The Investor's Bookshelf: A CIO's guide to the 'world's biggest untapped opportunity'

India is smack in the middle of global news headlines right now for the shock outcome of its parliamentary elections.

The elections prove once again that India can often be hard to decipher – making it challenging for emerging market investors to navigate.

"India is filled with contradictions and decision-making can sometimes seem very arbitrary,” said Rahul Saraogi, CIO and founder of India-based investment manager Atyant Capital Advisors and author of Investing in India: A Value Investor's Guide to the Biggest Untapped Opportunity in the World.

His book, published in 2014, was designed to help foreign investors navigate the tricky turns and twists of India’s investing landscape. While the book is nearly a decade old, the takeaways from the book hold true even today.

EXPLAINING INDIA

Saraogi’s reasons for writing a book on India were straightforward.

He manages an India fund, which involves raising money from investors outside Asia. “One of the occupational activities that I end up doing often is to explain India to non-Indians,” he said.

“I would have to provide a lot of context around why certain things are happening in India. I couldn’t always get it across in a one-hour meeting, until I finally thought it would be a great idea to write a book about India.”

The book takes an in-depth look at the internal realities that impact India's investment climate.

India's rapid economic growth offers obvious opportunities for foreign investors. 

Yet, making wise investing decisions can be difficult for any investor without a deep knowledge of the country and its culture.

India can be a complex and chaotic place in which investors can find it difficult to make investing decisions with confidence.

The book offers an on-the-ground perspective on India from a highly successful value investor.

Saraogi said the book represents an accumulation of acquired wisdom over many years working in finance, underpinned by intensive independent research.

One of his key takeaways of investing in India is that finding success eventually depends on the people managing a business.

“In the process of writing the book, the importance of people was reinforced for me,” said Saraogi.

“When you learn finance, you are taught to look dispassionately about financial statements and business metrics. But my learning has been quite different: I believe that the same business in the hands of two people can be very different.  Value is created by people and how much value is created depends on who the people are,” he added.

TO MAXIMISE OR NOT?

Another big takeaway is that Indian businesses don’t necessarily consider ‘maximisation’ as the end-goal.

Neoclassical economics suggests people make rational choices between options based on the value they identify with each choice and that consumers will aim to maximise utility, while businesses will aim to maximise profits.

“In India, business works like that only up to a point. Traditional Indian culture can come into play here. Given our civilisation’s religious and spiritual history, it’s important to remember that not everyone wants to be on the Forbes 100,” he said.

“That can be perplexing to outsiders because the entire world is moving towards ‘maximsation,’” he said.

An avid reader himself, Saraogi started investing when he was just 19.

With more than two decades of investing in Indian markets, Saraogi’s value-based investment philosophy places heavy emphasis on corporate governance.

Saraogi says his team at Atyant Capital looks at potential investments via four filters – governance, capital allocation, business and valuations.

“With value investing, you spend time understanding the business model and whether valuations are cheap or expensive.

"But through my experiences, I have learnt that the first two filters are more important.

"If you get governance and capital allocation wrong, then even if it’s a good business and a good price, it may not give you a good result,” he said.

Like most accomplished investors, Saraogi noted that “investing is a business where you have to learn from everyone and everything.”

And while he has a list of investing names that he admires, he said it’s important for people to remember that time, place and context matter.

"The way Warren Buffett invested in the 1950s/60s/70s, he did in the context of that time. Today’s Warren Buffett may be very different,” said Saraogi.

“It’s important to learn first principles but you have to apply it in the context of current reality.”