Mumbai: Dalmia Group Holdings, an independent investment firm, plans to invest around Rs500-1,000 crore this fiscal across various strategies—private equity, real estate, structured credit and public markets, said a top executive of the company.
Dalmia Group Holdings, which manages a portfolio of around Rs4,000 crore, plans to focus more on structured debt going ahead given the current market scenario, said its chairman Gaurav Dalmia.
While Dalmia is looking to deploy between Rs500 crore and Rs1,000 crore this year, the seasoned investor is cautious given the bull run seen across most asset classes in the last two years.
“There is clearly a flood of money. If you look at mutual fund collections, they are at a historic high. If you look at cross-border capital coming into the public markets in the last two years, there is a flood. Real estate too, you see a lot of money coming in," Dalmia said.
He believes that the talent pool to put this money to work is simply not there.
“You may see a lot of variance in returns between people who know what they are doing and others. The bull market has hidden a lot of problems," he added.
The public market, especially, is an asset class that Dalmia says he is extremely cautious about.
“Growth is lagging and gains are coming from P/E (price to earnings) ratio expansion. If you go down the curve from large cap to mid cap to small cap, earnings growth story gets worse. They have had the best gains, but the least earnings growth. Given all that, we are not really a believer in the market," said Dalmia.
“One has to look at possible outcomes in terms of probability. If one does that, downside risks look as likely, if not more probable, than upside potential. In the current market narrative, investors are underestimating the challenges. Such things normally do not have a happy ending," Dalmia added.
Real estate, which is the firm’s biggest exposure, is another area where caution is the order of the day.
“The bad news in the real estate industry is that project-level cash flows are weak and people are borrowing from Peter to pay Paul, which is why the problems have not come to the surface, but I think there are problems beneath the surface. So, as this bull market in real estate funding wanes a little bit, refinancings will come down and this would hurt investors," said Dalmia.
He is also cautious on private equity as he believes that entry valuations today are high.
However, the firm is keen on making early stage bets, with long holding periods, a flexibility that its proprietary capital provides it. Financial services, consumer and consumer proxies are areas of interest for the firm.
The value investor continues to stay out of the internet economy, as it believes that it does not have the temperament one needs to be successful in start-up investing.
“The new economy mindset is that I have a portfolio of 10 companies. Three of them are not doing well, so let them die. While as old economy people, our instinct is the exact opposite. We will say let’s go and save these companies. Our temperament is such that we will never survive the ups and downs of the consumer internet business," said Dalmia.
Structured debt is one area where the investment firm continues to look for opportunities, given the high valuations in other asset classes.
“We have been doing structured debt now for over 10 years. For many entrepreneurs, structured debt offers a better solution than private equity and from a risk management point of view for an investor, offers a better trade-off than P/E," said Dalmia.
The firm looks at a threshold of 15% internal rate of return for its structured debt investments.
The Rs4,000 crore of cumulative investments made by the firm have been built on the bedrock of guiding principles such as value investing, long-term horizon, and a bottom-up approach to investing.
“We have three guiding principles. One, we are value-oriented. Two, we are long term. And three, we are a bottom-up investor. We believe that investment is a temperament business and these three things define our temperament," said Dalmia, adding that the firm is a follower of Warren Buffett’s investment philosophy of value investing.
The investment firm also has a major exposure to overseas investments. Its overseas investments span from rental yield real estate investments in the Middle East and Australia to private equity and venture capital funds. Dalmia’s investment firm has invested in funds such as KKR Americas Fund XII, Romulus Capital, an MIT-sponsored VC fund and Apollo European Principal Fund III.
“The international book is run out of Dubai and those are more conservative, more rental yields and such investments. Our competence in India is much greater so here we can take more risks," he said.