He is rated among the country’s top stock market investors, having made his fortune by identifying shares of multinational FMCG companies when they were going cheap in the 80s.
Now 85, Chandrakant Sampat looks at capital markets in general with a sense of foreboding, his belief in capitalism having been shaken by the events of the past few years.
And he has thrown his lot with the camp of economists and market participants who believe that easy money policies of central banks and unbridled consumerism has set the stage for increased social and financial turmoil in the days ahead.
"Today, capital markets are blindly chasing growth achieved through reckless consumption, greed and fiat money," he said in a free-wheeling chat with moneycontrol.com.
"But the printed money is not really the source of growth; it is the earth with its resources that makes economic growth possible. And those limited resources are fast being depleted. It is time to be responsible," cautioned Sampat.
A combination of daily exercises and frugual living (which includes the occasional commute by BEST), has helped Sampat stay quite fit for someone his age.
It is this same discipline which helped him build a solid portfolio of MNC blue chips over a period of time, placing him among the largest individual shareholders in companies like HUL , Nestle and Indian Shaving Products (now Gillete).
Thanks to his patience and long term approach, his average cost of acquisition in most companies in his portfolio
But any attempts to get him speaking about his investment philosophy is met with views on the need for sustainable growth, and why capital markets have to realise the true purpose for which they were created: efficient allocation of capital.
Sampat says he has stopped investing some years back and feels equity investors should brace for tough times ahead, as the fates and fortunes of companies are much more dependent on the health of the real economy than ever before.
"There was a time you could study the financials of a company and bet on it doing well, irrespective of whatever happened to the economy. But that is no longer the case," says Sampat, who sees a close link between flawed monetary policies and the growing social unrest in many societies.
"If the economy itself collapses, where is the question of individual companies doing well?," he asks.
Sampat is dismissive of the widely held view that India scores over other markets when it comes to corporate governance standards.
"No, I disagree," he says. And that applies for even companies that claim to confirm to high ethical standards.
Sampat points to the high debt on the books of many companies and the generous compensation packages of the top management and the lavish lifestyles of the promoters.
"And who is paying for all these? The shareholders and the public, of course," says Sampat, who sees little relation between the performance of companies and the hefty salaries of the top executives. He is especially critical of the concept of employee stock options, which he sees as the "biggest source of co
"The misallocation of capital has created a new minority class of elites, who have been the biggest beneficiaries of capitalism," Sampat says.
The biggest problem facing markets across the globe is that no government has control over capital flows, which are increasingly chasing short term returns.
He cites the recent sell off across global financial markets in the wake of the US Federal Reserve's statement on cutting back on monetary stimulus, as a case in point.
"The trillions of dollars gushing across the globe are not seeking value; they are merely chasing yields," says Sampat. "An increase in US Treasury (government bonds) yields from 1.3% to 2.5% has triggered a collapse in many markets as funds moved out to the US. Just imagine what would happen if the yields were to rise to 4-5%. There would be chaos in India. The RBI would just be helpess. It is not fundamentals, but behavioural forces at play, and no central bank can fight that," he says.
India's situation is all the more precarious as it needs large dollops of capital flows to be able to bridge its yawning current account deficit (CAD), defined broadly as the difference between what an economy earns and what it spends.
The rupee today sunk a to a fresh record low of USD 61.21, as foreign institutional investors continued to reduce exposure to Indian equity and debt. FIIs have pulled out close to Rs 50,000 crore from equity and debt since the beginning of June.
"It is now time not to think serially; we have now to imagine what may come about. Yet, the market is depending on what has happened in the previous century, to anticipate what lies ahead,” he says
Sampat says the biggest worry is that every country in the world is negative on real resources being consumed to achieve economic growth. In other words, nations are consuming more natural resources, but growing at a sub-optimal rate. That holds true even for India, which is still growing at a higher rate than most other economies.
"How long can this go on?," wonders Sampat
"The previous century began with 2 billion people on this earth. That has now increased to 7.5 billion people, he says, adding that the likely population of the globe in the next 30 years could be around 9.5 billion people,” he says.
"Rising population in itself is not the main problem; it is the elevated expectations of the new population that is worrying. The consumption is nowhere near what it was in the previous century. Today the expectation of an average US citizen is one home and two cars. And that trend has penetrated other parts of the world as well, including India. Simply put, to fulfill the expectations of this 7.5 billion people, we would need the resources equal to five earths," he says.
The magic of compounding is viewed as one of the most potent tools by money managers and investors. But Sampat feels even compounding has its limits, and fixation with this concept can actually be dangerous.
"In theory, growing at a compounded rate of 8 or 9 percent year after year sounds like a great thing. But what nobody asks is whether the earth has enough resources to support such a growth rate on a sustained basis, and what that will do to currency and inflation" he says.
Everybody seems to have become a spreadsheet analysis expert and it is the spreadsheets that are now driving markets everywhere, laments Sampat.
"Punch in numbers into a spreadsheet, extrapolate it over the next few years and try and achieve those numbers anyhow," he says.
But even more damaging than the obsession with compounded growth is the extreme short term approach in the craze to achieve targets.
"It is no longer about the next three years or even next year for that matter. It is about today and now; no matter what the consequences," Sampat says.
And he feels central banks in general are not taking the problem of inflation seriously enough. India is among the countries that have been hit hard by rising inflation even as growth is slowing.
"If you look at the trajectory of inflation over the last 50 years, prices have gone up 100 times. This rate of inflation, brought out by endless printing of money, is clearly unsustainable. If this is not controlled, high inflation will eventually lead to the demise of capitalism," he says.
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