**Cleaned and Rewritten Interview Transcript**

**Interviewer:** Thank you very much for joining me. I’d like to discuss and ask you
questions on two or three key themes.

First, in the broadest sense, this is about separating the signal from the noise. On the
supply side in the public markets, we’re seeing a significant build-up of IPOs. For
instance, the current pipeline suggests that around 71 companies could launch IPOs
worth approximately ₹90,000 crore in just the second half of this year. That may or may
not fully materialise, but the intent is clear. We’re also seeing heavy activity in the SME
segment—nearly 100 companies have already raised about ₹2,600 crore this year, and
that pace is likely to remain strong in the second half.

This brings up a few questions. As supply builds up, how do you double down on
identifying the best companies—the right promoters, strong balance sheets, solid
governance, and so on?

Second, over the last couple of years we’ve seen some notable shifts in the market. One
shift I want to focus on is the performance of the major tech IPOs that came between
July and November last year. After five or six big listings—Paytm, Nykaa, Zomato,
Delhivery, PB Fintech (Policybazaar)—almost all of them are trading well below their
listing prices. These were marquee names, heavily backed by venture capital and
private equity, yet they’ve declined for various reasons since listing.

The reason I’m linking them to today’s discussion is that they represent either noise or
signal, depending on how you view them. So let me start there: how are you seeing this
current IPO rush, and how do you step back and stay focused on fundamentals as you
always have?

**Speaker (Investor):** Let me answer this in three or four parts.

It is natural that when markets are strong and rising, more capital-raising programmes
appear. That’s directly correlated with buoyant markets, and markets have generally
been doing well. So there’s nothing surprising here. As always, you have to assess
whether the increased supply of capital will ultimately benefit or hurt overall market
behaviour. The answer lies in micro-level analysis of each individual business—why the
capital is being raised and how it will be deployed.

If the supply of capital becomes excessive relative to genuine demand, it can

temporarily distort market behaviour. But from a fundamental standpoint, I don’t think
that’s a critical long-term issue, provided the quality of the new companies and
programmes remains high.

Second, the fact that so many companies are coming to the IPO market to raise capital
is also a sign that businesses across the country expect to grow at a material pace over
a long period. That growth needs to be funded, and it is natural for companies to raise
capital to accelerate their expansion.

Third, rather than focusing solely on the quantum of capital being raised, we should look
at the *quality* of the businesses and the firms coming to market. In general, the overall
quality of capital-raising programmes and the companies themselves has improved
materially compared to the past—in terms of the solidity of their business models,
governance standards, and long-term competitive strength.

There was a time when many firms that came to market were of lower quality and simply
looking to raise money. Today, there is a significant positive change in the calibre of
businesses accessing the markets.

Fourth, this is also an indirect a`irmation that the entrepreneurial spirit in the country is
alive and kicking. Most of the companies coming to market are driven by entrepreneurial
vision, and India’s economic progress has been defined by the capability of its
entrepreneurs. So both the demand for capital and the supply of entrepreneurial energy
are healthy signs.

Fifth, many of the firms coming to market are operating in relatively new or
di`erentiated areas—not the standard, traditional sectors. Some are in entirely virgin
opportunities; others are bringing innovative new applications to existing sectors. So
there is a higher innovation quotient and novelty in the business models and capital-
raising programmes. These are all positive developments.
That’s the good news. However, in the jungle of the market, price is ultimately a function
of demand and supply at any given point in time. The simple reason many past capital-
raising episodes left a bad aftertaste was that the quality of those programmes was
often poor, and the post-listing experience for investors was unpleasant. Many of those
issues have now changed.

**Interviewer:** When you talk about “quality,” do you mean founders cashing out at
much higher valuations than one would expect, or something else?

**Speaker:** No. I’m referring to the quality of the businesses themselves—the

business models, the quality of the management teams, governance standards, and the
long-term strength of the franchises. These are clearly of a higher variety today than in
the past.

Therefore, our past experience of large capital-raising programmes causing short-term

market disruption or long-term capital destruction does not necessarily apply in the
same way. The picture today is materially more positive.

One thing that has changed is that many of these new companies—including the
examples you mentioned—are loss-making. There is also some debate about what
“profit” really means. You yourself have been on record saying there is only one
definition of profit, and it is linked to cash flow.

Are investors now in a mood to accept a certain degree of losses and cash burn in the
public markets—saying this is a new era and they are willing to look beyond current
losses because of other factors? Or do you feel the fundamental principles remain
unchanged?

**Speaker:** I don’t think the fundamental principles of investing or valuation have

changed at all. Markets, at their core, remain the same. A business creates value not
because a large number of people or a large amount of capital chases it at a point in
time. Long-term value is created only when a business generates real economic value.
There is no confusion about where that value comes from. It comes when a business
earns a superior return on capital employed relative to its cost of capital. The spread
between the return on capital and the cost of capital is the key benchmark of whether
value is being created, neutralised, or destroyed.

At any given point, a business may not fully cover its cost of capital, but only if it is
structurally going to remain in that position year after year with negative outcomes will
the value of the business be impaired. It cannot and will not arise otherwise.

So yes, businesses need to make profits—without any doubt. They need to make them
in a reasonably foreseeable time frame—without any doubt. Those profits must
emanate from the business model itself, not from accidental or one-o` events. They
must appear in the future rather than on some distant, unimaginable horizon—nothing
has changed on that front.

If a business is making losses today, for it to have value today there must be a credible
expectation (that is eventually fulfilled) that it will generate large enough profits to more
than compensate for the period of losses. Mathematically and economically, nothing
has changed here.

Clearly, profits are not just accounting profits; they are real cash generated by the
business. There can be legitimate reasons why a sound business may show temporary
mismatches, but on a perpetual basis there is no easy way out. If the equation is not
strongly favourable in the future, or if unfavourable conditions persist too long, reality
will eventually catch up and value will be destroyed.

Businesses must create economic value for their market returns to be positive in the
long run. There is a perfect correlation between the long-term intrinsic value created by
a business and the long-term returns generated from investing in it. It may not appear so
in the near term, but logically it has to be there, it has to be adequate, and it has to be
tangible within a reasonably foreseeable period.

**Interviewer:** When you say “near future,” what time frame are you thinking of? And
have you looked at any recent company (which you may or may not name) that failed
some of these principles you’ve just outlined?
**Speaker:** Many of the names you mentioned we have studied in detail; we have met
the managements multiple times. We have not been able to form a su`iciently high-
conviction opinion on them yet. The criteria we use remain the same.

First, the business model must be something we can understand, relate to, and logically
believe will exist and prosper over time.

Second, it must be capable of achieving scale. If the model works only under a very
narrow set of conditions or in a limited arena, it may not be investable.

Having said that, scale alone is not enough; you also need economic success at that
scale.

Third, the business model must give you a reasonable sense of predictability and
control over destiny. That allows you to make informed judgments about the future.

The typical areas we evaluate are:

- Size of the opportunity (not just absolute size, but the portion the company can
realistically capture)

- Whether the management has what it takes to seize that opportunity

- Whether growth will be value-accretive or value-destructive

- The character of the management—not just competence and execution, but

governance, capital allocation, adaptability, resilience, and the ability to navigate
challenges

When you combine all of these—business character, opportunity size, growth quality
and duration, management quality—you arrive at a view on value. Compare that to
price, and you get your margin of safety.

You are essentially looking at three sets of returns:

1. The future growth rate you expect (an annuity)

2. The quality of that growth (superior quality growth adds an extra annuity; inferior or
corrosive growth subtracts from it or can even turn the overall outcome negative)

3. The margin of safety (value today versus price today)

**Interviewer:** When you talk about corrosive or inferior growth, are you essentially
referring to businesses that spend more than they earn to acquire customers?

**Speaker:** Yes—ultimately it is capital ine`iciency. A business must generate more

value from the capital it employs than the cost of that capital. The cost of debt is
explicit; the cost of equity is higher and often less appreciated, but very real. Only when
returns exceed the full cost of capital does value get created. Growth then amplifies
that value. You need both the *quantum* of growth (to protect and expand the
investment) and the *quality* of growth.

**Interviewer:** Many of the newer companies have diluted equity sharply because of
legacy reasons from their funding rounds. Is that a good thing because they are
“professionally run” from day one, as opposed to traditional family-owned businesses
with succession issues?

**Speaker:** Skin in the game is a vital ingredient. It aligns interests, provides pressure,
and—when combined with genuine passion—drives long-term value creation. If skin in
the game is limited, you can never be sure whether the promoter is focused on long-
term value creation or on short-term, self-gratifying outcomes.

There are enough examples of business builders who exited early and moved on to
something else. Temporary parking places are not the best recipe for building great
long-term value.

**Interviewer:** You use terms like “fire in the belly” and “passion” quite often. Are you
seeing enough of that today, or is that one of your worries with the current crop of
companies?
**Speaker:** I’m not saying there isn’t enough fire in the belly. What I am emphasising is
the need for a clearly articulated, robust business model that both the founders and
outside investors can understand and believe in. It has to be durable, work across
multiple cycles and challenges, and provide visibility of sustainable success.

Sometimes we cannot fully understand a model because of our own limitations;

sometimes the model genuinely lacks clarity or staying power. A strong business model
acts as a compass—it gives staying power during di`icult times. Without it, you are
simply dancing to market prices and become vulnerable.

Skin in the game is also important for the same reason: it reduces footloose behaviour
and ensures mental commitment to the long term.

**Interviewer:** Let’s bring this to the present. The market is at a bit of a pause—both
globally and in India. As investors, we now have IPOs coming up, beaten-down tech
IPOs from last year, and occasional new opportunities (for example, something like Jio
Financial, which has no operating business yet but carries strong perceptions of
management competence and track record).

If you had limited capital, how would you allocate in this environment? How do you
choose when the economy is growing strongly and opportunities seem abundant?

**Speaker:** Capital is always limited relative to the opportunity set, especially in a

rising economy with flowering entrepreneurship. The rules of the game remain the
same: optimise returns while controlling risk at both the individual stock and portfolio
level.

You have to judge whether each business can create real economic value, whether that
value creation can be large enough, whether management can be trusted, whether the
opportunity size is meaningful, and whether the growth rate and quality of growth are
both favourable.

Investing is both science and art. There is mathematics behind growth rates and
valuation, but the quality of growth, sustainability, and margin of safety require
judgment. You need confidence in what you believe, tempered by enough scepticism to
stay self-critical. You must remain long-term in orientation while staying disciplined.

**Interviewer:** Finally, applying all these principles, what are you finding interesting
today—whether a sector, a group of companies, or a specific theme?

**Speaker:** In the public markets, I prefer not to name individual stocks. But broadly, I
believe many things will do well.

The greatest edge comes not from making grand predictions but from the ability to
observe patiently, read reality carefully as it unfolds, and adapt intelligently at the
margin. We often get carried away by intellectually satisfying macro forecasts (AI
changing everything, 2047 visions, etc.) and then impose them on micro realities.
Investing is about the specificity of each situation.

Having said that, if the Indian economy grows at a material pace in a durable,
predictable, and qualitatively sound manner for a long period, many sectors will benefit
enormously. Areas that look particularly promising include:

- Lending: Best-ever conditions—improving asset quality, declining real cost of capital,

strong borrower balance sheets, digitisation, and clean-up of the system.

- Insurance

- Manufacturing (not just “China +1”; the path has opened after many years)

- Capital expenditure cycle (private capex is about to accelerate as capacity utilisation

rises in many areas)

- Consumption: Today’s consumption basket is far more variegated—luxury,

discretionary, premium—creating new opportunities.

- Chemicals: Strong tailwinds for quality players, both from external shifts and internal
strengths.

- Digitisation across public and private sectors, large and small businesses—creating
powerful productivity gains and new business models.

- Technology, including artificial intelligence—new opportunities will emerge that we

must observe.
- Electronic manufacturing and related ecosystems.

- Healthcare and supporting systems.

Even some of the earlier tech names that have corrected sharply—I do not own them
today, but I will not ignore them. If any develop truly solid, durable business models, the
opportunity will still be there.

A rising economy, rising entrepreneurial capability, and rising self-confidence create

conditions for many new things to succeed—some we can forecast, many we cannot.
That is the beauty of it.

Investing is not about predicting market indices, riding themes, or macro calls. It is
about identifying specific businesses with sound character, run by people of character
and capability, sitting on large opportunities, with reasonable long-term, forecastable,
quality growth, bought with discipline and a margin of safety—and then having the
wisdom and patience to stay the course while remaining self-critical.

That, in my view, is the way to generate gratifying, risk-adjusted outcomes over time.

**Interviewer:** We started by talking about stocks and the IPO bottom, and you’ve
taken us on a wonderful journey covering future economic growth potential,
entrepreneurship, and back to individual companies. Thank you so much for joining me.

**Speaker:** It’s been a pleasure. I truly believe the entrepreneurial spirit in India has
been ignited. We will see many bright minds, new business models, and innovations.
Some will succeed spectacularly, some may not, but enough will succeed to define the
next phase of this economy. India has always been remarkably entrepreneurial, and
with the right enabling environment, the outcomes will be powerful.

Thank you once again.