“But if you are a long-term player who would rather take it easy, buy in good quality stocks, keep a watch on the company, I think then commodities do not fit in that,” says Milind Karmarkar, Dalal & Broacha Portfolio Manager.

If one buys a good commodity company and we have a lot of audience who understand the importance of cycles here, can it on a five-year basis or a seven-year basis, there would be one bad year, one terrible year, one flat year, one okay year and one great year, the sum total is that on a five-year basis they will clock 10-12%.
Milind Karmarkar: That is correct. But 10-12% even Invits give you. So, why would I be taking the risk of investing in equity because of that. And as I said that if you can get the commodity cycle right, you can make decent money in that, maybe two-three times also. But if you are a long-term player who would rather take it easy, buy in good quality stocks, keep a watch on the company, I think then commodities do not fit in that.
You have invested in railway stocks, that is what you told us.
Milind Karmarkar: Yes.How does this entire buying into railway and engineering fit in this entire cycle?
Milind Karmarkar: It is a short-term mature, short term, quick phase growth, which think I do not know whether it is coming to an end, but in all probability it will slowly move towards the, what should I say, a reasonably stable growth, but that is what I believe. It is not a long-term growth story. It is a medium-term growth.
Have you added railway stocks in this decline?
Milind Karmarkar: No, I have not.
But have not they fallen enough for you to tempt a warrant?
Milind Karmarkar: No, because see what happens in railway stocks or any engineering company also, so we are invested.

We have invested earlier, but now at this stage what I think is that these are companies where a long-term, large growth potential probably is not there, that is the reason and they are reasonably priced also, so that is the reason why I am not buying into them as of now.

I just want to put this template out for the benefit of our viewers. The next question we would be discussing are big trends and how do you benefit from those big trends. A classic example here is that when internet came, one of the biggest beneficiary actually was Amazon. When smartphone came, one of the biggest beneficiary was Zomato or an Uber, it uberised the economy. When social media came, one of the biggest beneficiary was actually Instagram. So, there is one way of betting on the new trend, which is that bet on companies who are implementing it or bet on companies who are benefiting from it. AI, that is what I want to discuss. There are two parts to it, which is companies which are implementing it, the companies which would benefit from it, which one would you bet on?
Milind Karmarkar: I would bet on companies which would benefit from them.

For a change, we have discussed more Zomato and less Trent. It is always the other way around with you.
Milind Karmarkar: That is true.

My next question is perhaps centred around a stock which you have owned and which I think you have sold, that is Titan. You have owned Titan for about 20 years and now the big picture, which is the mega trend according to you is changing. If I may just encourage you to elaborate more.
Milind Karmarkar: So, one of the reasons why we sold Titan was that we saw lab grown diamonds coming in. About 30% of Titan’s business comes from lab diamonds. The second is that the management in couple of calls also stated that they have realised that they are facing a lot of competition because of the high making charges which they have.
And they said that to remain competitive over a period, we are likely to moderate our making charges.

When it comes to lab grown diamond, our thought is that over a period, it will make diamond jewellery a commodity. And because of that, a significant portion, which was a high margin portion from whether it is Titan or any other jewellery manufacturer is likely to come down.

Though most of them continue to believe that the lure for natural diamonds would not go away, I think betting against technology is extremely difficult. I do not know whether I said this last time, but a lab grown diamond is like an IVF baby. So, whether it is a real baby or an IVF baby, it is the same thing. There is zero difference between the two. And if that is the case, why would anyone go for a natural diamond?

As long as people at the lower strata of the society do not start wearing lab grown diamond jewellery, I think it will work. But minute they start wearing that, uniqueness of it will go away or the snobbishness of that will go away. And because of that, there will be a significant fall in natural diamond jewellery that is what we believe.

Is the natural diamond prices down?
Milind Karmarkar: They are. When you talk to a person who is into natural diamond jewellery, he also says, but the artificial diamond prices are also down and you have no guarantee that they will would not go down further. So, I said, I agree on that. But the issue is that at a price, maybe if a natural diamond costs, say, one lakh rupees or two lakh rupees per carat and if this is costing maybe Rs 20,000 and then it comes down to Rs 5,000 what you are losing is only Rs10,000. Well, there you will be losing significantly more.

So, when you sold Titan, what did you buy against it?
Milind Karmarkar: I do not remember, but we have bought a water company. So, part of it went into that company because water, I think, is a significant growth industry as of now. Water in the sense, water treatment, so that is what we are looking at.

You have never invested in what could be called a turn of technology, which is, I have never heard you say, okay, I am going to buy a company which is implementing Y2K or a company which in a sense would be implementing GPS or a company which would benefit largely, which will be implementing internet. So, can I safely assume that directly you will not invest in a company which will be implementing AI?
Milind Karmarkar: Yes, you are right.

But the parallels which you have always used over the years are that, okay, this is the template in US, looks what has happened there, the same thing will happen here.
Milind Karmarkar: That is correct.

Globally, if one looks at the American companies, Nvidia is the biggest because they are implementing AI. Microsoft is implementing AI. Google is moving towards implementing AI. Amazon has launched Rufus, which is also AI implementation. So, if AI implementers are commanding market caps in trillions of dollars, so why cannot that happen in India?
Milind Karmarkar: So, as I already said that large companies who basically take advantage of an AI, whether it is Trent, whether it is anyone, I mean, whether it is quick commerce, anyone who takes benefit or who takes advantage of AI will benefit significantly. But when you say implementation, that is if you are talking of technology companies, which will basically implement AI.

They will continue to remain service companies, so that is why I am not so keen as of now at least to invest in those companies. Like the names which you said, whether it was Nvidia, whether it was Microsoft, whether it was Google.

India lacks that.
Milind Karmarkar: Yes. India lacks that big time and that is unfortunately the negative part of India.

Just I am going to make this point, stamp it with your approval, the point what Mr Karmarkar is saying that waves will come and go, but the real beneficiaries here would be companies who actually would be benefiting from the implementation of the architecture of AI, which is getting created. A classic example here is that Cisco was implementing internet by routers, but the real benefit actually went to Amazon. When the gold rush happened, the real benefit actually went and that is one of those most famous examples of the pick and the shovel model. I am going to change gears and talk about the Tatas, Ratan Tata. He changed the template of corporate governance in India.
Milind Karmarkar: Absolutely.

He had a big heart attitude.
Milind Karmarkar: Yes.

He was controlling 30 companies.
Milind Karmarkar: That is true.

100 countries, made a lot of billionaires, but was never a billionaire.
Milind Karmarkar: Yes.

What will change after his demise for the Tata’s?
Milind Karmarkar: So, I do not think much will change and that is the beauty of Tatas. For simple reason that I think Tatas is one of the only groups which, if I am not mistaken, in 1969, JRD Tata introduced one more article in the Articles of Association that the company will work for the good of the stakeholders, for the good of the shareholders and for the good of the society. And so, because of this, I think they will continue to do very well. I have been interacting with Mr Noel Tata for a long time and I mean, he is built in the same mould. So, I do not think anything will change for Tatas.