India & China To Soon Be Top 3 Economies of the World Says This Financial Advisor
The need for independent company research is greater than ever before as brokerage firms and traditional sell-side research firms continue to shrink around the world specifically in the non-investment banking-focused bulge bracket brokerage category.
This has led India-born serial entrepreneur Sandy Mehta to build three robust businesses in the financial services space in Asia Pacific.
His 30 years of investment experience includes him launching a $200 million international hedge fund. He embarked on his entrepreneurial foray in the financial services space with Acumen Capital Management LLC in 2004. Four years later, he launched his Hong Kong-based investment advisory firm Value Investment Principals, which sought unique deep value equity opportunities globally for clients primarily from the US and Europe.
His current interest lies in the Singapore-based research firm Evaluate Research, which provides institutional quality research on mid and small cap equities globally.
In an interview to Entrepreneur Asia Pacific, Mehta divulged insight into the APAC market, which he thinks is the most interesting globally at this stage.
India & China Hottest Globally
Mehta believes there is abundant turmoil in brokerage commissions as well as research and that’s impacting the coverage of mid and small cap stocks. This has led to a huge opportunity.
“In our investment style, we look for cash flows and what attracts valuation today,” says Mehta who finds India and China the hottest in Asia for active investments.
He believes clearly looking down ten years on, India and China will be among one of the top three economies, so the growth is definitely there.
Mehta finds opportunity in the developed market too, particularly in the US. He believes that global investors and the Government of India and China should not just rest on the demographics of growth. “I think the world investment opportunity grows with US on one side and then we have India and China on the other,” says Mehta.
Clearly foreign companies, whether it is SoftBank, Amazon or Alibaba; they have much more risk appetite and deeper knowledge. For example, if you notice, in India the top three retailers – Walmart owns Flipkart, Amazon and then Alibaba – it is an interesting paradox that Indian e-commerce way is just foreign companies now.
To my style of investing, we are so focused on cash flows and valuation that we do not invest in e-commerce companies that are unprofitable tells Mehta.
“I think with Walmart, you also have this interesting dilemma that they are large buyers of Chinese products in the US. So there we see more and more knock of cheap Chinese products in India with Walmart’s acquisition of Flipkart,” says Mehta.
Mehta has been the first analyst ever hired by legendary value manager John Rogers at Ariel, and also worked with Arnie Schneider and John Neff at Wellington Management Company. He is a Wharton MBA and a CFA.
Mehta believes starting a business is a huge challenge as there are many opportunities and risk. He outlines a few for our readers.
Opportunities in Broad Global Industry
The industry is very large and operates on a truly global landscape. The financial services industry is perhaps the poster child of an increasingly digital world where information is a commodity and borders are shrinking.
Challenges are Rising
But it’s tough to make a name as a newly minted entrepreneur because competition can be fierce, and one always has to compete with big industry leaders and established firms. Perhaps unlike in any other industry, one must have relevant work experience and ideally a reputation before he/she can branch out on their own.
Positives: Ideas Trump Capital
There are many positives aspects of the financial services industry. One doesn’t need much brick and mortar capital at all, but the cost of human resources can be quite steep. You don’t need to invest in a lot of staff and that is why it’s easier to breakeven and attain a high RoE, although each professional employee will likely command a premium wage.
Headwinds Despite Robust Markets
Despite stock and bond indices being at all-time highs, the industry has several headwinds. Increasing competition from index funds and compression of returns has made active management tougher. There is pressure on both management fees and brokerage commissions. Thus for both money managers/hedge funds and investment advisors, getting incremental customers is more challenging than ever.
A Hobby as a Career
The financial services industry is filled with opportunities, and anyone with the right mind set and hard work can become a successful entrepreneur. Mehta recommends a value-added strategy in the beginning to attract clients and getting higher exposure for one’s entrepreneurial venture.