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Rupert Hargreaves
Rupert Hargreaves
Articles (1078)  | Author's Website |

What Mohnish Pabrai Has Been Buying in India

A look at the value investor's international holdings

February 13, 2020

Mohnish Pabrai (Trades, Portfolio) is still struggling to find attractive value investments in the U.S. stock markets.

While the percentage of his portfolio that is invested in U.S. stocks has increased substantially over the past few years, it would appear that more than half of Pabrai Funds' assets under management are invested outside the country.

According to his 2019 year-end letter to investors, Pabrai has been finding plenty of opportunities in India and Turkey rather than the U.S. He has made multiple trips to these regions to meet managers of uncovered and undervalued companies, which look cheap and, above all, have good managers at the helm.

Indian investments

Pabrai Funds' year-end 2019 letter reports that around 40% of the portfolio is invested in small and mid-cap stocks in India.

The letter does not profile which companies the value investor has been buying in the country, but it is possible to gain some insight into these trade by searching in the Indian financial press.

Pabrai is a regular on several Indian financial channels and does quite a few interviews with news outlets in the region -- he's much more active in the Indian press than he is with the U.S. media outlets.

According to reports from India, Pabrai owns BSE Ltd in his portfolios. This company is the operator of India's primary stock exchange. In August of last year, it was reported that the company had 79% of its market capitalization in cash, with a 7% dividend yield. It also traded at just 9.7 times earnings. If you strip out cash, the valuation decreases substantially.

Interestingly, there have also been reports that Pabrai hasn't had a 100% success ratio investing in Indian companies. In February 2018, his funds reportedly acquired a substantial stake in KRBL, which was involved in the process of manufacturing Basmati rice for sale. Unfortunately for its investors, it was later revealed that the company had not been entirely truthful with its investors, and the stock plunged. Luckily for Pabrai, the Enforcement Directorate, which is responsible for upholding economic laws in India, ruled his initial purchase of the stock null and void. He returned the shares to their previous owners, successfully navigating the unfortunate situation.

Other stocks in India that we also know Pabrai likes are Oberoi Realty, Phoenix Mills, Rain Industries and Sunteck Realty. Pabrai has spoken about Rain and Sunteck many times in the past. In an interview with the Economic Times towards the end of 2018, the value investor said:

"Out of about $700 million of Pabrai funds, $400 million is three stocks -- Fiat Chrysler, Rain Industries and Sunteck. In both Rain and Sunteck, we own 10%. They were all bought at what I would call a PE of 1 or less. All of these have gone up quite a bit since we bought them. We have decent amount of cash, but we have what I would call some great businesses, which we paid up for. Those will do well, but they will not do as well as the PE of 1s."

It's not clear whether or not all of these stocks still feature in his portfolio, although he has not mentioned selling Sunteck or Rain specifically during the past few years.

Difficult for investors to follow

For investors based in the U.S., it doesn't make much sense to follow these Indian stock recommendations.

The Indian stock market is entirely different to the U.S. market, and finding information on the companies listed above might be quite tricky for the average investor.

However, Pabrai has been able to use his connections and understanding of the market to take advantage of the fact that it is a still relatively inefficient and underdeveloped market system and find stocks that are trading at just 1 times earnings or less.

Disclosure: The author owns no share mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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