Open up the economy, Indians will look after themselves: Watsa | Economic Times

Prem Watsa is ready to invest more in India, and his options include increasing investments through Bangalore International Airport and other firms. India’s economy will bounce back once the lockdown is lifted, the Canadian billionaire tells Joel Rebello.What is your view in the way financial markets have behaved in the last couple of months?This is an unprecedented situation, we had the corona virus, the price of oil collapsed and then we had a lockdown for two and a half months. This uncertainty created panic in the markets. But the US government's response has been strong with 30 per cent of GDP put into action. We have seen such unprecedented events before like the financial crisis in 2008-09 and September 11, 2001 when the stock markets dropped about 50 per cent. The point is this is also a time of great opportunity especially with the reaction from the US government and the Federal Reserve. What’s interesting is it only took four months for aviation activity to go up to 90 per cent of pre September 11 levels. Now we are opening up so within the year end we should see a significant increase. When you open the economy businessman and entrepreneurs will react. I don’t think any country has the resources to be able to close the economy for long. The US is borrowing $3 trillion in the second quarter and they cannot afford to do that for long. I think we will now find the economy will pick up. In Shanghai Disney World opened and they were sold out for the first week very quickly at 1/3 of capacity, i.e. 20,000 people per day. The NBA Eastern conference is planning to play in Disney with all the social distancing. We are reopening restaurants in Canada with 50 per cent of capacity but we are running at 90 per cent of revenue of last year because people want to go out after being stuck for two and half months.India is still in a lockdown with some extension likely in June that will do a lot of economic damage?India is opening up though there are a few problems in Mumbai and Delhi. The airports are opening but we have to be careful about the hotspots. But what we need is to open up the economy and Indian people will look after themselves. Once they open up, there will be a lot of pent up demand because people are fed up of staying at home. I am already seeing a bounce back. China has rebounded in many ways. The oil demand in China is back to pre Covid levels and so the price of oil is back up to $33. With respect to COVID-19 testing, therapies and vaccines are being developed all over the world. So the negatives that caused the problems are slowly going away. We find in India, Canada and US lots of opportunity to buy stocks at reasonable prices.There is a lot of uncertainty on the NBFC sector. How do you look at the scenario and your investment in IIFL?We have been shareholders in this company for 10 years. Chandran has been on the board for eight years. We own 30 per cent of the company and we have known Nirmal for 15 years. It’s an outstanding company that is going through a down cycle now. It will still survive and do well in the years to come. It has earned 15 per cent-16 per cent ROE for the last 10 years, had minimum credit losses (0.6 per cent) and its business is very diversified. It has 2,500 branches in India and provides outstanding customer service. In spite of its record and excellent management, it is selling at 3x earnings – down more than 50 per cent this year. In times like this the stock market provides an opportunity to buy and hold IIFL Finance for the long term. We have not sold a single share in any of the three IIFL companies. We think there are outstanding entrepreneurs running each of these companies.Are you worried about the financial problems faced by IIFL because its a NBFC?Where can the problems come from? Loan losses. Their track record of loan losses is very good and with Covid they have to defer payments from their borrowers but still have to pay their lenders. These are short term problems that they will go through. Their loan to value is very reasonable. These people are entrepreneurs and have skin in the game. The two founders own 20 per cent of the company. All of the people who manage the different companies like securities, finance and wealth, have significant shares in their companies. They want to do well over time which is a big plus. At twice the price I recommended it and the stock market may be providing a unique opportunity to buy these at a very good price.So would you be ready to invest more into IIFL if the need arises?Historically they have been able to manage without raising too much equity because their profits have been terrific. But we are very supportive of them and everything we can do we will do. This is one of India's premier NBFCs and they provide financing in areas where banks don't go in. They also have a wealth management company and a securities company and I would look at all three of them. We are not selling any shares but I am looking at how low this stock price has come down to and saying it’s a tremendous opportunity.Last time you spoke to ET you had said you have plans to invest $5 billion into India. How do you see those plans post Covid?We are looking at investing more money in India over the next five to six years. Covid has had an impact on Fairfax India share prices and of course we won’t issue any Fairfax India shares at these levels. Chandran and our Indian teams are looking at opportunities all the time. If we see something that’s good and fits with what we do, we will put some money and get partners. India's potential hasn't changed at all. It has just come down because of Covid. Once the country opens up fully, its potential will be back again. The economic freedom, that individual Indians are getting by starting companies, we will see a lot more of that.You have varied investments in India in airports and roads. What are your plans on that count?Our Bangalore airport is building a second runway. A second terminal is also coming up. They are planning to go from 30 million to 60 million passengers in the next five to six years. We are very much interested in getting more money to invest in airports which India needs in second and third Tier cities. We bid for seven airports but didn’t win. So, we will be looking at investing more through Bangalore international airport.What do you think about the financial package announced by the finance minister? Will it help in anyway because they have not done a demand stimulus?The US has put 30 per cent of GDP but people still say they haven’t got it or its slow, so anything you do some people are not happy. The big thing the government has done is to be fiscally prudent. India does not have unlimited resources so you have to be careful. Under the leadership of Prime Minister Modi they have been prudent and provided the stimulus that is necessary. But the big plus is to open the economy. The government can only do so much its individual businesses and their hard work which creates jobs and we cannot do that if the economy is closed. You have to open up the economy so that it frees the average Indian to take advantage of opportunities. The government has done what it can and of course it will fine tune it.There is also a bit of concern of one of your companies in India called Quess Corp which recently announced a Rs 600 crore loss. Is there anything that worries you?No not at all. Quess was also founded by an extra ordinary entrepreneur, Ajit Isaac. He is the largest domestic employer in India with 350,000 plus people employed. All that happened was that he took a non cash write off so it wasn’t the operations that were impacted. It does not really affect the company's long term prospects. His track record in the past five years is quite extraordinary. He is on his way to employing half a million people and to take it to a million people over time. India needs hundreds of companies like this. We haven’t sold a single share even here. Ajit is on his way to building on institution.Would you be investing in the same sectors in India?We are looking at honest people who build businesses and institutions over 10 to 15 years and we will support them. Not people who will build it to sell to private equity for a quick buck. The company will benefit, the employees will benefit, customers will benefit and we as shareholders will also benefit. We are agnostic when it comes to sectors. We are very much dependent on people. What is going to be your investment theme for the future especially post Covid?You have some of the best companies at rock bottom prices like Exxon which is one of the best oil companies is down 50 per cent. We bought it at $33 a share at a 10 per cent yield. When panic comes people sell everything. Google was the same thing. We bought Google at 15 times and its growing at 15 to 20 per cent each year. We didn’t buy Amazon and Apple though they came down too because in our mind they were fully priced. There is a tonne of companies operating in banking and finance. We find a lot of opportunities in North America which is where we are focused on along with India and we have some investments in Greece. Are you worried about the tensions between the US and China?Important point is they both need each other. China exports $500 billion to the US so they need that relationship. Tonnes of American companies are in China and doing very well and helped the Chinese economy grow. So there is a relationship there which at the end of the day will make a difference to keep the balance between the two countries. The Chinese respect strength and power and the US has it. Sanity will prevail ultimately.