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Striving for sustainable & compounded
risk-adjusted returns
Our curiosity arises from:
"Wealth is created with TIME in the market rather than TIMING the market"
We create investment solutions and model portfolios to help our customers accomplish their financial goals. At Tikona, we believe that a realistic assessment of our life liabilities and, thereby, the right solution of cash flows with patience can create generous wealth over our life cycle.
As a result of our investment philosophy, we emphasize high-quality companies with the potential for long-term customer success. We are committed to achieving superior risk-adjusted returns because we believe risk management by elimination is essential to our investing strategy. We allocate capital based on fundamentals and prefer to invest in firms focused on value and growth.
Thus, our investment philosophy is to build wealth by investing in high-quality businesses at reasonable relative valuations that offer sustainable and compounded risk-adjusted returns with a concentrated exposure.
BUSINESS
MANAGEMENT
VALUATIONS
Our Approach to build Portfolio
Valuations are a function of the quality of management, returns on equity and longevity
We evaluate businesses generating returns higher than their cost of capital Reasonable valuations: P/E, P/B, EV/EBITDA, P/S, DCF etc.
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Sector opportunity, growth drivers, profitability enablers, capital efficiency.
Avoid high-cyclical, commodity, high-regulatory or highly competitive businesses that lead to erosion of market share and returns.
Generating healthy Return on equity with low leverage and efficient capital allocation.
Leadership to create differentiation by product/technology/talent pool/scale, pricing power and anti-fragility.
Themes For Decade
With a GDP of $3.1 trillion, India is the world's sixth-largest economy. The country has one of the fastest GDP growth rates in the world. According to economists, India would be the fastest-growing Asian economy in FY23, contributing 28% of its GDP to Asian growth and 22% to world growth. A shift in India's policy focus toward increasing the productive capacity of the economy will usher in a significant transformation in the country's structural story. The nation’s policymakers have taken up a series of reforms to create a virtuous cycle by facilitating an increase in the country’s private capital expenditure and consumption cycle, which will enable powerful productivity dynamic for the country.
George Akerlof and Robert Shiller through their book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, writes about five distinct aspects of animal spirits and how they affect economic decisions—confidence, fairness, corruption and antisocial behaviour, money illusion, and stories.
Given the confidence displayed in the global arena, the fairness of policymaking, the reduction of corruption, and the flourishing startup environment, India, in our opinion, is likely to unleash Animal Spirits, and these themes of the decade are likely to benefit from the spirits.
Tikona Capital offers a diverse variety of portfolios based on THEMES OF THE DECADE.
Invest in your preferred themes, from digital growth to sustainable energy!
Financialization
Rising income is fueling demand for banking and financial services across income brackets, and the Reserve Bank of India's (RBI) financial inclusion effort has broadened the target market to semi-urban and rural areas. Rural credit, insurance, and investment penetration is increasing. High networth individuals' engagement in the wealth management segment is increasing. Low mutual fund penetration of 5-6% suggests untapped growth potential despite mutual fund AUM increasing by 5.5 times in the last ten years. In the previous five years, the value of UPI transactions has exploded 30 times, driving increased speed of transactions. With over 2,100 fintechs now in operation, India has the potential to become one of the largest financial digital markets due to the rapid spread of mobile and internet. India's banking and financial services continue to be attractive with under penetration of mortgages, credit card, wealth and saving products to the retail segment. The $500 billion opportunity in MSME finance remains 60% untapped. Opportunities are growing as credit growth improves, private banks' market share increases, and new avenues of expansion in financial services and allied industries emerge
Techcification
The increased use of technology is influencing every element of life and industry, both vertically and horizontally. According to Gartner, worldwide IT investment is expected to reach $4.5 trillion in 2022, a 5.1% rise from 2021. They also anticipate that by 2025, more than half of enterprise IT investment in major industry sectors will shift towards the cloud. According to Ovum, the digital economy will reach 4.8 trillion USD during the second digital revolution. The massive growth in demand for consumption of technology worldwide bodes well for India's IT services business. Despite strong growth over the last two decades, the IT sector accounts for only 7% of global IT spending and has ample room to grow further. Given the increasing complexity of cloudification, artificial intelligence, blockchain, and other technologies, the Indian IT sector has the potential for long-term sustainable growth. The rise of smartphones and digital use in various sectors are further contributing factors to techification. In India, we will have 1 billion smartphone users by 2025 . India will benefit from increased penetration and the adoption of cutting-edge technology platforms. Companies that recognize the importance of focusing on the path to profitability and growth are likely to be winners in the future decade.
Consumerism
By 2025, India is expected to be the third-largest consumer economy in the world. India is getting into a multi-year consumption cycle due to population growth and favourable demographics. The young population, growing economic maturity towards savings and liberalisation of commerce are powerful drivers of demand. Further rising income levels and employment opportunities are increasing consumer affordability. Rapid urbanization with improvement in infrastructure, telecom connectivity and rising social media is influencing higher consumption. The size of households is decreasing, the consumer class has doubled, and Consumption is expanding across channels. With rising per capita income spending, once considered discretionary spending are moving towards recurring spends. In addition to consumer staples, Consumer discretionary sectors like Auto, QSR, Retail, beauty/ apparel, building materials, consumer durable and media are beneficiaries .
Globalisation
When compared to the pre-pandemic years, India's exports to developed countries increased significantly We have seen a surge in global demand for Indian manufactured goods. FY22 was a successful one for Indian exporters, as the country recorded its highest-ever merchandise exports of US$ 418 billion, a 44% rise over the previous year. Manufacturing has emerged as one of India's fastest-growing industries. The Prime Minister of India, initiated the 'Make in India' campaign to put India on the map as a manufacturing centre and to give the Indian economy global prominence. Further with PLI schemes, India has the potential to become a global manufacturing hub, contributing more than $500 billion to the global economy yearly by 2030. As India's economic policies have shifted toward greater participation in the global economy, a number of political, ideological, and economic criteria have shifted. India is transitioning to a global economy from a state-led growth paradigm. China Plus 1, PLI schemes and larger scale provide a significant export opportunity for goods. India has demonstrated its capability with success in IT services and Pharma exports, which can be replicated in many other sectors like Auto Ancillary, Chemicals, Agro API, pharma API, building material, electronic manufacturing and manufactured goods
Formalisation
According to the Union government, India's digital economy is expected to increase from around $200 billion in 2017 to $800 billion to $1 trillion by 2025. This would imply that the share of the digital economy would grow from about 8 per cent to 18-23 percent. Increased adoption of technology, higher compliance and digital payment adoption, the formal sector in various industries are gaining market share against the unorganised sectors. We have witnessed an increase in tax compliance with a notable rise in collections and a rise in tax to GDP ratio to a record high of 11.7%, which is the highest since 1999. We have also noticed a substantial growth in the GST collection of more than 30% in FY22, and a healthy trend is expected to continue in FY23. Increased conversion of the organised sector over the unorganised sector, will further drive GDP growth. Sectors with low organised share are expected to be beneficiary of above-mentioned trends viz footwear, apparel, pharmacy, food & grocery, Consumer Discretionary & Consumer Electronics, building materials - plywood/paints/adhesives/sanitary ware/Cables & wires etc.
Clean Energy
Adoption of Electric vehicles is expected to drive rapid demand growth for automobiles replacing the Internal Combustion Engines. On a total cost of ownership basis including subsidies Electric two wheelers are competitive and thus demand has grown exponentially. For four wheelers, total cost of ownership is likely to be competitive in a couple of years. Over the next decade rapid adoption of Electric vehicles will lead to business expansion for the complete chain of auto makers, auto ancillary suppliers, battery manufacturers, component/material suppliers, battery recharge ecosystem and more as the sector expands. The announcement by India that it intends to achieve net zero emissions by 2070 and to meet 50% of its electricity needs with renewable energy sources by 2030. The country aims to triple its renewable energy capacity to 500GW by 2030. India is pioneering a new economic development strategy that could sidestep the carbon-intensive approaches that many countries have taken in the past - and serve as a model for other developing economies. India can produce green hydrogen from 15-20 GW installed capacity by 2030. India may pioneer exporting hydrogen energy thereby garnering growth for a complete ecosystem of hydrogen equipment players to hydrogen users.
Our philosophy is to participate in these themes for decade and
generate wealth for our clients !
Stay healthy ! Stay invested ! Embrace the journey of wealth creation !
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