The year 2021 was turbulent, to say the least. While it began with hopes of leaving behind Covid-19, by the middle of the year we were dealing with the devastating second wave in India. There will be a rare person who did not lose someone or who did not know someone who had lost a near and dear one. At Marcellus, our team was fortunate enough to pass 2021 without any serious health concerns, but a few of us lost close family members. Through these turbulent times, writing was one routine we tried to steadfastly maintain. To mark the end of the year, we have compiled the ‘Best Blogs of 2021’ from Marcellus. These are the blogs where you, the readers, have engaged with us the most, either via e-mail replies or through social media interactions. If you liked any of our blogs other than the five compiled here, please let us know – we would love to hear from you.
As the year comes to an end and we pause and reflect on the months gone by, we are thankful for every small blessing and fondly remember those who will not be with us in the years to come. We also hope for a much better 2022 for everyone and wish all our readers a very Happy New Year.
More than any other cricketer, Rahul Dravid’s career has plenty of lessons for the rest of us regarding the power of mental conditioning and psychological training techniques. Rahul Dravid’s performance statistics show that he is the greatest Test batsman India has ever had. And yet, if you ask sportswriters and other cricketers of Dravid’s era as to why he was successful, the consensus view was that “Dravid succeeds because he keeps it simple.” So, if it is so easy to succeed by keeping it simple, why don’t more cricketers do it? Why is ‘simple’ not easy?
Capital allocation refers to the decisions about how a company should spend the money it has earned. If capital is invested in a way that does not generate returns that are higher than the cost of this capital, it obviously hurts the future business value of a company and in turn, hurts investors and shareholders. How can investors analyse capital allocation decisions of companies and the potential risks that can arise from such decisions? In this note we discuss a six-decade-old framework that can be helpful in these matters.
…is resulting in wealth creation being concentrated into the hands of 15-20 companies and this dynamic has nothing to do with the global monetary easing. A handful of companies – no more than 10 – are taking home more than 90% of the profits generated by the Indian economy. Secondly, 20 companies now account for around 55% of the Free Cashflow to Equity generated in the Indian market. Thirdly, a mere 16 companies account for 80% of the wealth created by the Nifty over the past decade. Understanding the drivers of polarization is now critical for achieving success in the Indian market.
In every decade, typically 50% of Nifty companies are ejected from the benchmark index leaving in their wake disappointed shareholders. Jim Collins’ bestseller “How the mighty fall…” provides a framework for assessing how companies get dislodged from their market leadership positions. We twin this framework with our proprietary ‘Lethargy’ & ‘Succession Planning’ frameworks to improve the odds that our portfolio companies will compound their free cashflows for significantly longer than what consensus estimates assume.
Amongst Emerging Markets, India and China have produced the greatest number of Consistent Compounders (i.e., companies which have delivered 10% YoY revenue growth and 10% RoCE consistently over a decade). However, not only does India produce more Consistent Compounders than China, but Indian Consistent Compounders have also delivered more than twice as much shareholder return as their Chinese counterparts. In this note, we dig into the underlying drivers of the superiority of Indian Consistent Compounders.
Happy reading, happy investing and a very happy 2022!