My name is Abraham George – known to all who know me personally as Sam. I have been in the financial markets for almost 45 years. I started when I was one. Jokes aside most of my career I was involved with the foreign exchange markets.
Foreign exchange markets is a fairly young market compared to the equity, bond and commodities markets. It is only since the 1970’s that it started to exist in its current form. The 1980’s and 1990’s were the best period for the foreign exchange markets. The main reason was there was so much disparity between inflation expectations, interest rate expectations, trade tension between the leading G7 countries that it created so much volatility on a daily basis.
In the 2000-period, inflation died down due to China’s resurgence and influence and productivity gains. As interest rates became more synchronized, opportunities in foreign exchange started to diminish and dwindle. Nonetheless it is still the most liquid and deep markets in the world.
I was lucky to be part of these markets from the inception. I started off as a trainee dealer in 1979 with HSBC Dubai (then known as BBME) and was a full-time dealer by 1982. I still remember my first independent trade where I lost 5000 dollars. I couldn’t sleep for three days. It affected me psychologically and emotionally. I couldn’t accept the fact that I lost three times my salary in a few hours. Later in life there were many days I lost or made even 5 million dollars in a single day and I was able to be calm and collected. No trader or investment manager in India would have had that sort of freedom with the markets.
I worked as the Chief Dealer of HSBC in Dubai, Chief Dealer of ADCB Bank in Abu Dhabi, principal trader of one of the biggest sovereign wealth funds in the world, set up a treasury department for a prominent royal family office in Abu Dhabi, set up a hedge fund regulated by the Dubai Financial Services Authority funded by a UAE Sovereign Wealth Fund with satellite offices in Australia and London.
At the pinnacle of my trading career, I was connected with mostly all the big names in interbank market like Phil Davis from Bankers Trust London, Guy Hield from HSBC London, Tony Bustamanty from Marine Midland New York, Fujimaki San from JP Morgan Tokyo to name a few. There is a documentary on YouTube named ‘Billion Dollar Day’. Richard Hill of Barclays Bank London and William Wonk of Chemical Bank Hongkong are featured in that documentary. They were my contemporaries.
With success comes failures too. A few years back owing to matters which were beyond my control, I had to shut down my hedge fund. I suffered a lot of financial loss for myself and for my friends and family who trusted and backed me. For a long time, I was emotionally devastated and depressed. Through all this, I still was fascinated and passionate about the markets but didn’t have the energy and courage to return to the markets immediately. So, I took some time off to read and introspect. I was always fascinated with the macro themes that drove the global markets and was looking for asymmetric opportunities. Very soon I developed a strong conviction that of all the countries in the world, India – my country of origin – provided the best opportunities in global equity markets.
Research publications from Bridgewater Associates, one of the world’s biggest research-oriented hedge fund helped me reinforce my belief. Ray Dalio who founded Bridgewater put out a very detailed paper about six years back titled ‘Productivity & Structural Reform – Why Countries Succeed & Fail and What Should Be Done, So Failing Countries Can Succeed’. Out of the major 20 countries in the world, he concluded that India was ranked number one of all the major economies and was also ranked number one of all the emerging market economies for future growth in the next ten years.
Of course, it did not include any exogenous shocks like commodity price volatility, politics, wars or pandemic. We all know what has happened in between. Six years have already passed since Bridgewater published that report. I still believe most of what Dalio wrote in that report will play out in the coming years. In my opinion, Bridgewater is the best econometric research-based hedge fund in the world.
During this time, I started to post my views to a few WhatsApp groups and also syndicated in an online newsletter called Breezy Briefings. About three years ago, I wrote two interesting essays titled A Case for Investing in India and ‘How 5G is Going to Change Our Lives’.
Recently there was a chart floating on the internet saying that India currently is the 7th largest country in the world in terms of asset price market capitalization. I circulated the same to many of my friends saying that India could be the third biggest in three or four years or maximum 5 years. Actually, I got a lot of push back on that from my friends.
While I was very bullish on the Indian growth story, my Indian portfolio was not looking good at all. I had about 30 stocks in my portfolio. When I looked at each one of the stocks, I had no idea why I got invested in some of them. I said to myself, if I am so confident about the Indian story, I need to become laser focused. I don’t have much of a luxury to be wrong again. At age above 60, I didn’t have much other means to make money other than the markets.
I also knew if I went about the normal portfolio allocation of large cap, mid cap and small cap stocks that I will not make back what I have lost. So I had to take risk, but it had to be a calculated risk.
In conversation with a friend of mine, I came across a very obscure stock. I never heard of its name before. In the intervening period that I started monitoring the stock, I spoke to many others, but I didn’t find a single person who had heard of its name. After about six months, I was convinced about investing in this stock. I called my broker and told him to liquidate all my holdings and move everything to cash.
In a few days I started buying this stock. As soon as I started investing, I started talking about it to my closest friends. Some of them paid attention and many didn’t. Those who bought and held the stock have done extremely well.
All doom and gloom views and negative interpretations that I was hearing from the markets, I viewed it as positive as I felt it had no substance. Every breaking news about the company was positive. The positive changes in the management structure and the passion of the MD gave me more confidence. As the fundamentals were being rolled out, I was following the technicals and sentiment of the company closely which was very much in my favour. By this time, I had even taken loan to invest in the company.
I however do not recommend my style of investing or strategy to anyone, as it depends on each one’s risk appetite. I was inspired by a quote from a highly successful hedge fund manager Stan Druckenmiller who said, ‘if you want to beat the markets, put all your eggs in one basket, but watch that basket very carefully’. The whole idea of a portfolio diversification came from the investment banks. It was their idea of protecting investors from higher volatility, earning more fees, and avoiding any litigation. At best, it gave you a mediocre return.
I still haven’t told you what is this stock that I am invested in. The stock’s name is Tanla Platforms. If you are an ardent follower of the Indian markets, you should have heard about this stock by now, as it was the best performing stock of last year. The stock is up 1350% year on year and 2500% since last two years. It is a great feeling to be fully invested in the best performing stock out of 7000 scrips.
If you really want to understand the potential of Tanla Platforms, look at a stock named Twilio in the US markets. They debuted in June 2016 at a price of USD 16 and is now trading at around USD 400. Twilio is a leading player in everything Tanla does. They have made large acquisitions and could soon announce an acquisition in India as well. They have huge debts and severe competition coming from major new entrants like Microsoft and Amazon. Yet, it is not making profits even at an operating level. With all this, if the stock is trading so high, one can see the potential of the space that they are in.
With the cost arbitrage that Indian tech talent provide, the scope for Tanla to grow in this space is exponential. Tanla is a zero-debt company. Instead of making more acquisitions I think Tanla has decided to invest their profits into international market expansion. I think this is the smartest thing to do when there is much competition on the horizon. At a time with a risk of inflation rising globally and possible interest rates moving up, it is the best position to have no debt. If at all you take debt, lock yourself for the life period of the debt based on your profit potential.
Tanla Platforms through it fully owned company Karix is the largest CPaaS company in India. Tanla also has an edge in DLT technology. Their Trubloq platform, the first of its kind in the world using blockchain is now installed with Vodafone, Airtel and BSNL. It carries a large part of India’s traffic in SMS scrubbing and will very soon be introduced in international markets starting this April with UAE telecom operators Etisalat and Du. The potential, as per analyst reports, from India alone is about 30 crore rupees a month, virtually doubling Tanla profits. This no doubt has created a moat and dominance for Tanla in the industry.
Very recently, Tanla developed and designed a product called ‘Wisely’ in association with Microsoft. This is probably one of the smartest moves by Tanla especially when Tanla is mostly an India based company. Microsoft is the world’s oldest and largest tech company. Probably no other company has shown the resilience and strength as much as Microsoft has done. In the past 20 years, only one company has consistently ranked among the world’s top 10 and that is Microsoft. With a market cap of just under 1.8 trillion at the time of this report, it is among the top three. It is one of the only two companies in US which has a AAA credit rating on its debt the other being J&J. Tanla should be really proud of partnering with Microsoft. Ever since Satya Nadella took over as Microsoft’s CEO, the stock has moved up 8-fold in 7 years. It shows what an Indian CEO can do to a big American company.
Whilst I highlighted the potential and price movements of the best known CPaaS company Twilio, another company called Route Mobile got listed in September of last year in India. In their SEBI filings, they even claimed they have no listed players as a competition, when Tanla is already a listed company. Since its debut, its prices have gone parabolic and at one time was even double that of Tanla stock price.
As soon as their results were out, many of my friends have made comparisons on Tanla’s and Route’s results and posted it all over social media. The stark differences are visible to even a blind man. Considering the price of Route one can understand how undervalued Tanla is. I am posting a few slides for your viewing. They are self-explanatory.
Karix should gain tremendous Synergies from moving its CPaaS offerings to Wisely platform, developed with Microsoft. It is a global edge to network delivering private, secure trusted experiences with end-to-end encryption, with all state-of-the-art latest technology like Blockchain, Cloud, AI, ML, cyber security, cryptography, etc. I have no doubt Tanla will turn out to be one of the biggest global players from India. If two Indian born CEO’s can run two of the world’s biggest technology companies why cannot an Indian company become a world-class company.
CPaaS does not exist without cloud facility. Microsoft will be more than happy to share Azure facilities with Tanla to gain service charges while Tanla owns the Wisely’s IP. Given the fact that Wisely provides a single API at the edge node for enterprises and telcos, it presents potent threat to traditional aggregators (CPaaS intermediaries like Gupshup, Route, ValueFirst, etc). Wisely is a marketplace for connectivity with enterprises on one side and Telcos/WhatsApp and others on the other side, with Uber-like dynamic pricing strategy. Market share should rapidly increase due to above natural advantages that Wisely represents, all beneficial to enterprises to not have unnecessary intermediary while having best in class product. Tanla through Karix is already a market-leader ahead of all its competitors in CPaaS space in India having 30% market share.
Internationally, joint go to market strategy with Microsoft and with no revenue share on CPaaS offering it will significantly help Tanla in expanding to various geographies. Trubloq volumes are massive, and they process over 70% of Indian A2P traffic. With margins of 80% to 90% range they process more than a billion interactions per day. With the world turning digital on all fronts, even three times more volume than current levels could be an underestimation.
With digital becoming the norm globally, the primary focus is on security and privacy. That’s exactly what Wisely will provide and prove to all of its other competitors. Wisely is a highly secure product and should prevent all possible privacy and data protection concerns of all enterprises with zero failures.
For enterprises, their customer data is extremely critical for their business. Apart from data protection, Wisely also provides MIS services to enterprises, including transactions sent and their delivery parameters, which is tamper proof as it is based on DLT technology. Wisely should create more stickiness and will enable Tanla to get premium pricing and thus increased margins. Tanla should be in a unique position, with Wisely to have a distinct differentiated product in an industry where most CPaaS companies offer similar services.
In an industry where Tanla has created major differentiation by virtue of its market share with size of business and number of customers, it has now created product differentiation also. Very recently, the Tanla Board agreed and approved the adoption of Balanced Scorecard and ESG (Environmental, Social, Governance) indicating their global aspirations. While CPaaS is all about flawless and seamless customer experiences in communications from a single point of reference, there is a lot of customer specific requirements. The world won’t find developers more cost effective and efficient in any other country other than India. This cost arbitrage factor alone should be supportive for many tech companies from India.
If the management of Route Mobile still thinks that Tanla is not a competition for them, in many ways they are closing their eyes and deluding themselves that it is dark. As for me as the famous money manager Peter Lynch said, ‘the best stock to buy is the one you already own’.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. His syndicated columns on macro views and market musings appear on Breezy Briefings.