Samkit Capital - Blog by CMG

India Pharma: US Bio-secure Act

Sat, 23 Nov 2024 10:28:11 +0530

Long Term and Short Term impact of ACT on Pharma Companies in India

The US Biosecure Act is a legislative measure aimed at reducing the United States' dependence on Chinese companies for biopharmaceutical manufacturing. It specifically prohibits US federal agencies and companies from contracting with or providing grants to certain "biotechnology companies of concern," primarily targeting prominent Chinese firms such as BGI Genomics, MGI Tech, Complete Genomics, WuXi AppTec, and WuXi Biologics. This act is seen as a response to national security concerns regarding the unauthorized sharing of sensitive data by these companies with Chinese entities [1], [2], [3].

Implications for Indian Pharma Companies

Short-Term Implications

1. Limited Immediate Impact: According to industry experts, the effects of the Biosecure Act on Indian pharma companies are expected to be minimal in the short term. Amit Varma from Quadria Capital noted that any significant changes would likely take two to three years to materialize as companies transition their supply chains away from Chinese CDMOs [4].

2. Supply Chain Disruptions: The act may initially lead to disruptions in the supply of drugs and critical raw materials as US companies seek alternatives to Chinese suppliers. This could create temporary challenges for Indian firms that are not yet fully prepared to scale up production or meet increased demand [5].

3. Increased Enquiries: Despite the limited immediate impact, there has been a noticeable increase in inquiries from US firms looking for alternative suppliers, which indicates a potential shift in sourcing strategies [5].

Long-Term Implications

1. Market Opportunities: In the long run, the Biosecure Act is expected to create significant opportunities for Indian pharmaceutical companies. As US biopharma looks to diversify its sourcing, Indian firms could fill the gap left by exiting Chinese manufacturers. This shift could enhance India's position as a key player in the global pharmaceutical supply chain [2], [5].

2. Regulatory Enhancements Needed: For Indian pharma companies to capitalize on these opportunities, they will need to strengthen their regulatory processes and ensure that their products meet international safety and efficacy standards. This is crucial for maintaining competitiveness against US and European firms [2].

3. Investment in Capabilities: The act presents an impetus for Indian companies to invest in their manufacturing capabilities and expand their service offerings. Firms like Syngene are already seeing traction due to long-term contracts with multinational corporations, indicating a shift in sourcing strategies among Big Pharma [1].

4. Potential Market Growth: The Indian pharmaceutical market is projected to grow at an annual rate of 8-9%, and with the Biosecure Act potentially driving more business towards Indian firms, this growth could accelerate further [6].

5. Strategic Positioning: Companies like Laurus Labs and Piramal Pharma are optimistic about the favorable environment that may develop over time as they adapt their strategies to align with changing market dynamics resulting from the act [1].

In summary, while the US Biosecure Act may not yield immediate benefits for Indian pharma companies, it holds substantial long-term potential by reshaping supply chains and creating new market opportunities as US firms seek reliable alternatives to Chinese suppliers. However, this will require Indian companies to enhance their operational capabilities and regulatory compliance to fully leverage these opportunities.

Who am I… and Where do I need to go?

Fri, 13 Sep 2024 22:09:39 +0530

I know where I have reached, I just don't know where am I heading.

‘Who am I’ is cheesy punch line to start writing something.. but that’s fine. This note is lookback about my 12 years of journey in financials market.

B-School Brainwashing and my first job: In B School days working for big investment banks was the big thing – as CAs aim to work for Big 4 firms we are trained to think that if we don’t work for International Investment banks we have not made it. My peers were preparing for this long before I could what is an investment bank and how is it different from normal bank. My friends were either appearing for CFA Level xx and here I was struggling with do basic accounts in MBA class (given my engineering background). But, coming back to the point – the idea that “Fundamental research is everything and my life will go to waste if I don’t become a Fundamental research analyst” was drilled into my head. After many turbulent events at the campus placement (story for some other time) – I got a lucky break with one the (too) big (to fail) Investment bank as a backoffice research associate. Although the job had little to learn about fundamental analysis it was more charts / excel update – I am sure many of us will relate to it. But there is glamour and carrot – glamour of working for US Investment bank and carrot that I can make it to the big leagues (these dumb ideas are fed by Bollywood movies, showing underdogs win at the end). Back offices should finance more such Bollywood movies from their HR budget to keep their employee morale high – who knows it can tame down the employee turnover. I was getting tired of chasing the carrot and the same time I got a lucky break - “Sell-Side” associate covering Indian markets (yes its funny in hindsight for folks who have don’t this but not for 29 years old).

Switch # 1: I switched over to sell-side after three years at back-office – this is the place where for the first time I did fundamental analysis and I started helping Financials and Real Estate Banks’ analyst. Being an Engineer who didn’t like accounts and was always unsure of making a cash flow statement – doing banks’ was blessing in disguise. To top it off, my boss (analyst) was one of the kindest person and we are still very good friends.

Covering Banks was new for my boss as well, as he had spent time doing real estate before I joined in 2013. Don’t scratch your head, Yes there were dedicated real estate analysts during the 2006-12 real estate boom-bust cycle When we started covering Financials, we learnt a lot about Macroeconomics alongwith Fundamental Research. We did scuttlebutt research by traveling across cities (and we were the first ones to do it that time and now it’s a commoditized research product). In nutshell, I got exposure to Macro research, fundamental research and scuttlebutt research during this stint. Its been 7 years I left the job and I still miss it sometimes. Career growth dilemma hits again – the research setup at sell side are so lean that moving to an analyst role is very difficult – skill is necessary but not sufficient. And there was another opportunity “back-office” but on buy side was knocking on the door. (Lure of the job – “I would work closely with Portfolio Managers – DemiGods of our profession”).

Switch # 2: Moving jobs, moving to new city working on buy side – where Sell-side will be at your service: I have never treated a sell-side analyst badly and I never will – because I know first hand that their job is tough and these folks really go miles in servicing their clients. Buy side job was awesome – blank canvas, lot of time and resources – you just need a plan and intent and people will help you achieve your goals. I will explain it in a bit – if I am learning on my own I will spend hours learning about companies, sectors, making contacts and getting all the data for my whimsical hypothesis about how either a stock works or “How to make money in a specific sector?”.

Fantastic learning ground and I wanted to make the best use of it, as I knew exactly what all I have missed in the first five years. I started learning about sectors (Sector Research) and then speaking to my knowledgeable sell side colleagues learnt about stocks across sectors. Few analyst taught me about Quantitative research and how factor investing works and how to identify sector moves. Despite all learning, there was a vacuum, something was missing and I started to interact with Trader friends and figured something missing in my armor was Technical Analysis (Yes from Fundamental analysis to Technical Analysis). I am always on lookout to get any (ethically achieved) edge. I met a very kind mentor serendipitously and that was my start of Technical analysis journey.

Solving the puzzle further: Learning technical analysis was fun, painstaking and rewarding as well. For a while I thought I have got the holy grail of investing. This was the time I started idolizing traders (all the Market Wizards) and thought Grandfather Buffett was past phenomenon. Yes, there are age to behave naively – especially when I had not seen a full market cycle. Coming back to the topic of Technical Analysis, I saw value in it and kept building the knowledge over last 5 years. Pitfalls of doing lot of Technical analysis from time to time were seen in the form of laziness to analyze business – and then I came across quotes like “Bhaav bhagwan che” (Price is God) – which doesn’t do lot of good as markets wants us to be active all the time and that is exactly what is injurious to financial health. Like Bollywood movies – people come to senses after intermission – and I started hitting the ground again with Fundamental analysis blending Technical analysis into my process (from both position sizing and risk management perspective) – I never chose one over the other and I also pledged to myself that my aim is not to demean momentum, priceanalysis or macro research or fundamental research or quant research rather to collect the edge what all styles have to offer.

In last 12 years, I have done CFA, FRM, Technical analysis programs, learnt to code in Python, networked with phenomenal people across industry (Locally and Globally) and I can see how different everyone is and yet everyone has a certain edge.

This post is about acknowledging that all types of research can give us some edge and lastly the behavioral angle of investing is super important. There is no shortcut to maturity either in life or in markets. All styles of research work in cycles and in different time horizon – the least asked question in investment discussion is about – what is the time horizon of your view? I hope we ask more questions to figure out – Who am I and were do we need to go??

#FundamentalResearch #TechnicalResearch #QuantResearch #MacroResearch #Scuttlebutt #Networking #BuySide #SellSide #Careers

Are Words and Actions always aligned in Markets?

Fri, 13 Sep 2024 22:05:34 +0530

Not Always! Especially during market downturns

Stock Market Translation of famous Shakespeare's quote would be “Market is a Laughter Club and most of us are funny creatures.”

Many of us exhibit the highest level of personal intelligence and utopian wisdom every day from 3.30PM to Next day 9.15AM and on weekends and public holidays. So the problem hours are 9.15AM to 3.30PM – where we exhibit actions may be different from what we recite during hours of our superior intelligence. This is what I think is ‘misalignment of Words and Actions’.

Do we always behave this way?

My answer would be a resounding No!

In bull markets when stock prices are going up and being the optimist, we all are at heart – our positive stance is very much aligned with our actions (aka market positions). But, suddenly things go haywire when market is in a drawdown phase / bear phase etc. During these times we may be negative on markets, but our actions are not aligned to our words.

When I talk to friends, fellow investors, market researchers around me and ask for their view on market – many of them are negative and the thesis is very strong as well (please note some of these are very smart people). But my next question about ‘So what have you done to your portfolio / how are you positioned?’ – many can’t convince me that they have fully expressed their negative views in terms of their positioning.

At this point my belief in wisdom of crowds gets shaken. Wisdom of crowd is only valid if the crowd acts on it and not just says what they feel. Recently, I came across a very interesting chart from Elliott Wave institute (below) which captures market moves and investors market positioning. The chart is shown below just to depict negative sentiment is not followed by market positioning and doesn’t intend to give doomsday forecast.

Main conclusion is despite negative sentiment, investors equity holdings are not reflecting the same. One of the likely reasons is the recency bias for investors, where every dip should be bought mindset or hope of a V shaped recovery even when Government and Central Banks across the globe are tightening their purse strings. Some of this was echoed in recent interview by Seth Klarman with Harvard business school – the three main points from the interview were:

• "We see today's market as characterized by stretched valuations, deep complacency, and a host of looming risks."

• "We believe that mounting inflation and the related possibility of materially higher interest rates are posing a real danger to financial markets.

• "Against a backdrop of relentless money printing, a very active Federal Reserve, and fiscal largesse, many investors have been lulled to sleep, unaware of and unfocused on risk. They are like the cat that didn't jump on the hot stove."

Interesting thing about these quotes from Klarman, he has expressed this sentiment by buying hedges against Baupost’s portfolio.

To my gut we are not at the bottom yet and this will not be a V shaped recovery and I am positioned accordingly in my small capacity.

Point worth thinking over the weekend.

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Market Wisdom from Marriage.

Sun, 01 Sep 2024 11:08:30 +0530

Being Aware is important than to be right sometimes

Yes, you read it right!!

I didn’t intend to create a marketing one-liner so many of you would read the post, rather I mean what I said above. There are lot of commonalities between Market and Marriage, if one uses the principles of happy marriage into markets, they can actually work out very well.

Most of the married folks would have learnt it the hard way what makes the marriage tick. And unfortunate as it is the knowledge can’t be imparted from experienced folks to newbies. It can be told but they won’t be able to follow till they do it on their own (just like walking for the child).

The most important recipe of any successful marriage is “Respect”. Of course, what is new in this? And how does it apply to markets?

Respect comprises of two things:

(i) Listening

(ii) Don’t impose what you think

Yes, you read it right, Listen and Don’t impose – if done well in marriage and markets can do wonders for most of us.

Coincidentally, three mega billionaires filed for divorce this year (read about one news today) – the divorce club acronym is MAA (Microsoft, Alphabet and Amazon) - I just hope MAA doesn’t grow as big as FAANG in characters.

Major reason cited in all divorce cases was “irreconcilable differences” – and root cause of these irreconcilable differences could stem from Lack of Listening what others want and imposing what we think is right and what should happen. I don’t intend to trivialize the personal travesty of couples going through divorce now rather if something from post can resonate with you and things improve that would be much bigger satisfaction rather than making money in markets.

Coming back to markets – IMHO we don’t respect markets enough (and yet we believe in wisdom of crowds). Seasoned investors who are very flexible in their mind and have gained the experience through boom-bust cycles are always vulnerable and unsure which is a great trait because this leads to their tendency to listen keeping aside their notion about what should happen.

Novices on the other hand are dictating “what market wants to say” and “what markets should say and do” – these two notions are NOT so secret recipe for disaster.

In the above two thoughts, there are lot of hidden presumptions and impositions of self-belief. These two sentences indicate the unwillingness to listen to markets and imposing what we think (even it shouts at us – I want to go down now, but we are in continuous pursuit to find bottoms).

In markets lessons are expensive than we think, courses sold to tame the markets are cheap (just like Glucometer) but the continuous learning has costs, it’s our financial and mental capital (just like gluco measuring strips). And if protecting and growing capital is the pursuit, we have no choice but to RESPECT markets (Listen More and Don’t Impose).

I know I am indulging in a futile exercise where the experienced one already appreciate this fact and novice will ignore this as a piece of garbage but a rant if it can do any good to anyone is worth a shot.

With a pledge to listening more and lesser imposition - Have a great weekend.