Uday Kotak: The King retires, leaving a legacy to reverberate through Kotak Mahindra Bank
Some key financial facts:
Kotak Mahindra Finance Ltd. (now Kotak Mahindra Bank Ltd.) went public in 1992. On the day of listing the share was listed at Rs. 1,300 to 1,400 against the issue price of Rs. 45 per share (Single day gain of 2,800%).
An investment of Rs. 10,000 with Kotak in 1985 would be worth around Rs. 300 crore today – implying an IRR of 39% excluding dividends.
Uday Kotak is the Asia’s richest banker with a net worth of $14.8 billion. He owns 26% of the bank.
During the Dot Com bubble burst in 2002-03, Kotak’s shares experienced a significant decline of 89%, plummeting to Rs. 1.44. Similarly, during the Global Financial Crisis in 2008-09, the share price saw a substantial drop of 78%, reaching Rs. 60. However, despite these tumultuous periods, Kotak Mahindra Bank has delivered substantial wealth for its shareholders.
Today, the share price stands at a robust Rs. 1824, reaffirming our investment philosophy: the value of investing in high-quality businesses with strong and prudent management.
Uday Kotak has relinquished his position as Managing Director and Chief Executive Officer of Kotak Mahindra Bank, an institution he founded in 1985, and currently ranks as India’s third-largest private financial entity in terms of market capitalization.
The remarkable accomplishment underscores the exceptional achievement realized by Mr. Kotak. Rarely in the global financial landscape has such an expansive conglomerate within the financial services sector emerged within a single generation. Originating as a modest bill-discounting enterprise, it has metamorphosed into India’s third-largest private bank in under four decades, chiefly due to the vision and relentless dedication of its creator. Uday Kotak, who affixed his own name to the institution, tirelessly worked to cultivate trust and credibility.
While the brand ‘Kotak Mahindra’ will continue to bear his surname, Mr. Kotak has chosen to transition to a more subdued role within the organization. It is fitting and deserving that Uday Kotak receives due recognition and appreciation for his extraordinary contributions.
Wealth Creation Chart:
Quote of the month
Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow.
The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.
– George S. Clason, The Richest Man in Babylon
From the global leaders:
“India’s equities offer the most attractive long-term investment opportunity in the international/emerging markets universe”: US based Baron Capital
“India has the talent and market to become a global tech, manufacturing powerhouse”: Intel’s Sandra Rivera
“India is becoming an economic superpower‘: German broadcaster, Tagesschau
“Japanese companies are increasingly looking at India as their China+1 partner”: Daiwa CEO
The Indian macro dataflow has continued to exhibit resilience and strength across various key indicators:
Manufacturing PMI: In August 2023, the Manufacturing Purchasing Managers’ Index (PMI) registered a value of 58.6. It remained within the expansion zone (>50) for the 26th consecutive month. This sustained expansion was underpinned by new orders’ growth, which reached its highest level since November 2022.
Services PMI: The Indian Services PMI cooled down to 60.1 after achieving a 13-year high level of 62.3. This robust performance was buoyed by strong demand, both domestically and in the export sector.
GST Collection: August 2023 witnessed GST collections amounting to Rs. 1.59 trillion, reflecting an 10.8% year-on-year increase. This achievement marked the eighteenth consecutive month of collections surpassing the Rs. 1.4 trillion threshold.
Credit Growth: Credit growth reached 19.72% YoY as of 11th August 2023 against YoY growth of 14.11% as observed on 12th August 2022.
Inflation: July’s CPI inflation rate breached RBI’s comfort zone and reached 7.44% in July 2023, from 4.81% in June 2023, at a 15-month high. WPI inflation remained in negative territory, with the July 2023 print at -1.36%, 276 bps down from June 2023’s at -4.12%, as higher prices for food and commodities played into a higher base. This was the fourth straight month of deflation witnessed.
Foreign Exchange Reserves: India’s forex reserves jump $4.03 billion to $598.89 billion for the week ended September 1, 2023.
Trade Deficit: July 2023 Trade deficit stood at US$21 bn (second highest in current financial year) driven up by slowing export momentum & resilient domestic demand.
Collectively, these indicators portray a dynamic economic landscape, characterized by both accomplishments and challenges, as India navigates through evolving global dynamics and domestic circumstances.
Equity Market Overview:
The BSE Sensex fell by 2.5% in August.
BSE Mid-cap and small-cap indices outperformed the Sensex and were up +2.6% and +6.1%, respectively.
Net FII flows, continued to be positive for August, albeit at a lower quantum (+$1.2 Bn, following +$4.2 Bn in July). DIIs turned into marginal net buyers of Indian equities.
Sector-wise, Oil & Gas, FMCG and PSU indices saw the greatest declines, falling 5%, 4% and 2.7% respectively m/m. Top gaining indices were Consumer Durables and IT, which were up 4.2% and 4.1% respectively.
Mutual Funds’ Systematic Investment Plans (SIPs) achieved an unprecedented milestone, reaching Rs. 15,814 crore for the first time. This highlights the strong confidence Indian investors have in equities.
Fixed Income Landscape:
G-sec yield were elevated during the month on higher-than-expected domestic monthly inflation print and higher US rates. That said, the second half of month saw rates cooling off a bit on tomato prices coming down and easing US rates on softer flash PMI print and employment data.
In Jackson hole symposium, US Federal Reserve Chair Jerome Powell emphasized the potential necessity to implement additional interest rate hikes in order to effectively manage inflation.
Market Outlook:
Higher interest rates have exerted pressure on the global economic outlook. While inflationary pressures appear to have peaked on a global scale, Central Banks remain watchful of the persistently elevated inflation rates. It is anticipated that interest rates will remain elevated for an extended period, contingent upon data-driven policy actions.
Despite prevailing global uncertainties, domestic macroeconomic trends have demonstrated resilience. Encouraging signs of recovery are discernible in industry capital expenditure, potentially bolstered by initiatives such as the Production Linked Incentive (PLI) and localization efforts, including the China+1 strategy. Furthermore, there are early indications of a rebound in rural demand.
India’s external economic situation benefits from robust services exports and reduced imports. Key indicators such as tax collections as a percentage of GDP, credit as a percentage of GDP, and notably, the increasing corporate earnings as a percentage of GDP reflect the effectiveness of transparency and formalization reforms implemented prior to the pandemic.
Valuations in the near term continue to present challenges. In the current market environment, the careful selection of stocks and rigorous risk management are paramount. We maintain our emphasis on sectors linked to domestic demand, as these segments may offer higher levels of growth and earnings certainty.
We firmly believe that India’s medium to long-term prospects remain robust, driven by investment cycles and policy reforms. Consequently, we recommend that investors adopt a long-term perspective when considering equity investments, taking into account their investment objectives and risk tolerance. Investors may opt for a phased approach to navigate the short-term uncertainties, while those with a more conservative stance might consider asset allocation strategies.
