India: ASK Investment Advisors

After a healthy layover in China from Malaysia, I arrived in India for another round of meetings and discussions.  My colleague and business partner, John Lunt, also went through India on his investment trek a few months ago.  John visited the financial capital of India, Mumbai.  To get additional context and perspectives about this very important emerging nation, my route went through New Delhi, the political capital of India.

Arriving at 11pm, I assumed it would be a relatively quick run to the hotel for a few hours of sleep before my first meeting the next morning.  I quickly learned that any assumptions I had regarding India and how the country functions should be left at the doors of the international airport.  Once I exited those doors, I was truly in a different and unique place.  I’ll share more of my thoughts about general observations of India in my wrap-up blog.  For now, I’m eager to share the insights gained from my first meeting in India.

I had the distinct pleasure of meeting with Bharat Shah, Executive Director, ASK Group / ASK Investment Advisors.  ASK is an investment firm based out of Mumbai but has operations in several cities throughout India, including New Delhi.  At Bharat’s suggestion, our meeting was held at his hotel, the ITC Maurya which is heralded as the “preferred residence of the Heads of States.”  The luxury and comfort offered by the hotel was impressive by any standard, and other-worldly when compared to how most of the population of Delhi were living, just beyond the walls.  The juxtaposition between the two was staggering.

My discussion with Bharat was truly outstanding.  His enthusiasm, charm, and graciousness were matched by his intelligence, experience, and passion for investing and for India.  Our meeting ran twice as long as had been scheduled and we could have gone on for another two hours if we both didn’t have additional meetings waiting for us.  I was sorry to see the time fly by as quickly as it did.

While I had done my homework on ASK prior to our meeting, I didn’t realize I was talking with a real pioneer in the Indian investment landscape.  Bharat was the CIO of the largest mutual fund in India (at the time) for a decade.  As the founding partner of ASK Group, Bharat moved from mutual funds into private wealth management.  ASK is now the largest private client manager in India, with 60% of their AUM coming from domestic investors and 40% from foreign family offices.  Bharat noted that wealth is really growing in India and it’s a phenomenal time to be in the private wealth management business in India.

Ryan Hessenthaler with Bharat Shah, Executive Director of ASK Investment Managers

Bharat shared the details of the ASK investment philosophy with me.  Again, much of this information is available from a review of their website, but there is nothing like sitting down with the creator of the philosophy and hearing the details first-hand.  Bharat added nuances and perspectives that simply can’t be gained except through a face-to-face meeting.  By the time our meeting was over, I was incredibly impressed and intrigued with Bharat’s disciplined approach.  Morningstar ranked ASK as the number 1 manager in India in 2014 and their performance has been impressive.

As Bharat explained, everything at ASK boils down to two objectives: 1) preservation of capital, and 2) appreciation of capital… and in that order.  These objectives resonated with me as we take the same approach at Lunt Capital.  So much attention is placed on investment gains and outperformance that investors often overlook the critically important role of preservation of capital.  ASK believes (as does Lunt Capital) that investment approaches must have deeply rooted mechanisms and systems to fundamentally preserve capital in various market environments.

Everyone has seen the simple math associated with investment losses.  A 15% loss requires a 17.7% gain to break even, a 30% loss must increase 42.9% to get back to the starting point, and an investment which loses 50% of its value must double in value (i.e. gain 100%)… just to return to the starting point.  ASK focuses on preservation, and so does Lunt Capital, so our discussion about this often overlooked and under-respected aspect of investing was comfortable and familiar territory for me.

ASK uses individual stocks to construct their portfolios.  They take a bottom-up approach and screen the markets extensively to find quality companies.  Of the 6,500 publicly traded companies in India, ASK won’t even consider approximately 85% right out of the gates because of poor management quality.  They further screen the markets through a few more quality metrics and ultimately arrive at an opportunity set of around 200 companies that may be viable options for investment.

In my discussion with Bharat and others in India, it seemed like within the business community, everyone seemed to know each other.  This seemed implausible to me when considering the size of India, but the rule seemed to hold as I spoke with other people and connected the dots between them.  Bharat noted that he knows the vast majority of business owners in the country and regularly meets with the owners of the companies (5-8 times per year) in which ASK invests for insights he can’t get from an annual report or a review of the financials.

Bharat had too many great expressions and “investment-isms” to accurately capture or share in this blog post.  I really wish I would have recorded the conversation because of the incredible insights and thoughts he graciously shared.  In addition to all the stories about mergers, acquisitions, leadership failures and triumphs, Bharat talked about the additional factors that lead to the long-term success at ASK.  These factors include buying with a margin of safety, having the ability to truly value a business, and having the discipline to stick to their established rules and systems.  Bharat truly believes in the rules-based system they have created… and they follow it religiously.

As we took a pause from our discussion about investing, I asked Bharat about Prime Minister Modi.  My question unwittingly unleashed an enthusiasm and passion for a political leader that I haven’t witnessed before.  Bharat explained that Modi is “the biggest thing that has ever happened to [curb] the corruption in India!”

Bharat has met Modi in person 3 or 4 times and his excitement for this new leader is infectious.  Bharat listed several things he loves about Modi, including:

  1. His personal integrity is unmatched; he has outstanding intellectual and moral integrity.
  2. His ability to understand the future is tremendous.  He worked in social services for decades and is a reformer who’s been in the trenches for a very long time.  His political superstardom is a recent phenomenon.  He understands what India currently is and has a vision to a better India.
  3. He has a “fire in the belly” that is truly inspirational.  He has a palpable burning energy to make a difference.  He has an un-abiding faith in lifting the economic fate of the masses.
  4. He has an undying ability to work.  He’s a real machine when it comes to work hours, effort, and results.  He works 18 hours a day and doesn’t rest in his pursuit of a better India.  He’s the first one up in the morning and the last one out at night.

If I didn’t know better, I would have suspected Bharat was a staff member for Modi, given his enthusiasm and well-articulated highlights.  What I learned as I spoke with others in India is that this view of hope and excitement for Modi is very widely held.

A few additional details related to Modi’s reforms and vision that I found fascinating include:

  1. Modi is using technology to eliminate the corruption and leakages in the system.  Government subsidies for gas and electricity have been issued by the Indian government for decades… but approx. 50% of subsidies have historically been lost to corruption and leakages through intermediaries.  Modi has implemented digital, biometric technology initiatives to ensure the funds go directly to the intended recipient.  One of the first steps in that process was to ensure recipients had bank accounts to receive the funds electronically.  Bharat noted that prior to May 2014 (when Modi was elected), only 47% of Indians had bank accounts.  That number is now 95%!  It took 65 years to get to 47% and just 16 months to go from 47% to 95%.  With a population of 1.3 billion people, that means hundreds of millions of accounts were opened.  In fact, there were 180 million new bank accounts opened in just 4 months after announcing the new initiative.  In the process of opening new accounts, the banking system also discovered over 40 million bogus accounts already in the system and were able to save $2.5b in fraudulent payments to these accounts.  The numbers are truly staggering.
  2. Modi has created three simple investment-related schemes to help the masses begin to save and invest for a better life.  The schemes include accident and life insurance for incredibly low costs that are fundamentally changing lives in India.  There is also a new pension system in which workers can participate which will help ensure their long-term financial well-being.  The response to these investment-related options has been overwhelming with over 125 million insurance and pension policies sold in just one month.  And all of this is done in a digital environment which is helping to “lift the fog” of corruption and socialism that has plagued India for decades.
  3. Modi is focusing on several important initiatives, including manufacturing and social projects.  One example Bharat noted is that Modi has a goal of building 720 million toilets by 2023.  Yes, I said 720 million… and they’re already on their way.  Just to put that in perspective for you, that’s more than two toilets per person for every man, woman, and child in the United States.  As a father of young children, the potty (and more specifically, the location of a potty) is something that’s often on my mind.  After my experience in India, I’ll never again complain about the occasional challenge of finding a toilet in the U.S.  With 720 million additional toilets being built in India over the next 8 years, the challenges of cleanliness and sanitation are starting to be addressed.

To hear Bharat talk about what Modi represents for India was inspiring.  The scale and magnitude of the challenges that face India are matched by the overwhelming potential and opportunities for progress.  And not just incremental progress… we’re talking about life-changing, paradigm shift, transformational, new-era sort of progress.

The optimist in me wants to believe that Modi can get it done and that real change is possible in India.  The pessimist in me believes that political promises and grand visions are easy to make and much harder to fulfill.  And finally, the realist in me recognizes that progress and change is difficult, but that true leadership and a genuine desire for change among the masses may be the combination that finally lifts India from the fog of corruption and chaos that has plagued it for far too long.  I, for one, will be watching with eager anticipation.


Special thanks to Brennan Staheli, Peter Johnson, and the Lunt Capital team for their contributions to this report.