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Angus Shillington

lines on the record: 89
first: 2024-08-29
most recent: 2024-08-29
sittings or episodes: 1
sources: podcast

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“I think there are different ways to split this in segment this, but I would sort of think about it broadly as let's think about this as a development phase, right? So we're going through this period of transformation, right? Though I think phase one, I would think about is the enablers, right? So who is enabled this transformation? Now, reliance industries and their geophone network, right? So they built out a three, four, now 5G phone network, created a price structure that enabled mass adoption. But yeah, Telf, very similar, built out. They were sort of there before. But the two of them sort of co-own mobile phone. So if you co-own mobile phone, then you also co-own this sort of digital relationship between customers and you can sort of cross-sell them media, some retail. So those guys have done exceptionally well, as I would call sort of the enablement layer.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“I mean, that is the idea of having a sort of right way up economy, right? The pyramid is correct. More people paying taxes than people drawing benefits from the economy is a sort of given. So yes, that is there, but the opportunity set, now there are some difficulties and there is some friction employing the vast number of new entrants to the labor market and that's causing some strife. But on the whole, right? The bottom end of the pyramid is younger, more dynamic, more open to change. And I think that drives both the sort of economic piece, which is digitization, company foreign nation, disruption. And then on the other side, it dries tax increases and the ability to create wallet, to invest continuously in hard and soft infrastructure.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Think it's more about technological adoption than it is the fact that the average 25 year old is going to be working, the average 75-year-old is probably not going to be working, and the average 25-year-old is going to be spending a higher percentage of their income than a 75-year-old.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Invest heavily in infrastructure, digital and hard, and the thing just spins. And I think this is the really sort of super exciting, longer-term trajectory of which demographics is part. But it's not the sort of part that people sort of classically think of just lots of people, lots of middle class families. It's more than that. It's bigger. And it's much more dynamic.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“There before, right? And that open light rail will go from the center to way in the outskirts. Call it 15 miles away, right? And it'll have 10 stops along the way. What that will do is they'll create 10 opportunities to build relatively small towns, neighborhoods around those stations because now, instead of needing to live right in the center of Pune to get a job, you can live 15 miles away. So what you create is this sort of scale opportunity to allow people to come to cities and move at relatively low prices because you're building the infrastructure that's allowing suburbs to build. And then as you build suburbs, you build the opportunity to build shopping malls and real estate developments and gyms. And so this whole thing sort of scales out really incredibly well off of this sort of flywheel, which is just effectively reform, digitization, raise revenue.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Continentally scaled. Now, this kind of energy and ambition and growth should leans very well into a younger population. So all of these things very specific at a given time are driving the pace of growth in India. So that's on one side. The urbanization thing is a sort of natural development sort of track. But I think what's super interesting about it. People will be less farmers because you've got agricultural machinery and they'll want more for themselves, their kids. They'll move to the city, all that sort of stuff. It's fairly obvious. But this is happening at the same time as you've got these huge infrastructure projects rolling out. So think about it. Like incomes, the tax revenue that I talked about, they decide they'll earmark X million dollars for an urban rail system in Pune, right? So they'll build this urban light rail system, which was”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Example of that, the tax infrastructure was reformed, right? What used to happen in India before Mr. Modi came in was each city, each zip code, each state could do whatever taxes they want. Now, this wasn't, a lot of this was sort of corruption related, but I would check into a hotel in Mumbai, and I'd stay a night and I'd have a can of Coke. And when I checked out, I'd get 28 pages of bill, right? Which was one page of my Coke in my room and 27 pages of taxes, right? So taxes were reduced to one single line, right? Across federally, across the sort of border. So this created a kind of European moment where an Indian business that was terrified to go out of certain zip code because they just knew they'd get overtaxed or destroyed. So they'd become super lean and very good at doing business in that zip code. Suddenly realize that they could cross zip codes, they could cross borders.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Okay, let me think about how to approach that fairly simply. The first one, I think, to understand is there are no set sort of variables to why a younger age group will pay you a great return, what the demographic dividend is. It works for India right now specifically because with the median age of in the low 30s, with all this sort of digitization and disruption, you tend to find that younger people have much more capacity to adopt. Their early adopters digitally, their early adopters of business formation in technology specifically. And they're sort of driving not only the mass adoption, but they're driving the sort of company formation and the business model growth and the basic coding that's required to bring in the efficiencies that India needs. So a good example.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Extreme financial discipline. That's interesting. And tell us, you reference earlier the demographics. Why do you perceive the demographics of India to be favorable? And then can you also tell us about urbanization of people moving from the country into the city, something that has happened in China over the past 20 years, and is typically associated with high economic growth”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“No, it's just pure cash flow. So a business that generates, you know, and these are often super prosaic business that are called industrials, guys who make pipe or adhesives or they get a 13, 14 gross margin that turns into an operating margin on a very lean business of 10, maybe 11%, which generates cash flow, which is gives them roughly 10 to sort of 15% excess to skim per year. And they slowly built that grant capacity. They buy a piece of land one year, and that land will last them for 10 years. They add machinery and plant, they add machinery and plant. In 10 years' time, they've doubled their capacity and they've doubled their output. But they put no risk and no threat to their ability to generate gross margins or to take on debt or to take on too much capacity that's going to bring margins down.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“In America, some very mature companies, the magnificent seven like Apple or Microsoft, they generate so many earnings, they don't really even need to raise capital. They kind of are self-funding. But your typical company that I think of, it needs capital and it either funds itself in equity or in debt. So you're saying a lot of companies in India are not financing themselves in debt or there's a lower percentage of debt in the corporate sector. How are they financing themselves? Do they not need capital or do they need capital and they go to the equity markets? Tell us.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“What your margins are and predicting what your margins are allows you to predict pretty clearly what your cash flows are. And if you can predict your cash flows, you can build out plant infrastructure, whatever capacity you need to meet demand. And that's how you basically grow your company. So very long term, but it's enabled by a couple of things, one of which is the demographics and the other of which is this very predictable long-term GDP growth that is being, as I said, sort of supercharged by policy and digitization right now.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“They prefer no debt. I mean, it's really that simple. I mean, some companies do, and you tend to find that they're the ones that are more likely to get into trouble. At the end of the day, the business culture and the business imperative is that I do not want in my income statement a line that says interest payment. And if you're competing against somebody who doesn't have an interest payment line, it's probably much more difficult to be competitive on price. And at the end of the day, product pricing, super sharp product pricing is really what gives category leadership in most commerce in India. So it's really about how you build your capital structure and how you maintain long-term cash flows and create long-term investment outlooks that you want to be able to predict.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“So that's an interesting point about the banking system that Indian companies had to compete for credit so they learned to grow and learned to generate earnings growth with a lower percentage of credit. I know in the United States, a lot of companies in the S&P 500, the bigger companies, their debt is in the bond market, high yield bond market, investment grade bond market. I also understand that in China and Europe, it is different. It is mostly bank dominated. In India, What do you see there if a company does have debt, are they issuing bonds? Are they borrowing from banks? And what significance, if any, do you think that has?”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Deliver globally competitive returns to shareholders year in, year out. Now, the interesting part is now you lay that on top of the opportunity set that is growing and accelerating and the GDP that probably comes in at 6 to 7 percent for quite a while. And that's sort of where I get very, very excited.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Even if your business was awesome, right? And generating good returns and your business plan looked great to the bank manager, there was a good chance he wouldn't lend you any cash because he just didn't have the balance sheet to lend, mostly state-owned banks. And that has changed over time. But what's happened is that this business culture has developed where debt is the devil, right? You do not want to take on debt because if you got it, it was expensive under the chance you wouldn't get it. But it was unpredictable. So you needed to generate returns on invested capital or returns on equity or look at it as very simple cash flow. You needed to be able to generate considerable cash flow if you wanted to invest and grow your business and build a dominant market share and moat. So over time, that really has hardened as a business culture and business isn't India. And I'm not saying all of them, but I'm saying the vast majority.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“It's sort of a bit of all of the above, but I think there's one very specific piece that became a cultural imperative. And that sort of resulted in where we are now. And that is the banking system was a horror show. I mean, a horror. Meaning that if you were an entrepreneur or a business owner,”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“And so you have a history of predictable earnings growth and high quality businesses in India that you describe. If you had to attribute that to another and compare it to, you say, so if you had to attribute that to something, what would it be? You say, okay, so these businesses, they're kind of like businesses in America in that they when they could actually grow their earnings, unlike China, which has had a more difficult issue, is it cultural? Is it political? Is it that entrepreneurship is celebrated instead of punished? Is it the nature of the industries that they just tend to have higher margins unlike other industries? So how would you explain that predictability as well as repetition of the high profit growth?”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Delivered when the economy was relatively inefficient. We're now introducing significant efficiency and introducing addressable markets at a much higher margins and similar entrepreneurs and a young population, potentially that return structure is higher in the future. And I think that all of this together is what gets me to a place where this is where I want to go looking for investments.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Against the S and Q, and you think, How is that even possible? Well, India had been growing at 7% GDP average for the last 20, 25 years. It's got a bunch of exceptionally good businesses that pay absolute cash returns to shareholders. But then you scratch your head and go, how is that even possible that it beat the S&P over 25 years? Didn't have any QE, crazy cash policy. And I had none of the sort of NVIDIA slash AI tech hardware names. And the answer is because this is a market that, one, the economy grows fairly predictably. And two, the businesses compound growth over long periods of time. And over time, that has resulted in the returns you've seen. I think the bit that's sort of interesting is to try and have or begin the realization with investors that that was the past, right? That was the returns that this index”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“You could do it if you wanted to. You didn't. So, in reality, nobody paid tax. So once everything was digitized and everything was, you could capture it at this sort of IRS type level, tax compliance went through the roof, through the roof means it was doubling, started to double year on year from around 21-22, meaning that suddenly you'd gone from a country that really had real difficulty investing in development and improvement to a company, that country that was well funded. Tax revenue was growing at twice GDP, meaning the wallet that could then be taken to build soft, hard infrastructure and digitize this economy was readily available. So it's sort of this combination. And I think when you sort of loop back to what I said about the performance, you look at the chart of the Indian index, you can pick whichever index you want, you convert it to US dollars, you stack it up.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“We went from having very few smartphones to call it 800, 700 million smartphones today, right? So that's called that seven or eight years at the same time as we went from digital ID to this was a cash economy and the policy was open a bank account. Everyone must open a bank account. You get a little inducement to do it, a little bit of money. You walk in or you do it online.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“I'm going to split them out. So most good policy is compounding, right? So you do one, then you build on top, then you build on top, you build on top. So if you think about the way that has worked, now Modi turned up in 2016. One of the first things he did was a digital ID program, which had sort of started before he arrived, but he did it. Digital ID means that everybody can be KYC'd on a thumbprint or a retina scan. Super interesting starting point. At the same time, Reliance Industries was laying down a 3G, 4G network with an ambition that they could deliver data through a smartphone, a cheap smartphone at scale, to call that mass adoption at under $1 US dollar a month, which is insanity. So as they were laying that out, the government policy was being laid out.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Beating the SP in US dollar terms. The problem is how to have the conversation with people about what happens next and aligning that with all the other sort of understandings and risks that are going on right now.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“The very simple answer is that India is basically going through a transformational reform period, very similar to what we saw in the United States during and post Ronald Reagan. Now, that lasted a long time, so we're talking tax reform and income reform and various other structural issues that really reduce productivity, sorry, increase productivity, reduce cost. And at the same time India's digitizing like a breakneck speed and digitization means that this policy can be rolled out and sort of supercharged. So those two things are happening on top of the pretty well-known demographic story. Now, I mean, there's no real surprise to the sort of performance piece. You just need to bring up a chart on whatever service you subscribe to. And you'll see that India's been one of the best performing markets over the past 25 years.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“I miss at a practical, logical, kind of academic principles guy, so I don't try not to think sort of bullish bearish. I try to think about the risk proposition. Where can I commit capital? Where can I have an edge? Where can I find mispriced securities? And to me or to us right now, India is that place where there's an awful lot of sort of push and pull in terms of understanding of returns and risk. And there is a lot of positive going on right now that is just generally misunderstood and mispriced.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“But there was very little else to invest in in China. There were stocks, which is kind of a casino, or real estate, which has typically gone one way. Was it a bubble? Difficult to say. Is it going to completely collapse? That's probably the good news. I think the authorities sort of stepped in and made some adjustments. And I think they've saved it from collapsing. And if you look at it through the analog of, as I say, most major economies household balance sheets tip towards their real estate investment. I think the Chinese government have managed to prevent that situation from deteriorating. So in many respects, you can look at that as good news.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Real estate in China has been used not dissimilar to real estate in the United States or Europe as a store of value for households. So it needs to be protected as a balance sheet item because you lose control of that, things go sideways in your macro outlook In China, it probably got ahead of itself. Money was relatively cheap and the tax Mechanics made it easier to buy and hold real estate with relatively low cost.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“A new innovative tech business, and he's going, Well, hold on, if I can't exit through an IPO, why am I committing capital right now? So there are cause and effects of these sort of relatively short-term decisions to try and balance out asset prices, which have really very long-term implications on investment dynamics and relative competitiveness. So I think the simple answer to your question is because it's really difficult to know what the future holds.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Difficult to assess, and therefore it's difficult to draw conclusions in the sort of three to five year category. I mean, the one I would maybe center on just as a really good example would be the IPO market. Now, the regulators have decided to put a halt to IPOs. The objective or what they're optimizing to is to stabilize share prices of currently listed public equities. So the idea is to, if you reduce supply, right, and maintain demand or demand may grow, then you can keep prices in equilibrium. Now, the problem is that pushes up the value chain and you've got a venture capital guy who's up in wherever, you know, Hainan, who is thinking of committing capital to”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“I don't think you even need to get too complicated about it. I think, again, different companies, different sectors, different risks. If I think of sort of my role to represent as a fiduciary, I want to know three years if possible out that, first of all, my equity is safe, right? It's the riskiest part of the capital structure. And secondly, I want to know that the cash flows that I am modeling, there's a high probability that they will be delivered. I think what's going on in China has been and is right now.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“It's sort of gone back to that level where things are a little more difficult to predict and therefore risk is priced at a lower level. So yes, the PE is low relative to other markets, but that would imply that the risk is higher. And I think that's probably a pretty fair approach.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“This has become a really big topic of conversation and I have some quite strong views and I'll try and keep them sort of compressed. And that is academically, it is not true to make the statement a low price earnings to ratio is a good investment. It is just not the case. A price earnings to ratio really tells you the story about the risk of a particular asset or index. And that broadly speaking gets into the categories of growth quality, company quality, regulatory predictability. And I would argue that that multiple with the current outlook for China is probably fair, right? It's sort of where it has been coming into the sort of glory days in the mid-teens.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“Been very open about it is they would like a larger market share in global consumption, right? And that's effectively anything from what they've been doing in the past of the sort of lower end sort of call it clothing and sort of cheaper plastic toys kind of stuff to moving much more up value into EV batteries, EVs motors themselves. So there is a sort of cause and effect of taking on this sort of proposition we're going to grow market share and that means you need to be more competitive. Now quite often the companies themselves are not more competitive in and of themselves but the environment of how much it costs to borrow money or how much it costs to buy land to build machinery. Is the differentiating factor. So it's a little more complicated, but fairly clearly into those two categories.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“The US call it Walmart outsourced production of the sort of cheaper lower value added stuff to China, right? So they got into the habit of producing competitively priced goods, mostly some services. Now, when the world got more competitive or the playing field somewhat changed in terms of maybe there were tariffs or maybe currency values changed, China tended towards putting their thumb on the scale in terms of favoring their domestic exporters by offering cheap subsidies to build scale by a handful of different things that help them to do it all a lot cheaper. So optimizing to really what the Chinese business model has been for many years, but specifically over the last five to seven years.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“I mean, to that question specifically, I think you've kind of got to separate it into sort of domestic market export market. Domestic market, I think a good analog to follow, which leads you to sort of the key point of risk, which is regulation, right? what is permitted and what is not permitted so the post Deng Xiaoping to be rich or to get rich is glorious deregulation kind of process that was triggered that led to Tencent Alibaba all these sort of really fabulous private businesses were then badly disrupted when the rules changed right so the regulation needs to be somewhat predictable to allow you to commit equity capital and protect risk and then the other side of the business model which I would argue is a more dominant business model is the export piece right and I would sort of think export 1.0 is you know when I guess”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“The expectation is always that a first growth economy, these sort of eye-popping GDP numbers of sort of six, seven, eight percent, will pay off in share prices and stock market returns. Now, that's turned out not to be the case in many instances. So there is a reevaluation that has gone on, right? There are fabulous companies like TSMC in Taiwan that have delivered on expectations, but there are a lot of cases China is a good example where corporate governance hasn't lived up to expectations where demand on capital or where maybe subsidies have taken away from returns to investors.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“So they are higher growth economies than developed markets because their economies are so much smaller in terms of GDP. How does that track onto the performance of the stock market? One might think, Angus, that the higher growth economy is the better performing the stock market is. And sometimes that plays out. However, you look at China and they have had incredible Chinese growth miracle. Their economy has been growing at 8%, 9%, 10%, double digits, yet their stock market, particularly as of late, really has struggled and has not matched anywhere close to how amazing the economic performance is in terms of GDP. So could you speak to that? How do you make sure that stock investors, equity market investors are being rewarded when the economy they're investing in grows so much?”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT
“A fantastic question. I would think about it through the framework of expectations. In the original sort of 1.0 EM, there was a period where EM did well up until the global financial crisis, the expectation was fast development, great demographics, or some companies emerging and this crushing inefficiency, right? So the returns from emerging countries haven't been met. I think the basis is the same. These are deeply inefficient countries with young populations. They have the potential for company formation and exceptional stock market performance.”
2024-08-29 · Forward Guidance · India Is The Most Promising Emerging Market | Angus Shillington · IDENTIFIED FROM THE TRANSCRIPT