Seasoned investor Samir Arora counts investing in infra companies as one of his biggest mistake in the initial days of his investing career.
“In the beginning, we were gung-ho about the infrastructure sector, because the big picture presented in India was that it is 20 years behind the world (and hence the possibility of sustainable growth). But the first thing we learnt over the years was that a project that is in the pipeline or is under construction is no project at all as far as India is concerned,” Arora told a conference organised by PMS Bazar.
He says his other learning was not to overly depend on orders coming in from the government, whether it was to construction companies or road companies. Arora was alluding to a number of anecdotes about late payments or delayed or stuck government projects across sectors.
Data available with the government shows micro and small units have filed claims for Rs 17,500 crore that the government owes them. The government and their units have paid just Rs 788 crore and rejected claims worth Rs 2,277 crore, while the rest is still pending.
Plagued by these problems, stocks of infrastructure companies have become some of the biggest wealth destroyers on Dalal Street this past decade. Out of the 50-odd actively-traded stocks belonging to the engineering & construction sectors, 19 have plunged over 90 per cent in last 10 years. Data for the five-year period also tells a similar story of wealth destruction.
Change in markets
Arora, who runs his own investment firm Helios Capital, said the market has changed a lot since the 1990s as there are more disruptions now, but a few things have remained constant. One of them is that a large set of companies now do well in any market.
“By definition a large number of companies will do well because of the way we define markets. If we are saying S&P500 delivers a certain percentage of returns (average of returns by all constituents), then broadly speaking 40 per cent of them will beat that return while 30 per cent will take the pads off and the rest will go beyond limits. This will result in not 2-3 companies, but over 100, doing well,” said Arora.
He said not a single fund manager in the country has been able to beat the returns delivered by even the 100th stock in the index consistently. “A large number of stocks will do well. But you will not know which ones will, and that will be the surprise for you,” he said.