CNBC-TV18’s Nigel D’Souza speaks exclusively to Mohnish Pabrai, Managing Partner of Pabrai Investment Funds on the current market scenario and Pabrai’s investment mantra. He discusses the impact of past events on the rating agencies.
Mohnish Pabrai: A Wake Up Call For The Rating Agencies To Tighten Up
Carlson Capital's Double Black Diamond fund added 3.09% net of fees in the second quarter of 2021. Following this performance, the fund delivered a profit of 5.3% net of fees for the first half. Q2 2021 hedge fund letters, conferences and more According to a copy of the fund's half-year update, which ValueWalk has been Read More
Yes it does. First of all about the you know the the liquidity and the crunch that I’m facing so Polonius and Hamlet said to his son when he was going off on a long journey. Neither lender nor Barnaby. And Bufford paraphrase Polonius say is neither a short term lender short term borrower nor a long term lender be. In the finance business. It is very important to match assets and liabilities and what a lot of the fees which are in trouble now did is they want to have fat spreads you can get very fat spreads if you borrow short and lend long but you also get caught. Like we just saw what happened. So it’s toxic to actually do boring short lending long to justice and a side of the issue is but I think looking at rating agencies saw in the during the financial crisis in the US and the global financial crisis 2008 09 the primary culprits of the financial crisis were the rating agencies in the US. The reason S&P and Moody’s and S&P had thousands of pieces of paper rated Tripoli that went to crap. And there were a lot of hearings. There were a lot of calls for heads to roll. When the dust settled. No one went to prison. They paid very modest fines and their stocks at all time highs. So the the the the interesting thing about rating agencies is there is almost no business on the planet that has a wider or deeper more than a rating agency. It is almost a licence to print money. So it’s a phenomenal business. Sometimes they screw up. In fact we had big screw ups in 2008 09 and we’ve had we had some screw up recently. I actually think it’s good news that the nature of the screw up that happened in India was relatively contained it’s only really ILFC subs and so on. And I think it was a wake up call for the rating agencies to tighten up. OK. So that’s always good.
So you believe that it’s a blessing in disguise.
I don’t believe there is any long term impact on the rating agencies from these events.
Just talk about two sectors. One is banking space. In the past you have had a holding and South Indian bank that’s a few years ago. What’s your take on the banking space and also everyone’s quite valid the rupee is depreciating. You are lucky you are up more amount of money to the dollar but what’s your what’s your take on both these two spaces. Because I was looking after your holdings you have a rather large shanking healthcare global enterprises. From the pharma space about Carlat pharma but otherwise what’s your view on both these two sectors. I think on the banking side and I think if I look back at the history of Pabrai Funds.
I have had trouble with levered financial institutions. I’ve had a number of investments going back 19 years that haven’t haven’t worked. And we had trouble with even the Indian banks we invested in and we exited at a loss. And so in general I mean I think Repco is an anomaly in general. I really don’t have much interest in investing in lever against you so you’re not buying banks.
You know you’re saying that you’re quite bullish on India you’ve been deploying money in the last week or so banks hasn’t come on that list.
Definitely not. I think I think the thing is that one of the things to remember is that a lot of businesses can make money by levering up if you lever up with a sliver of equity the equity returns can look really good. Okay. The hallmark of a great business is generating very high returns on equity without any leverage. Okay that’s that’s a great business.
What about the pharma pharma space know the rupee has been depreciating. One would have thought that some of these pharma companies Bell are just one holding that I found health healthcare global enterprises.