Sunday, July 02, 2023

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Sagar Lele, Founder of Rupeeting. He also manages the All-Weather portfolios.

Made in India’s American Push 🇮🇳

Narendra Modi’s US visit always gets a lot of coverage (and drama), and the most recent visit was no short on intensity. But other than the tough press conference questions, and pictures of Modi’s corporate entourage, there were several deals signed, and multiple promises made.

A majority of the action was in the sectors of Defence and Tech, which have been focus areas for India:

1. Defence
   1. Co-production of jet engines for the Tejas Mk-2 to be done by HAL (Hindustan Aeronautics Limited) and GE (General Electric), which will make the aircraft 75% indigenous
   2. A deal signed by the US Navy with L&T (Larsen & Toubro) for ship repairs; and on-going discussions to sign similar deals with Mazagon Dock Shipbuilders and Goa Shipyard. Together these deals could cover the maintenance of two-thirds of US vessels in the Indo-Pacific fleet
2. Technology
   1. Google said it would invest US$ 10 billion in India’s digitisation fund, and that it would open Google’s global fintech operation centre in GIFT city
   2. Amazon said it would more than double its investment in India to US$ 26 billion by 2030, with a focus on growing its cloud business
   3. Chipmakers Applied Materials and Micron said they would be spending a combined US$ 1.2 billion
   4. Tesla said it plans to make investments in India ‘as soon as humanly possible’

Trade between the US and India has grown by 8x in the last two decades, and the US is now India’s number one trading partner. There has been heightened interest to invest in India, shown by both the US government and the American corporate sector. Two key economical reasons:

1. India emerged as the fifth largest economy in the world, is the most populous country, and is also the fastest growing large economy. Many compare India right now to what China was back in 2007, calling it India’s decade in terms of growth and opportunity supremacy
2. With tensions between the US and China escalating, India is emerging as a strong contender to take away production market share, which China has been ruling over so far. Take Apple for example - it aims to make a quarter of its iPhones in India by 2025

The India’s decade narrative definitely seems to be showing evidence both in terms of growth, and in terms of valuations. The markets made a new all-time-high last week, and despite a steep premium in valuations compared to developed and emerging markets, there seems to be no stopping on the upside.

Idea - Mazagon Dock Shipbuilders 🚢

If you have visited Mumbai, you may have used the Eastern Freeway that takes you straight to the Southernmost parts of Mumbai, where one’s flex is having seen the Gateway of India and the Taj Hotel. What you may not have noticed while taking that route is the Mazagon Dock, a famed location of the city and a company whose stock has gone up by more than 5x in the past year!

Mazagon Dock Shipbuilders Limited, with its roots dating back 250 years, is a government-backed company that hoists the Indian flag at seas by creating state-of-the-art warships and vessels for the Indian Navy and Coast Guard - yes, it is a defence company!

And like every other defence company, Mazagon Dock has been in the news for various contracts from refitting the INS Shankush submarine to extend its life, to jointly bidding for making 6 submarines for the Indian Navy along with Thyssenkrupp.

But, with the stock already up 5x in the last year, are we a little too late to show interest in it? Perhaps not - this may just be the beginning of a very long voyage for Mazagon Dock!

Why Has The Stock Rallied?