SHASHANK UDUPA: So this was the second problem. Right. And I remember this. Nirmala Sitharaman ma’am had actually come out and put a tweet, it’s there on Twitter and she said that why are private companies not doing capex? We urge them to go and do some private capex because they made everything ready on a platter to grow. But India was not ready to grow at that point. Right. Because of the uncertainty this happened.

Then three things that they did did not work. It did not fuel the system. The fourth thing was the GST cut that consumption needs to start coming up. So this was the fourth thing that they did which was a high time kind of a thing. Yes, the government of India will lose money by reducing the GST rates but the volume should either cover up or our Russian crude oil which is now generating 94,000 crores is going to cover up this income. So that is going to help.

Now if this doesn’t work, that is the scary part. Now four things are ready. If this doesn’t work, then the LTCG, STCG which is the long term capital gains and short term capital gains that they raised a very big amount. They raised it to 20% STCG, 12.5 on the LTCG that also now needs to reduce. Why? So that the FIIs can start coming back in and pumping money. That is the last step in my opinion.

But most likely with this GST cut there should be consumption coming in. Private capex has not started that aggressively yet. That should also start for that the global uncertainty should go down. And if you remember, there was a deal of UK and India called the UK FTA Free Trade Agreement. So that was done mainly to offset this US issue.

And I think PM Modi had also put a statement out very recently when this whole tariff war was going on that we are now aggressively dealing with multiple countries to start exporting to them. Because now we realized we cannot sit in one place in all this. The most stupid looking country is now coming back to United States because they are isolating themselves through all of these players. And we were all fine. There’s nothing wrong. You didn’t need to do this. Right.

SHARAN HEGDE: But they wanted to get rid of their debt.

SHASHANK UDUPA: That’s not our problem. Again, it’s your problem.

SHARAN HEGDE: Yeah, but they wanted to the whole world to feel the pain for their overprinting. Yeah, which is not fair.

SHASHANK UDUPA: And you keep changing your statement one day and the next day you’re suddenly friends and next day you’re enemies. And then people are seeing through that bullshit right now. But from a financial standpoint, FIIs cannot invest because until this thing is not normalized and he starts focusing on his own internal problems versus external problems and FIIs will not invest aggressively in emerging markets.

DIIs are still fine. Hence today India is at a standstill. Zero percent return is because of this. But we’re very close to that fire. Very close to that fire.

How to Beat the Market: 23.5% Returns in a Zero-Growth Year

SHARAN HEGDE: Okay, so that sort of gives us a very, very detailed explanation as to why India has given 0% return in the last one year. Lot of things to wrap our head around. And it’s constantly about understanding how different policies across the world affects India. And a lot of people don’t understand that. So I think this was a beautiful explanation. Gives a very good working model for anybody who has watched until so far to understand how to think about the economy and their own private investments.

Now coming to you, Shashank. Although India has given zero percent returns in the stock market in the last one year, I want to ask you what has been your returns in the last one year?

SHASHANK UDUPA: So even though India has been like zero, there are growth in pockets. I would not say there are no growth. There is definitely growth in pockets. But if you change your system when the market, market is changing, you will definitely make a good amount of money. I think right now we’re at 23.5% year to date and growing. Right. We will I maybe end around little bit here, a little bit there.

SHARAN HEGDE: So market has given 0 whereas portfolio is still up 20%.

SHASHANK UDUPA: 23.5. Yes. As of today. Wow. Yes. So that is going well.

SHARAN HEGDE: How did you do this?

SHASHANK UDUPA: So I told you, right? There are pockets of growth.

SHARAN HEGDE: So let’s say I am an average investor. I have invested in the Nifty 50 index fund. I got zero percent.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: Whereas you who have done ABCD which we will discuss, you have generated 23% return.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: Versus my zero percent.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: So now explain to me what is that ABCD which you are doing. Which an average investor is not doing.

SHASHANK UDUPA: So I’ll tell you the answer. Actually, you know the answer also. Even without me telling you, you know the answer.

SHARAN HEGDE: Okay.

The Power of Sector Rotation

SHASHANK UDUPA: Okay. I’ll tell you this. Just case study statement. Okay. US is creating such a big problem in India. All stocks in India that are related to US are having a problem. If you had to choose one or two sectors in India which are not linked to US at all what would those sectors be? If you had to just take a guess.

SHARAN HEGDE: Defense.

SHASHANK UDUPA: Defense. Yes. Hospitals.

SHARAN HEGDE: Hospitals. Yes.

SHASHANK UDUPA: Yes. So these are not linked. Real estate in India is not linked.

SHARAN HEGDE: IT chemical and all of that are all linked.

SHASHANK UDUPA: So there are few sectors. Right. Now what happens? Like just like me, there are a lot of smart guys who know this. It’s called sector rotation. So the money starts moving into non US based sectors. Right. So obviously if you are stuck in that mindset that okay, I’m going to invest in my existing companies and I’m not going to shift my portfolio, you will be stuck with those investing companies.

SHARAN HEGDE: Sector rotation is important.

SHASHANK UDUPA: Yes. We shifted. We realized that this is going to become an issue.

SHARAN HEGDE: And the reason why an average investor is not able to do this. Because an average investor is investing in a mutual fund.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: Now as a mutual fund manager, I have 10,000 crores to manage. Now it becomes very difficult for a fund manager with 10,000 crores to do this sector rotation as quickly and efficiently as you.

SHASHANK UDUPA: Yes.

SHARAN HEGDE: Right. Because you’re managing your own personal money at a much smaller scale.

SHASHANK UDUPA: Absolutely.

SHARAN HEGDE: So this is an advantage that you as an individual investor has over a mutual fund manager who has way more experience than you but is disadvantaged because of having a such large fund to manage.

The Parag Parikh Success Story

SHASHANK UDUPA: Absolutely. And I tell you, there’s only one fund that has significantly beat the index. Only one fund like that has done really well. Which is the Parag Parikh fund. That is why it’s become so famous in the last 12 months.

SHARAN HEGDE: Multicap fund.

SHASHANK UDUPA: Multi Cap. Flexi Cap Fund.

SHARAN HEGDE: Flexi cap.

SHASHANK UDUPA: Only for two reasons. One, September 2024. They took an aggressive call and said market is overvalued. We are not seeing comfort anywhere. We are going in cash now. What does cash mean? Going into cash as in we’re not investing aggressively.

SHARAN HEGDE: Basically they sold the stocks.

SHASHANK UDUPA: So the stocks now not losing money in the market is also making money. Correct. Right. So they took an aggressive call. They did well. If you look at Parag Parikh’s top, top holdings they would be HDFC bank, nothing to do with US. Airtel, nothing to do with US. So telecom and banking has nothing to do with US.

HDFC bank is not growing at 40, 50% CAGR. It is growing at a decent pace. But they are still. It is not fluctuating also so much. Right. Bharti Airtel has actually grown in the last one year. Telecom has nothing to do with US. And if you see Jio and Airtel, both of them are doing tariff hikes. I think December they have one more tariff hike. Yeah. You’re paying 100 rupees extra, 50 rupees extra.

SHARAN HEGDE: They’re making a duopoly in Monopoly.

Five Sectors Immune to US Tariffs

SHASHANK UDUPA: Whatever. So that’s what I said. If I had to look at just sectors of non US based problems then I would straightaway go to a couple of sectors. One is the hospital sector. Okay. Has nothing to do with that. Hospitals and diagnostics and whatever that is. Right. You have the telecom sector. Beautiful and growing and showing proof of growth. I’m not even saying this out of this. Right.

We have our cars. EV. EV. Automobiles, Automobile. Entire sector is doing really well and it’s continuing to do from the last 12 months. Not like I’m talking right now. And it’s doing well right now. So last 12 months is doing well. So if you just position yourself in such good sectors you are bound to make money. Alcohol, what US has nothing to do with us. Has everything to do with Goa and other states. Right. So that is where you have to start moving your portfolio into.

SHARAN HEGDE: You realize that the geopolitical situation is not great just by following the news which everybody has access to. And you took a conscious bet that okay, if I need to protect my money, I cannot be invested in all the sectors. I need to identify those sectors which are going to be unaffected by the geopolitical issues happening in the world. And you identified telecom, you identified defense, alcohol and hospitality.

SHASHANK UDUPA: Automobiles. Yeah.

SHARAN HEGDE: Hospitals and automobiles. These are the five sectors you identify. So that is step number one.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: What is next?

Timing the Portfolio Migration

SHASHANK UDUPA: So I’ll tell you, first things first is a lot of people don’t know when to migrate the portfolio. So when the fall started in September, October, nobody migrated at that point. Not even me. Even I didn’t migrate at that point. But you realize this is going to become a long term issue. You take whatever loss you have on your portfolio at that point. If it has fallen from September to November, December around Jan is when we shifted the portfolio into new age stuff.

We realized this is going to continue and this guy is constantly doing this. We don’t know where this is going to go. We’ll come back to this later if it’s required. So then we started going deeper into this. So I’ll give you an example one by one of how we did things. First, earnings is the best answer to everything. It’s your report card.

SHARAN HEGDE: You mean earnings, you mean profit.

SHASHANK UDUPA: Profit. If a company has grown from last quarter to this quarter, something is there in this bad market. Also if somebody is growing, even better. And if you look at the screener data, when we looked at all of it, very few companies had proper growth. I’m talking about growth above 15, 20% quarter to quarter growth. Like this quarter to last year’s quarter, I grew by 15%.

SHARAN HEGDE: Basically one year, only one year.

Understanding Market Phases and Investment Strategies

SHASHANK UDUPA: I’ve grown by 15% now in this bad market. You’re growing by 15%. Good. Right. Something is there. I don’t know if it’s great or not.

So we had, for example, we looked at pharma, right? In pharma a lot of people are talking about CDMO, right? A lot of people are talking about CDMO and US also spoke about pharma tariffs in Jan. But we knew that US is so dependent on India that it’s not going to be easily done. Same with IT. Even Indian IT is so dependent on US and they are dependent on us that it is always exempted from tariff. But IT companies didn’t do well. That’s a different issue, right?

So Pharma, we looked at CDMO. There’s a thing called contract development and marketing organization. We looked at this. Now in this lot of hype was going on in Jan, Feb, March. Okay. So many research reports coming out of this and all of that. Yeah. We looked at what company would do well. And there was one company, Hyderabad based company. They were at 25,000 to 27,000 crore market cap. Okay. They were a darling of the stock market in 2020.

SHARAN HEGDE: As a SEBI registered research analyst, you cannot take the name.

SHASHANK UDUPA: I cannot take the name. So I’ll just say that this is a Hyderabad based CDMO pharma company. 25,000 crore company. Yeah, right. So that company has given 81% return as of today in the last 12 months.

SHARAN HEGDE: What are you saying?

SHASHANK UDUPA: 81%. It’s not even a small cap, micro cap company. It’s 25,000 crores. Today it’s at 45,000 to 48,000 crores. So it’s quite a big company. So they did CDMO. They were selling.

SHARAN HEGDE: So I made 0%. And this stock gave 80%.

The CDMO Success Story

SHASHANK UDUPA: The stock gave 80% and it was not hidden. This is not a hidden stock. Everyone knows about this stock and it has been there. But people don’t have that guts to take it. Sometimes you let the company play out. We’ll see now. Okay. Maybe it might be a one month growth. It was 12 months growth.

Now 12 months growth will only happen if the company is making revenue. Yeah. Last three quarters their profit after tax has grown by 200% each. Like 200%, 200%, 200%.

SHARAN HEGDE: Like every quarter.

SHASHANK UDUPA: Every quarter.

SHARAN HEGDE: Every three months.

SHASHANK UDUPA: Every like last three months. 200, 200, 200%. Like 30 crores, 60 crores, 90 crores, like 120 crores. That way.

SHARAN HEGDE: What are you saying?

SHASHANK UDUPA: Because there was a change happening. So now this is not new again. It has been happening for nine to 12 months. So it is not something hidden or whatever. It was all there. Now if you go into the company, we need to understand why. So that is where the game comes. And that also the company in their presentation has given. Why also it is all there. It’s not some hidden data, right? Conviction. People don’t have to hold.

So there they had given earlier what they were doing. They were selling something called ARV to low middle income companies, right? LMIC.

SHARAN HEGDE: ARV.

SHASHANK UDUPA: So ARV is like some, whatever their drug or their pharma component that they have, they were selling to low middle income countries. Okay. LMIC kind of countries. Now what they did was they shifted that to CDMO which everyone was talking about. But here they start tying up with the big guys. And they very clearly said the CDMO revenue that we’ll get is going to be insane. But it didn’t come in the numbers one year ago. So nobody cared about it.

But one more thing was playing out. So in the balance sheet, their factory, the fixed assets, okay, the capacity that they had went from 2,600 crores to 4,100 crores in three years.

SHARAN HEGDE: So they did a lot of Capex.

Reading the Balance Sheet Signals

SHASHANK UDUPA: Huge Capex. Almost double capex. Okay. 2016 they took a bet but revenue didn’t grow. So something is there. So your capex is so much. The revenue has not come in yet. Means you have huge capacity. That means something is brewing.

So we went in and checked is something brewing. We saw that something is brewing. Something might play out. Risk reward is good because the stock was down before, nobody was looking at it. So we took a bet actually at 25,000. And we still have it right now, right? We took a bet at 25,000. Today it is at 48,000 and we have not sold a single share of that. And I still believe another two to three quarters definitely might play out.

Our analysis might be wrong but we made enough that even if I’m wrong I will still make a good amount and work out. So that is how because you already…

SHARAN HEGDE: Doubled your money in the stock, already double the money.

SHASHANK UDUPA: But we don’t put more than 10% of our entire portfolio.

SHARAN HEGDE: That’s what I want to ask, the position.

SHASHANK UDUPA: Sizing 10%.

SHARAN HEGDE: Even if you have a very strong bet or conviction on a company you will not put more than 10% of your capital in that stock.

SHASHANK UDUPA: In that stock.

The Psychology of Holding Winners

SHARAN HEGDE: I’ve read somewhere that at one point the late Rakesh Jhunjhunwala in his portfolio, Titan made up more than half of his portfolio, right? 50% of his portfolio. Because he continued to keep having conviction. A lot of people would have just exited after doubling the money. And that’s what I’ve realized. A lot of people.

I was just talking to one of my school friends and he had started investing and his dad also had started investing about a year back. And the way they looked at investing in the stock market is not from a long term compounding. They’re like okay I put 1 lakh rupees. 1 lakh became 1.5 lakh rupees. Oh let’s just book this 50,000 rupees profit. This is additional income that we’ve made and let’s just, you know, spend it.

SHASHANK UDUPA: No, but I would not blame it. I’ll tell you why. I am also tempted to sell. Now I’m at 100% profit. You see the news that is coming out in the market. 100 problems are coming out from the last. You think it’s easy to have conviction and situation and it has gone down in the past. It can go down.

So even Rakesh Jhunjhunwala, why I would strongly respect him for majority of the reason is because Titan in its run from where he invested at 200 crore market cap to where it is now, it has gone down at least 40%, 4 to 5 times in that history. Now if he had 1000 crores, it has gone down to 40% down. Like it has gone down that much. 500 crores. Now you have the guts to keep it. He had it. Normal investors would not have it. They would take the money and go.

But he held on and on because he had a very weird vision. Vision. I think it’s very difficult for an average investor to get honestly right, right. Like today I can say, okay, HDFC bank, this, that is all there. But 20 years ago, would you do it? Bajaj Finance was the fastest grower. Very few people actually had Bajaj Finance at 20x, 30x. You will walk out, you will not sit for the 40x.

So that is something that retail investors should learn. Very difficult. It is easy to say on a podcast, but very difficult to hold. And when you have Trump talking like this and problems and war and all, you will want to exit your portfolio.

SHARAN HEGDE: It’s a game of emotions and psychology.

SHASHANK UDUPA: A lot. A lot.

The 75-25 Investment Framework

SHARAN HEGDE: So if you had to give me a framework, Shashank, before we go deep dive more into some of your successful bets, that as an average investor I am, let’s say investing 20,000 to 30,000 rupees per month, which includes a combination of mutual funds, gold, fixed deposit, you know, a lot of these investments.

Now if I have to get actively investing in stocks like you, there is two ways, right? One is that, okay, I need to, I can’t put all my money here because I’m still learning. So majority of my money I’ll still put in mutual funds which are safe. And even if some of the mutual funds give 0% return, it’s fine because I’m still learning.

So how much percent of my investable corpus should I allocate towards active investing in stocks so that I can get returns like you, where you are making 20% returns even when the market is getting 0% returns. And how should I go about that journey where I start off small, whatever that percentage is and then gradually increase it. So can you give me that blueprint?

SHASHANK UDUPA: I’ll tell you. So a lot of people think 50-50 is the right answer. 50% mutual funds, 50% active investing. I think it should be 75% mutual fund and 25% active investing. If you’re absolute beginner and you’re starting from year one. Yes, because even if you screw up that entire 25% portfolio, that 75% will recover it for you. That is the logic, right?

These fund managers are doing a good job and don’t get your money. Start with 75-25, get some profit, then let that 25% skew over to 50. Even today I would still say 75-25 is the best for a beginner.

SHARAN HEGDE: Okay, so if I’m investing 30,000 rupees a month.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: Around 10,000 rupees can go into direct stock investment.

SHASHANK UDUPA: Yes, it’s okay. Even if, because you will lose, man. It is very rare that you will win all the time in the stock market. You will lose. I have also lost multiple times. Even today I have an SIP also going on. Even though I manage active. But my active is like 80%. I have 20% SIP. I might go wrong tomorrow. Correct. Right. Everyone goes wrong. The best of the best guys have gone wrong in the past.

And I know my thesis might change, my style might change, I might give in to fear, emotions, a lot of things. So I know at least my SIP basket might help me out there. So that’s why I said 75-25 mutual funds to investing. It would be a good option right now.

SHARAN HEGDE: Got it, got it. So 25% of my investable corpus, I should do active investing in stocks. Now give me another example of a successful investment that you have made.

Adapting to Different Market Phases

SHASHANK UDUPA: Got it. So I’ll tell you again in active investing, one more thing people should also realize is to be very fluid in the market, right? When market itself is changing so much, you can’t sit with one philosophy and principle. And this is what I’ve seen, one of the biggest mistakes in India because till 2020 this worked. Sit with one principle, one framework, one idea. And that one idea, one size fit all was working, right. We had multiple books and all coming out in that.

But if you look at India today and the market, it’s changing like crazy, right? To like last one year has been the day of metals. Let’s say gold and silver has done well. We call it low volatility stocks, right, whatever assets. Now 21 to 22 was momentum. Then we had again quality stocks coming in during the Russia-Ukraine war.

So market is changing so much. You can’t say I’m playing momentum. In this market, what you will make, bet you will make, chances of losing is more. So that is what we…

SHARAN HEGDE: Talk about the different phases of the market that you’re referring to.

SHASHANK UDUPA: So I’ll tell you how we do it also. So market has a bull run where you have momentum that works the best. Obviously all the others will work, but momentum is the best.

SHARAN HEGDE: Basically companies which are moving up, they call it right.

SHASHANK UDUPA: The price has gone up 50%. You might say I want to exit. But it can go up another 50% from there because the bull market euphoria has peaked into it, right? Then the bull market fades a little bit. When we had Russia-Ukraine war, the market fell down a lot. That’s when you go back into quality and value stocks.

SHARAN HEGDE: What phase of the market is this?

SHASHANK UDUPA: This is when the market is going downwards. You start picking those beautiful gems, right? Which is the quality and value, good companies at low PE, whatever. Because when it’s a bull run, these guys don’t do that. Great momentum does great. You come down.

Now when we are in this market where it’s flat, the best performing asset was gold. Best performing asset was gold, right? You could have just taken any point of time and invested in gold. It would have done better. Then we also did some thesis, right? There is something called last 200 day moving average in this Nifty. So we checked over the last 10 years, every time Nifty went below the 200 day moving average, which is considered a bad sign. It’s considered to be…

SHARAN HEGDE: Explain it in simple words. 200 day moving average is the average of the last 200 days of price?

Understanding Market Phases Through Technical Indicators

SHASHANK UDUPA: Yes, of price. So when that price goes below 200 day moving average, it means you’re in a negative zone right now. So we said whenever market goes below 200 day moving average, how has gold performed at that time?

So 8 out of 10 times gold has outperformed the nifty. 2 times both gold and nifty have gone down. You can’t do anything about that. Both have gone down that time. Cash is king or FD is king at that point.

But now I cannot come and say that FD is good or FD is bad because in today’s market, FD is good, gold is good. Tomorrow’s market, FD won’t be great. So market is changing so dynamically. You cannot sit with the framework. And we do the same thing, we call it the fluid framework.

SHARAN HEGDE: And how do I know what phase of the market is in? Because see, post Covid, I remember a lot of people were hitting the siren saying that this is the end of the world, markets are going to crash. How could we possibly get out of this?

We had probably one of the best bull runs of our lifetime. Then after that, the war started, tariffs started. You are always working in postmortem as an average investor. How do I know it before it happens or how do I be one of the first ones to know?

Let’s say I see some leading indicators, I identify those leading indicators and I realize that, hey, this is going to happen. Let me now make these changes. So what is that working model you have in your head to predict what phase of the market we are in so that I can properly do the sector allocation and actually get those returns that I want compared to the benchmark?

SHASHANK UDUPA: Okay, so I’ll tell you a couple of things, right? From a retail investor standpoint, first things first, understand that you can never catch the top and never catch the bottom. This is a misconception. People think they can never. You can do it. So it’s okay to not know.

SHARAN HEGDE: Even Warren Buffett can’t.

SHASHANK UDUPA: Nobody can. It’s okay. You don’t know, it’s fine. Absolutely. Okay.

Number two, let the chart tell you what is happening. Let Nifty tell you what’s happening in the market. You don’t become an expert and say market will fall tomorrow. Let it fall.

See if I am like, let’s say the bull run, 2020 bull run, right. The market went up like crazy. Any stock you had invested gave around 100%, 200%, 300% returns. Then it fell around 20%. Even if you had done that and exited at this point, you would have still made money.

SHARAN HEGDE: So just to summarize, so let’s say before September happened when the market corrected by I think around 25%.

SHASHANK UDUPA: Yes.

SHARAN HEGDE: So what could I have done? What leading indicators could I have seen to know that a crash was coming?

The 200-Day Moving Average Strategy

SHASHANK UDUPA: Yeah, so you would never know a crash is coming. That’s what I said. You will never know when it’s up or when it’s down. You’ll never know. But I tell you a simple hack. If you do, you will save your portfolio. Okay.

The minute nifty breaks 200 day moving average, go into at least 40%, 50% gold or liquid fund.

SHARAN HEGDE: So when the nifty goes above 200 day moving average, you’re okay, you’re invested okay.

SHASHANK UDUPA: When it breaks that 200 day moving average and nothing happens good below 200 day moving average. So I’ll tell you. January 9th, nifty broke 200 day moving average. 2025, January 9th, nifty broke 200 day moving average.

If you had just changed your portfolio from 100% equity, that 25% of your portfolio instead of 100% equity, you do 50% equity, 25% gold, 25% cash, you would have beat every fund manager in India.

And when did that come above the index again? It came only in May, June that we came above 200 day moving average in May, June only. After that, go back into your 100% equity.

SHARAN HEGDE: So this is how I actively manage from an asset allocation point of view.

SHASHANK UDUPA: Without overthinking it, by just looking at…

SHARAN HEGDE: The 200 day moving average. If the 200 day moving average has been crossed in the upward direction, you are invested. When it comes down below the 200 day moving average in the downward direction, I will sell half. Keep 50% equity, 25% gold, 25% FD.

SHASHANK UDUPA: You’ll beat…

SHARAN HEGDE: I’ll beat most fund managers.

SHASHANK UDUPA: Most fund managers just…

SHARAN HEGDE: You have back tested and checked.

SHASHANK UDUPA: Yes. I told you 8 out of 10 times gold has outperformed nifty. When it broke 200 day moving average, only 2 times, both gold and nifty fell. But gold did not fall to that level like a nifty would fall. Nifty fell 25% those two times, gold would have fallen 7%, 8%.

But your cash component, obviously cash means liquid case. Right. You keep it in the liquid fund. That will give you 0.6% per month or 0.5% a month. 3, 4 months correction is there. You make 3%, 4% on that.

So if you really want to take very aggressive, just go full equity. And I mean full gold and full cash. If you really want to go, you know, absolutely.

SHARAN HEGDE: So that is from an asset allocation point of view. So this is what I could have done before September happened because the market was already showing me these leading indicators before it happened. Yeah, got it.

SHASHANK UDUPA: And take the loss September to December. Nobody would have predicted that we would have such a bad correction. So it’s all hindsight bias. Right. September, if you had asked 80% of the retail investors, they would have all said are at 25,000, 27,000, 30,000 projections that come by December in that September point.

Yeah, it’s okay. I mean, it’s there, right? That’s why I said market on the…

SHARAN HEGDE: What you’re saying is don’t listen to the news.

SHASHANK UDUPA: Nobody knows. You’re listening to what news. News knows you know what it is. I don’t know what it is. Don’t listen to me.

SHARAN HEGDE: What do you consume?

SHASHANK UDUPA: Because at the end of the day…

SHARAN HEGDE: We are all trying to predict and for predicting we need data.

SHASHANK UDUPA: I look at the chart.

Understanding Macro Trends and Global Diversification

SHARAN HEGDE: A lot of people, they listen to the news, they’ll read the newspapers, they will read some articles. What do you consume to make your prediction?

SHASHANK UDUPA: So I listen to everything, but I do what I have to do. That’s why I do a lot of macro. Honestly, I read more on the macro than the micro. I want to understand what is this whole geopolitical game.

When this Russia oil tariff situation happened, I got into the actual deep end of it. I’m like, why? Should be some reason. That reason unravels five more things that I want to look at.

I’m very bullish on investing abroad, so I don’t know. I recently invested in US also because I realized that if India is going through a bad time, I should also be hedged outside. Give me an option to invest in Japan. I’ll be happy to do that. But today I can’t.

So I moved around 10% to 15% of my allocation to US. It was there and I made a video on it also that I invested in one semiconductor stock.

SHARAN HEGDE: So total, how much percent of your money is outside India now?

SHASHANK UDUPA: 10%, 15%, not more. Most of it is India only. Right? But 10%, 15% was there. We made crazy 60% gain on that in one of the US stock in three, four months. Wow. Superb.

And I’m okay on both sides. I’m okay. I have time. Time is your friend, right? So it’s okay. But the thing is you need to learn how to switch when the market is falling. You have to listen to the market and say it’s falling. Okay, I need to change my strategy. I can’t sit with the same strategy.

When the market is going up, you’re the boss. When the market goes down, people blame the government and blame Trump. Blame yourself also, because you’ve seen that fall. But when the market was high, you are the king. You are Warren Buffett 2.0 in your head.

So that is something people need to change. It’s okay to be wrong. Take the hit, take the profit loss, move on. You will cover it up.

Analyzing the US Market and AI Bubble Concerns

SHARAN HEGDE: So when you said you allocate 10%, 15% of your money in the US market, how exactly do I analyze the US market right now? Because you hear the news. Obviously one side of the story says AI is the future and everything is going to change. US is going to be a superpower and conquer the world.

On the other side, there is also a narrative that AI is a bubble. That it’s the 2001 dot-com crisis where any company which ended with the word dot-com crashed. So even now, any company which ends with the word AI is going to crash. So what is your take on this and how exactly do I look at investing in the US?

SHASHANK UDUPA: Okay, so again, AI being a bubble, Nvidia, AMD, few other companies, Broadcom and all of them, they’ve been saying this for the last two years. By the way, in the last two years they’ve gone up 600%. If I listen to that, I would not make 600%.

Let it happen. Let the price tell me that yes, I’m in a bubble, okay? Let the earnings, the report card come and tell me I’m in a bubble. If Nvidia’s report card comes horrible and they are coming out with a statement and saying, you know what, I think this is our saturation point. The stock price will go down by 20%. Take an exit.

But you’ve gone up 550%. And then you’ve taken 20% exit. You’ll obviously take a bigger hit because you’ve gone up 550%. But that’s when you exit. Then let the whole crash happen. You’re okay, but 20%, you have a chance to get out. 30%, take it. You have a chance to get out.

This AI bubble has been going on for a very long period of time. And I agree that it is overvalued. I’m not saying it is not overvalued, but it’s going up. Even I think two, three days ago…

SHARAN HEGDE: It’s right now in momentum.

SHASHANK UDUPA: It is still in momentum. So who are you to decide that it is not. But yes, having some allocation in US, keep it. Let the bubble happen, let it fall. Then you will know.

See, if the bubble happens, everyone’s going to get hit. Right. So if the price breaks below 200 day moving average and the bubble is there, it is going to be below 200 day moving average for four, five years or at least two years or one year at least. Right. You stay in gold because money has to move somewhere. Correct.

SHARAN HEGDE: So you mentioned about the sectors that you prefer in India right now.

SHASHANK UDUPA: Yes.

SHARAN HEGDE: Can you talk about the sectors that you’ll invest in the US right now?

Investing in NASDAQ 100 Companies

SHASHANK UDUPA: Okay, so I have this rule where I only invest in NASDAQ 100. I don’t go below NASDAQ 100. It’s my rule, personal rule.

SHARAN HEGDE: NASDAQ is like the nifty over there.

SHASHANK UDUPA: Only top hundred companies of US is what I invest in. I don’t go below that. Only if you ask me. Comfort zone. I love companies like Google, Meta. Okay. Nvidia, AI, Nvidia and AMD.

AMD was what I was very bullish on. I took it at 108 rupees. It’s at 160 today. I’m still happy about it and I think it’ll go to 400, 500 in the next few years. Because the way I look at it, a lot of companies are coming into the trillion dollar market cap mark right now. AMD is at I think 200, 250, 290 billion or something. A long way to go to 1 trillion, right? It’ll go eventually. The way I see future of AI, it’ll go.

So I only look at NASDAQ 100 and I like companies that are fundamentally very beautiful now. There are a lot of companies there. Your AI companies too are there. But Meta is unrelated to anything that can happen because they’re so diversified in social media. As long as me and you are on Instagram and YouTube, they’ll be making money. And they are. Their fundamentals are beautiful. Right?

Google’s fundamentals are beautiful, right? That also had a problem. ChatGPT came in, people are not using search engines. It fell down. Now the stock is back up flying. So why are you doubting something like that?

So these are some Mag 7 as they call it, right? That’s great. But in NASDAQ 100 there are multiple other companies doing well. For example, there’s a broker there called Robinhood, right? Doing really well. IKBR is the other one. Interactive brokers, Robinhood’s doing really well.

It’s the same trend that’s happening. People are investing more. Retail audience is coming into the US market much more now. So Robinhood is showing good results. It’s not like it’s just hype, right? Yeah. Three, four quarters are doing well. So I am enjoying investing in there. So that is what I look at NASDAQ.

The Power of Technical Analysis and Quantitative Investing

SHARAN HEGDE: A lot of people don’t understand this, but when you look at technical analysis for investing in stocks, very important. A lot of the times you don’t even need to know what the company is doing.

SHASHANK UDUPA: Very important. Right? Very important.

SHARAN HEGDE: You just need to know what the technical charts are saying and if it crosses those certain numbers and indicators. Like I was talking to another fund manager, he’s like, “I only do momentum investing. I just look at quant and I don’t even know what the company does. And I don’t care what the company does as long as it fits my mathematical models.”

SHASHANK UDUPA: I’m investing in that because Momentum index has beat nifty over a longer period duration.

SHARAN HEGDE: Yeah, I think around 6, 7% alpha.

SHASHANK UDUPA: Yes. And that data is available on NSE website also that it has been. And when we also made a small quant in our own thing, right, because we were also experimenting there. There is no fundamental, no technical also in that quant. It is just math and numbers.

We got a system that pops out ten names for me. No technical, no fundamental. I don’t care what they do. Ten names have popped out. I started investing in those 10 names. They’ve actually beat the index in this bad period also in my backtest.

SHARAN HEGDE: Can you explain that to us? So basically there are now three fields of investing.

SHASHANK UDUPA: Yes.

Understanding the Three Fields of Investing

SHARAN HEGDE: One is your fundamental investing, fundamental analysis where you actually understand what the company does, what is their business model, what is their mode. So basically the Porter’s five forces and all of that, you will do a deep dive, talk to the promoters, blah blah, blah, blah.

Then there is technical analysis. You look at some candlestick patterns, you will see, okay, this is whatever those patterns are, you will make some prediction and you will invest short term trades.

Now what is this quant? What exactly are these quantitative investing strategies which people are talking about where they just write some code and the money is automatically getting invested? And this is just printing money, right?

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: Can you explain that to us?

SHASHANK UDUPA: So I’ll tell you, in US quant is a very big thing. We know this from a very long time. Since 2008, quant has been there in US and today quant is a very big strategy in US. In India it’s not come yet. India, we have predominantly been fundamental investors and everything has a different style.

So I’ll explain the style first. Fundamental gives you asymmetrical returns. Means I can stay in for longer, stay for 4, 5 years, make 10x, 15x and walk out.

Quant and technical are more short term driven plays, momentum strategies, short term plays. Invest and get out faster. I get a bigger tax hit. But if I do this multiple times, I can do much better from a fundamental standpoint, from a time correction. That’s why in fundamental, the last one year has been zero. But a quant strategy or a swing trading strategy would have done slightly better if you’re decently good at it.

So quant is very big. Now what does quant say? Technically, quant is just a mix of removes the entire emotion out of investing. Absolutely robotic. Right? But even though that is the case, I would also say that is a bias of the fund manager.

So when I built my quant, I had my own weird biases into it. I still told it, okay, get me this data, use this math. If the stock price is above this, below this alpha, beta, whatever is all there, some stuff. I don’t want to reveal it, but there’s some stuff.

SHARAN HEGDE: That’s proprietary to you?

SHASHANK UDUPA: Yeah, we do a lot of stuff there. When we saw the stocks coming out, they were such good stocks that I was anyway tracking in my technical analysis because they were all in momentum. In this shit market, they were in momentum.

And I looked at the 10 stocks, 20 stocks, actually around 50 stocks comes now. The game comes in recipe of the stocks. How many you take? 50, 40, 30. When do you want to rebalance? There are fund managers doing weekly, monthly, bi-weekly, quarterly and semi-annually also.

So there is no proven strategy because quant changes according to the market. And your quant system today can do really well for three months. Market changes a switch, your quant will fail for the next nine months. So you have to again upgrade your quant and change it. The parameters have to change. As I said, the bias of the fund manager is there.

But I believe quant will be damn big in India. Today nobody talks about it, but when you remove the emotion out of investing, just…

SHARAN HEGDE: Look at the mathematics.

SHASHANK UDUPA: Just look at the mathematics. And this was a big problem in US when quants came in that time. They were also fundamental guys. Warren Buffett was king at that point. A lot of people thought that quant will take away their jobs. It’s a very bad style of investing.

Today most of it is quant, right? Because when you become so robotic in investing and you remove the emotions out, you make money. You make money and again, nothing is fixed. Market will change tomorrow. All quant firms will fall down. That happened in this market, September to now. Most quant firms didn’t do well, but that’s okay.

And when the bull market comes, they will again outperform everyone. So you have to look at everything from a three to five year standpoint. And we saw the backtested data of momentum, they actually beat the index over a 10 to 15 year time frame. So it works.

Creating Quantitative Models

SHARAN HEGDE: Basically, if I’m a very, very good investor, I can learn this art of creating these quantitative models and do an algo on it and then put my money on it and basically make an agent saying, “Hey, just follow these rules and invest.”

SHASHANK UDUPA: Right now there is a barrier to create quant. It is very technical. See, I’m a finance guy, I’m not a coder for this. I need a coder, someone who’s damn good in Python.

Now for a good quant you need someone who can code and someone who’s a good investor together. Very few of that are there. It’s like an IT guy is very good at IT plus CEO would be a great tech company. Finance company is a finance guy. But finance plus tech equals to quant.

And that again has 50,000 parameters and variables to play with. It’s very difficult today. Entry barrier is there today. Over time, maybe it will go also.

Real Assets: Gold and Real Estate

SHARAN HEGDE: Now coming towards the end right now because as we discussed, the geopolitical issues are so many. And there are so many issues happening both in India and in the US. Some of the financial advisors are saying now it’s the time to buy real assets.

What is real assets? Real is like gold and real estate. So what is your take on that? Should I now start diverting some money from equity and put that into gold and fixed deposits and real estate? What is your take?

SHASHANK UDUPA: I always believe you have to have a mix of all. And believe me, even the big investors have commercial properties left, right, center. Everyone has it. Not residential properties. They have commercial properties. Why? Because the yield on that is 7, 8%. And there’s a flywheel that gets created.

So this is what the rich people actually do, right? What do they do is they create a company. They go have a mutual fund portfolio or a stock portfolio. They go pledge that, loan against shares and they take a loan and buy the commercial property.

8% is the rental yield on that. But that 8% has a 5 to 10% escalation every year. It goes up. Your loan amount is the same. That goes down in fact. So that becomes a free asset over time. They take the cash flows of that, build another asset.

Now what happens? In the last one year, market has given zero. Mutual funds are still there. They have not moved. Let’s say I have 1 crore in mutual fund assets. They’re still there. My rental income has come very aggressively which I will now push back into the stock equation.

Stock market income, which will again grow. That grows from 1 crore to 2 crores. I can again go to loan against shares, again get another commercial property. And that 8% over time will become 9, 10, 11, 12. From a cash flow standpoint, leave the yield part, cash flow standpoint, that becomes 8, 9, 10, 12. My loan is still at whatever rate it is now. That becomes again a free asset.

So then, and they do it all of this via a company account so that I don’t pay tax. Why? Okay, well, the income is coming. You’re showing interest at the bottom. Your PAT is zero. So you are making free assets. By the way, this commercial property is an asset. That is an asset. It’s also growing in the last two years.

So over time I can make four or five different assets. And what all your rich guys do that only. All these celebrities, why do you see them? They’ve leased a massive rental. They bought a rental property. They bought a whole floor of a rental thing. And they buy it not from their account, it’s from a company account.

That cash flow goes into paying the interest of that same property. And then when they make more money, and imagine after 10 years when you say I’m not going to buy any more commercial property and all my loan is paid off. Just imagine the cash flow you’re getting.

SHARAN HEGDE: So it’s like true passive income coming from…

SHASHANK UDUPA: And compounded at 7 to 10% escalation over the last 10 years. So people always look at real estate in a very wrong way. They say you don’t make money. Half of my Shetty friends are all very rich from real estate. Bro, something is there, right? Understand what it is.

SHARAN HEGDE: It’s about understanding cash flows.

SHASHANK UDUPA: It is cash flow. It is. A lot of people look at rental yield 3%, 4%, 5%. They don’t look at appreciation. It’s like saying dividend yield is as equal to rental yield. Stock price goes up, property value goes up. It’s like that.

Yes, definitely stocks is better, more liquid. But it is also that volatile. Whereas this is not that volatile. But today I think everything’s overvalued. To be honest. But yes, you should have a mix of everything. I buy gold every year, irrespective of the price. I don’t care. Because it’s not something I’m going to keep for myself. It is too. Why?

The Rise of Silver and Precious Metals

SHARAN HEGDE: Why is silver now suddenly getting the traction?

SHASHANK UDUPA: Same man. Precious metals, gold, silver doing well. And also silver is used a lot in…

SHARAN HEGDE: Look, I get this asked question a lot, Sharan. Should I go with gold or silver?

SHASHANK UDUPA: Gold is fine. I have both. If you’re so confused, why over complicate?

SHARAN HEGDE: But why? Why is silver suddenly had that sudden burst?

SHASHANK UDUPA: So two things again here. One is definitely that when precious metals are going up you want to have a mix of all. Number one. Because the money has to go somewhere, right?

Second, silver is also used a lot in solar, right? So that also has come out that the raw materials are required there. So the demand for that is coming in as well. But there is no harm having both in your portfolio, right? It’s not like everything. You will not win all the time. So get that straight and it’s okay. It’s fine.

Emerging Themes in India

And in India I’ll tell you some themes that are growing right now. I told you about hospitals. One of the largest hospital chain, I won’t go deep into it. One of the largest hospital chains in India, only 50% of the revenue comes from hospital. Remaining 50% is coming from pharmacy business and online digital consultation. And they’re planning to demerge that business.

So that’s a huge opportunity coming in. And that pharmacy business is growing by 20%. And the second competition is 50% away. They have so many stores. The second guy is very, very far away. That is one.

You talk about your alcohol business in India, right? Last five, ten years ago people in India were very heavy whiskey drinkers. Now with Gen Z and a lot of things changing, do you know that the whiskey drinking capacity of 60% was there in India. Now it’s come down to 39%. Beer is at 33% and vodka has become the fastest growing market.

SHARAN HEGDE: Really? I hate that.

SHASHANK UDUPA: Yeah, even I hate that. Bad hangovers. But that is something that is currently growing. And vodka is also not cheap. Vodka, you are getting expensive. Premium vodka that’s doing really well. And couple of companies are flying.

In fact there’s one listed company at around 10,000, 15,000 crore market cap who’s mostly signing Ranveer Singh in a deal to sell alcohol.

SHARAN HEGDE: Like the US celebrities.

The EV Revolution and Investment Opportunities

SHASHANK UDUPA: Like the US celebrities. So now that is also playing out really well. I am very bullish on the ICE to EV, which is your petrol, diesel to EV. I think everything’s put on a platter for this game to happen.

Petrol price is all time high. E20 got screwed up. I mean it’s also expensive. You have to move to EV. I have a diesel car and an EV car. EV car is superb for me. Yes, battery cost will go down over time. All of that problems are there. But it’s just amazing.

SHARAN HEGDE: But that ecosystem will benefit.

SHASHANK UDUPA: Ecosystem is benefiting. Like lot of people look at EV and say okay, Tata, Mahindra, Maruti, Bajaj this, that, we said that is there. Everyone knows this. And you’re playing with the best analysts in the country, right?

We went one step ahead. Who’s supplying to Maruti, who’s supplying to Bajaj, who’s supplying to this? And then we started looking at very small guys, right? These are all players sitting in 10,000 crore market cap, 5,000 crore market cap guys and small caps.

And we start seeing who’s providing seats to Maruti, who’s providing those door visors to Maruti. There we found one weird gem. He makes emblems and decorative plastics inside your XUV and all of that sitting at 20%, 20% EBITDA margin. Everyone in the industry is at 7, 8 to 10%. They’re at 20% run by Goldman Sachs and some other team.

Promoter only holds 20%. Never in the last 10 years except Covid have they given a bad year. Only one year in Covid, the revenue dipped every year. It is growing. And there again, capacity is only at 50, 90% utilization. New capacity is coming out very soon.

And when this whole shift of ICE to EV and EV cars are looking so beautiful, there’s something called kit value. That kit value is becoming more expensive. So these are some plays going on right now in India and it’ll go on for the next two, three years.

Closing Thoughts

SHARAN HEGDE: Thank you. Thank you so much, Shashank. I think this was once again a master class in the world of the markets and investing.

SHASHANK UDUPA: Yeah.

SHARAN HEGDE: And I think this is something which a lot of people try to understand. You know, what is happening with my money? Where should I invest? How is Trump affecting me? How is the tariffs affecting me? What is whatever Mr. Modi is saying, how is that going to impact me? Why is Modi talking to Russia and China?

I think all of that has beautifully explained because the common man doesn’t understand how the what, whatever the big players are doing, how does it affect their bottom line? Right. A lot of people don’t understand the dots and you love connecting the dots. And I think it has been beautifully laid out in this podcast.

So thank you so much and I will see you soon until another big event happens in the world of Donald Trump.

SHASHANK UDUPA: Awesome. Thank you. Thank you so much.

SHARAN HEGDE: Bye.

SHASHANK UDUPA: Bye.

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