Markets with Bertie: Private capital revival stays elusive. Are investors to blame?

Even before Aamir Khan immortalised the character of Rancho in the movie Three Idiots, Bertie had met a real-life Rancho. Duke was Bertie’s senior and dorm-mate in college, and it was well-known on campus that he would join his family business after graduating. That dissolved all placement pressure—the sort that weighed heavily on those with service-class fathers—and lent Duke an air of assured nonchalance.

“Kya kar raha hai facche?” (What are you doing, fresher?) were the first words that Duke ever spoke to Bertie. Summer placements were looming, and Bertie was trying to jazz up his CV, wondering how he could present his participation certificate from a group folk dance competition in Class IV as evidence of being culturally aware and connected to his roots.

“CV. For summers.” Bertie responded timidly. Duke threw one glance at Bertie’s flickering screen and asked, “What do you want to do?”, emphasising the word ‘you’. Like most of his peers, Bertie had worked backwards from what jobs paid the highest salary to decide his ambitions. He would have blurted out that rehearsed answer had he not caught the emphasis on ‘you’. Bertie stayed silent. Duke smiled. A bond was forged.

Over the years, the two kept in touch, and now, with Duke’s family business listed on the stock exchanges, they caught up again. After the mandatory reminiscing, the conversation turned to Duke’s business. For three generations, the family had run an engineering firm, which prompted Bertie to ask the burning question about private capex revival in India.

Duke smiled the same smile from over 20 years ago and kept mum. The awkward pause prompted Bertie to channel his inner Amitabh Bachchan, offering Duke a few options in KBC style: “Insufficient end-demand visibility, fear of losing the company if business goes bad, regulatory roadblocks—or perhaps the fact that the services sector now drives economic growth instead of manufacturing?”

Duke finally broke his silence. “All of the above, to some extent. But you missed one important factor.”

“What?” Bertie asked. “You,” said Duke.

This confused Bertie. Except for dissuading some friends from recklessly quitting stable jobs for a chance to feature on Shark Tank, he couldn’t recall ever blocking a private enterprise’s capex plan.

“Me?”. “Not you, duffer,” Duke snapped, irritation in voice. “Your tribe—the investors.”

Bertie frowned at this and was about to launch into how equity investors are the foremost providers of risk capital, but Duke pre-empted that argument. “Have you seen our stock list?” he asked. Bertie nodded and added: “Fantastic man. Congrats!” Duke waved it away. “Do you know our PE ratio?”. Bertie did not know the exact number so he shook his head. “50 times,” Duke said with feeling “FY28”. Bertie was about to repeat his ‘Fantastic man. Congrats!’ line but Duke cut him off with, “You know what it should be?”. Now Bertie had been asked this question by different promoters and knew that the polite answer to offer was anything above the current number.

Before Bertie could settle on a safe number, Duke answered his own question. “It should be twenty. At best!” This stumped Bertie—here was a promoter saying his stock was worth 40% of what it was trading at. “We’ve seen the cyclicality of the business for years, it’s no different this time. You guys are paying way too much.” Duke said.

“But what’s that got to do with capex?” Bertie attempted to steer things back. “Incentives, my friend!” Duke explained. “Capex means interest, depreciation and start-up costs—lower earnings—on which you guys are paying me 50 times! Why should I do anything that reduces the earnings numbers—capex or R&D. Cutting those also means better cash flow and return ratios—things that you guys swear by.” Now it was Bertie’s turn to be silent.

“Since when did you guys start listening to us?” he finally retorted, hoping to score one for Team Investors.

Duke laughed aloud: “Ever since you forgot the fundamentals of valuation.”

Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.