Can You Make Money Without Compromising Your Values? Big Question

[00:00:11]Hello and welcome to the big question.

[00:00:13]Here I am on NDTV Profit. I'm Vikram Chandra. Now the question is quite simple, right before you. What if your [music] investment portfolio reflected not just your financial goals, but your personal beliefs, your personal principles as well. That's the debate that we're taking up tonight. India's markets now are seeing [music] this rise of a new investing trend. So, in June, the BSE [music] has launched the Satvik 100 index. And then just weeks later, the NSE has followed up with a Nifty 500 Ahimsa index. Both moving beyond the traditional ESG investing by applying ethical and value-based filters to stock selection. ESG, of course, like you know, ESG is environmental, social, and governance investing, which looks at how companies manage issues like climate impact, social responsibility, corporate governance alongside financial performance. But now under the Ahimsa index, it goes beyond ESG, where companies that are linked to sectors like tobacco, alcohol, gambling, weapons, meat, and certain animal-related activities, >> [music] >> those are excluded. So, supporters of this say that this is the next evolution of investing, where capital is aligned with conscience.

[00:01:28]Critics, though, on the other side are arguing that markets should be about returns, not [music] morality.

[00:01:34]After all, many so-called sin stocks have historically delivered strong shareholder returns.

[00:01:41]And interestingly, the early numbers appear pretty mixed. You see the numbers over there?

[00:01:46]The Satvik 100 has outperformed the Nifty 50 across several recent time periods. And if you consider the newer Ahimsa index, that has had a more varied start, but maybe too early to tell. But the broader question now is, can values, can profits coexist together? Or does ethical screening come at the cost of diversification? Does it come at the cost of performance? And perhaps the bigger question is, is India creating a uniquely Indian model of values-based investing? Or are these products just designed to remain a niche uh corner of the market right now? Which is why our big question tonight, now that you have the Satvik index, you have the Ahimsa index as well, the question is, should investors put principles before profits?

[00:02:33]It's a good question to ask our panel.

[00:02:35]Let me introduce you to them. Joining us on the show, Vijay Mantri. He's chief investment [music] strategist, founder of Vijay Mantri Financial Services. Good to see you. With him is market expert Sunil Subramanian. Thanks for uh making the time. And also, we've got Sanchita Mukherji with us, managing partner of Talk to Walk LLP.

[00:02:53]And Hardik Shah's with us, head of uh sustainable investing at DSP Mutual Fund. Thank you all for uh making the time for the big question today.

[00:03:01]Vijay Mantri, now that India has this Satvik 100, the Nifty 500 Ahimsa index, do you see this as the birth of a new investing philosophy? Or you think these are simply schematic products that are searching for investors right now?

[00:03:17]>> So, there are people, there are investors who are looking at various ways to participate in the growth of the economy, the various way to make profit.

[00:03:26]So, it is not essentially linked always to the investment performance. Capital market is very brutal. It give allocation where it sees the more opportunity to make money. So, for instance, if there's a COVID, the health care will do well. If there's a war, the certain kind of industry like defense will do well. Post-war, construction will do well. And as you rightly mentioned, sin industry have a stickiness of the of the client. But what we've seen very interesting is that even for instance, look at USA.

[00:03:56]The alcohol consumption for last 50 years in US has been going up. But in recent year, the alcohol stocks are not doing well because the Gen Z is not consuming alcohol as much as a millennial used to or the generation earlier used to consume. So people taste keep changing. So in my opinion, it is one of the way to look at investing. May not be the always looking at the profit angle.

[00:04:23]>> So not always is it going to work, but there is opportunity sometimes. So it is about profits at the end of the day.

[00:04:29]Sunil Subramanian, you agree? Where do you stand on this? Should investing ever be about the values and principles that one has? Because many would argue that the only job of an investor is to maximize risk-adjusted returns, which is what Vijay Manti is saying that they eventually go for. And that is regardless of where those returns come from.

[00:04:47]>> No, I don't entirely agree with that statement because I think when you say risk-adjusted, the risk profile of the investor varies.

[00:04:54]So what is a good risk-adjusted return for me may not be the one for others.

[00:04:58]And I'll take an example of this from the food industry. We all know that Jains don't have onion and this in their food. And you look at the number of restaurants in India which offer Jain food as a separate thing because there's a separate class to which they cater to.

[00:05:13]Now, the taste of that sambar with or without onion is different. There's a market. So the point is that principles have to form a part of your investing.

[00:05:22]When you're investing, nobody everybody is not greedy for the highest return cuz then you will throw diversification out of the window, you will throw asset allocation out of the window, and try to get the maximum return asset class at every point of time. That doesn't work.

[00:05:36]So one of the key things is principles have to be always a part of this.

[00:05:40]Principles means what? What are your core beliefs, right? Now, again I take took the Jain example. Let's take them that if you say that I don't want to invest in alcohol companies, how do you have the ability to do that unless there's an index which provides that?

[00:05:54]>> Right.

[00:05:55]>> So, it's an optionality which is critical because ultimately there are investors who say, "I want money regardless of philosophy. Let them be there." But, when I enter that space and I have my principles, I'm willing to sacrifice my return to get what I feel is the right return because I do not want to die thinking that I have supported an unethical business or whatever, right? So, those are important to me. So, I will judge my success by saying, "Has the quality of my investment been good?" And within that, have I maximized my return?

[00:06:26]>> So, what you're saying is that this is about choice. Investors need that choice and that is an option that is being offered. Sunjita Mukharji, you think there is a dichotomy among Indian investors? Like K. Subramanian is pointing out, you go to a restaurant, you have a menu, there is a separate menu for a certain kind of consumer.

[00:06:43]Many younger investors today, they increasingly want their spends, their careers, their lifestyles to reflect their beliefs. And you know, it is only natural that that class has investments also reflecting the kind of choices they're making when it comes to lifestyle.

[00:06:58]>> Absolutely. And I'm so glad you mentioned the word choice because investing for me has never been values neutral, right? So, every investment actually reflects a choice. Now, the million-dollar question arises whether these choices are solely driven by financial matrices or by personal conviction and personal beliefs or or within a cultural framework. Now, the way I see it is the future of investment is not a debate in profits versus principles. It is the ability of an investor to pursue both.

[00:07:33]And that is very reflective on the maturity of the Indian capital market that today we have evolved to a situation where we are giving a to the investor very cognitive intentional choice to invest using the profit principle as well as a principle based personal conviction kind of a thing.

[00:07:55]Because what you just mentioned about lifestyle, for example, different investors in the lifestyle choices, somebody might buy an EV versus a petrol or a diesel vehicle. Some some investors would invest into organic food. So, it is not about replacing the existing menu. It is actually about expanding the menu that we are talking about.

[00:08:16]>> So, is that happening now? Is that expansion actually truly happening and the evolution that Sanchita is talking about of the Indian investor is the creation of these two indices, the Satvik and the Ahimsa, reflective of that? Hardik Shah, you work in sustainable investing. How different are these two indices, the Ahimsa and Satvik, from ESG? Is this a genuine evolution you think or do you think simply ESG with an Indian cultural twist, even if that is the ask of a certain kind of investor?

[00:08:46]>> Thanks for having me on the show, Vikram. So, if you look at the spectrum of what is known as broadly ESG investing or responsible investing, at one end you would have basically traditional investing where the focus is essentially on valuations and like you said, getting risk adjusted returns.

[00:08:59]Then when you kind of move down on the spectrum on the right hand side, you have something called as impact investing or even exclusion based investing, which is where both these indices fall where it basically values come first, not valuations, right? So, like some of the other co-panelists were talking earlier, when a customer is exercising their preference to kind of not invest in a certain type of businesses or maybe invest only in certain types of businesses, that they are kind of doing that as a personal preference, right?

[00:09:27]So, I think where what you need to understand is is it an individual customer making that decision? Is it us, let's say as an asset manager manager or as a fiduciary, making that decision for them. If it's the former, I think it's fine because everybody's entitled to kind of in a way choose what they prefer. Um but as a as a fiduciary, I think we should not be taking those values-based decisions be on on behalf of our clients, right? Some clients might want this. Let's say if you think about another lens, let's say fossil fuels, right? Some people might say fossil fuels is bad for the environment and hence I don't want to invest in in companies that kind of are doing this kind of a business. Well, others might say I just care about return, right? So, if us proactively are saying we will exclude fossil fuels in all of our funds, that is not correct because not all every client really wants that.

[00:10:15]>> But how many from your clients, Hardik, from your own personal experience are telling you about the kind of preferences that they have when it comes to making investments on their behalf?

[00:10:24]Even as you're the fiduciary, how much of that is coming through in the kind of investment choices that an investor is talking to you about?

[00:10:33]>> So, I think when you kind of have a one-on-one discussion, doesn't matter whether it is a high-net-worth individual or a family office or even a retail investor, I think most people will agree that following sustainable business practices which don't necessarily have a negative impact on the environment or the society makes sense. But a lot of times what happens is this conversation happens only with a handful of people, right? It's not a broad-based awareness campaign and hence you kind of have this common myth that I just want to focus on return. I don't care about anything else, right? And that's the >> Hardik? Is that the majority?

[00:11:06]>> I would say yes because and it's not because people prefer that way. I think it's just that there's lack of awareness creation, right? If you If you think about it, maybe I can just give you a parallel about 6-7 years back, we had this mutual funds campaign, right?

[00:11:20]And that kind of did wonders for the whole industry. People started investing in mutual funds. If If there is, let's say, a sustainability or an ESG campaign, I think there'll be much more awareness creation. So, I think it's just more of lack of awareness rather than people don't really care.

[00:11:34]>> just like Sanjita said, we are looking at a more evolved investor right now and you're saying that there isn't enough awareness. Vijay Mantri, these indices that we're talking about today in the Indian context, they exclude sectors like alcohol, tobacco, gambling, weapons. In Ahimsa's case, even meat, even poultry and leather and animal testing related businesses. So, I'm just wondering if you see this as more responsible investments or would you say it makes investing that much more restrictive?

[00:12:03]>> So, even today we have many big investor who don't touch tobacco, alcohol even in India. Very big investor and they're very clear the profit motive is a lot the only motive they're looking at. The second thing we need to keep in mind since we talk about the size, sometime the supply creates its own demand. Today the choices are not too many. When more choices are available, as Hardik rightly mentioned few years back, mutual fund or investing in capital market was not the big choice. Big choice was investing in real estate, gold or or FDs. But when the choices are made more available, investor migrated toward that. And very clearly we see people want to they would they would like to live similar way they would like to invest, similar late way they would like to make profit. And when they create this kind of benchmark, even the industry want to see that if the capital flow is available to certain industry, definitely more leverage will be given. For instance, I'll give you a couple of illustration.

[00:13:04]Many companies, many institution in USA would not touch industry if they are using child labor. Similarly, just look at pre-Ukraine war, ITC was down and dumb because it was considered to be sin industry. But unfortunately, the energy prices shot up and the definition of sin industry became flexible and suddenly we see an ITC going up. But even people are demanding. Unfortunately, there are not too many choices. But if there are choices available, if the money start flowing, industry itself will adjust to the choices of investor. We are vegan restaurant.

[00:13:39]>> Yes.

[00:13:39]>> Okay.

[00:13:40]>> Yes.

[00:13:40]>> Globally. And why is that?

[00:13:44]>> Well, because we want the choice, right?

[00:13:46]>> Exactly. So, I think people would look at Oh, I'm And there are some investors who are asking us very honestly that I don't want to invest in sin industry. I don't want to invest in alcohol. I don't want to invest in gambling industry. So, definitely these guy would migrate toward if the choices are available. And keep in mind that uh when you look at these value-based investing, the return should not be the only thing you should be looking at.

[00:14:09]>> So, fair enough. But even so, since you did mention the kind of businesses, are we not talking about the illegal businesses? If tobacco or alcohol, if these companies, being legal, if they are well-run, if they are highly profitable, if they consistently create shareholder wealth, then what is the case for an investor avoiding it?

[00:14:28]>> No, I'm not saying you avoid it. Both these thing can coexist. So, I would say I will not invest in alcohol. I don't drink alcohol. I don't smoke smaco. It doesn't go well with my way of doing things. So, I will make I'll I'm comfortable making less return, but it should go according to my choices. So, I think these are choices available to investor. Nobody can stop anybody from investing in alcohol-based company, tobacco-based company, or even the entire thing happen in a stock exchange.

[00:14:54]But some people may think like gambling den. But for some people it is not. So, it is completely choice with investor will exercise. And we have seen in various walk of life. For instance, look at I think in next 10 year, people would look at investing more in organic clothing, organic beauty product, organic food product. So, these things will evolve. And my sense is that Gen Z will definitely will look at these idea more, and they will accept these idea much more than what other of like us. Yeah.

[00:15:25]>> It's interesting that you're saying young investors because then we're looking at a starting point for some.

[00:15:30]What about those who already have a portfolio? These indices have just started, Sunitha. Should investors feel morally responsible for what is in their portfolio, for the activities of the companies that they already own, even if they're simple minority shareholders?

[00:15:44]>> It's a very great question.

[00:15:46]For years in India, investors have asked a question, "How will I make returns?"

[00:15:51]In today's date, certain investors are now asking, "Where are these returns being generated from?" Right? So, there is a difference. Now, if you see globally, I'll just take this trend globally. Globally, it's ESG-based investing, faith-based investing, a trillion-dollar industry.

[00:16:10]Like, I think the Sharia funds are close to around $4 trillion.

[00:16:13]There's Nordic impact funds. There's Japanese social responsibility investing funds. All of that, right? So, if one were to look at the trend, it is all about giving the choices to the current set of investors. And if one were to look at the constituents of these two indices, how they have been built up, one should be very, very cognitive that they are completely transparent and one must understand what they're made out of so that you can be driven by both your principle as well as a profit motive.

[00:16:45]>> Yes.

[00:16:45]>> For example, the Satvik 100, you know, it almost 38% of it has banking stocks and financial institution as a sector.

[00:16:54]So, it is structured more reflective of the BSE 500. It does exclude the sin products, you know, the negative filter on the products and all of that, but it is structurally more inclined. However, the Nifty 500 Ahimsa index, which is based on the the Ahimsa investment movement, that uses a very strict classification. so it actually excludes the banking stocks and large conglomerates which have diverse business interests. So, they it excluded. Now, this is not structurally reflective of the broad indices. So, investors will eventually come to the mindset that they have to look at the returns, the financial matrices, and what these indices comprise of and accordingly take a call.

[00:17:42]>> So, then you need that kind of balance.

[00:17:45]So, Naren Subramanian, you think these indices are doing a fair job of that?

[00:17:48]Looking at the composition, the financials account for nearly 40% of the Satvik 100. That kind of concentration, does it create portfolio risk that investors maybe should be worried about?

[00:18:01]>> You see, once we talked about principles versus profits, right? Once you're choosing an ethical index, you cannot use profit area criteria.

[00:18:10]>> It's either or the other.

[00:18:13]>> It's not either or. What I'm trying to exclusion of banking could help you get better returns at some points in time.

[00:18:19]So, the point is that you go to sleep at night saying I have deployed my money in an ethically consistent way with my principles. I don't And then within that, I try to maximize my return within that ethical framework. It's unfair to compare that ethical framework based returns to a generic returns and say, "Oh." And that's the danger. And that's one of the points of the danger that happened. And Hardik will bear me out here that when ESG came up What was the issue? ESG was very, very clear in terms of its ethicality.

[00:18:52]The reason that ESG was popularized, and I come from the industry which popularized it, is that when active managers get into managing it, they tend to talk about the returns of ESG. They tend to talk about the fact that big institutions, pension funds, are going to use ESG in their framework, and big capital moving will give good returns.

[00:19:11]That was miss-selling because an ethical investment cannot link itself and that's why a lot of people got disappointed when the energy crisis happened and ESG funds started underperforming. So, I think that as long as these indices are kept passive, the moment active management comes, I'm going to run an actively managed Satvik fund, then you know what happens? You tend to oversell it to try and get mobilization. Then you talk about returns. So, to me, when you're talking principles, like you look at it this way, right? Air conditioners, five-star rated air conditioners, there is a market for them. They're more expensive than three-star and four-star. There are people willing to do that. Obviously, there is a cost to them, right? Now, in investing, you talk about returns. In buying consumption products, you're talking about cost. There are a set of people who are willing to pay the higher price for a five-star air conditioner, which is less environmentally damaging.

[00:20:02]Now, does he think that I spent extra money? No. Yeah, ethically, he wants to be supporting the environment. So, I think that you can't mix principles with profits.

[00:20:10]>> Please. Hardik Shah, would you agree?

[00:20:11]You've run ESG funds. Now, you tell us whether this is exactly how it works.

[00:20:16]By way of passive kind of management, do you think that's the one way to go when it comes to these in particular? When you're talking about ahimsa, when you're talking about these thematic funds even, because there are quality funds, there are value funds, there are thematic funds. All of them use filters. So, why are ethical filters treated differently and the profit part of it, like Sunil Subramaniam is suggesting, is out of the picture or should be out of the picture?

[00:20:42]>> Yeah, I I would not totally agree with Sunil here. I think I think see, there is always passive is one way to do it, but it's not the only way to do it, right? So, I mean, if you think about it from a client's perspective, why would they want to invest, right? I mean, think about somebody who's living in a city like Mumbai or a Delhi today. We are facing the ill effects of things like climate change. Hence, I'm more concerned about sustainability. I'm looking at the next generation. I have a son and he basically what kind of a world he will live in and thrive in, right? So, it is not that just because of returns I will still invest in a fossil fuel company or I will kind of still promote a company which is not that I would say positive doesn't have a positive impact on the environment or the society. So, I think there is a very clear change of preference that is coming in.

[00:21:26]Um When you talk about I think Sunil was mentioning very rightly so. I think in the early days of the ESG kind of funds there was a an EM gathering exercise and I'm talking there is more about global not not specifically India than the global market everybody basically put up some sort of a rating saying we'll just pick the top ESG rated companies in our fund and eventually they basically all ended up buying tech financials and health care and these were basically generally highly rated companies and when the cycle turned and especially after the Russia-Ukraine conflict started all of this started underperforming, right? So, I think what is very very important in my opinion Vikram is you have to be very transparent about what do you kind of classify as ethical Absolutely. In fact, that is very very important because Yeah. What you mean What you mean by ESG and what I mean by ESG would be very very different.

[00:22:13]>> Very different and so it is actually true about ethical as well. Sanchita, you'd have to agree. Who gets to define what is ethical? What may be unacceptable to one investor may be perfectly acceptable to another. So, where do you draw the line? Tobacco is one thing. Meat, dairy, leather, animal testing, doesn't ethical investing become uh increasingly subjective?

[00:22:34]>> Yes, absolutely. But then again, the markets are here to reflect the personal choices of investors not to sit on moral judgment, right? So, for example, >> But isn't this more about moral judgment?

[00:22:50]>> It is about choices. You know, for example, uh and how you look at it because IT as a sector fund was thematic at one point in time then it got mass adopted. Uh defense funds are there in today's market. There are defense ETFs. There are PSU ETFs. There's consumption index.

[00:23:09]A lot of them. So, I think eventually it will come down to whether there will be sustained investor demand first of all.

[00:23:17]And these indices are very good because they're reflecting the choices. Now, the whole question arises, they they are these indices have been designed to lower the barrier cost of say ETFs which will come into this sector. PMS mandates. There's a whole host of under-served retail investors, HNIs, family offices who might actually like to look at these choices for investing.

[00:23:40]It will be a part of their portfolio. It need not be the core portfolio. It can also be a tactical allocation, right?

[00:23:46]But the choice is always there. So, it's a matter about choice.

[00:23:50]>> It is a matter of choice and we've seen that globally. Sanchita, you spoke about this. Globally, we've seen Sharia-compliant funds, the faith-based portfolios, the sustainability funds. Is India creating a uniquely Indian version, you think, of values-based investing that is rooted in concepts like ahimsa, like satvik?

[00:24:07]Are these the concepts that are being pushed through in our investment decisions?

[00:24:13]>> Yes, absolutely. In fact, you're having a choice of a cultural preference, right? If you're a Jain, you have certain dietary values.

[00:24:20]You might be an animal welfare cognizant person. You might be a non-violent person and you would like to have the choice to deploy your hard-earned money and to deploy your capital according to your personal convictions and beliefs.

[00:24:36]That index has been created to reflect that personal choice. So, it is an evolution, if you ask me. It is beyond just thematic sector bets. But But most importantly, it is very important for investors to understand what this entails. What what kind of tracking errors it might entail. What kind of a structural bet they're taking with whether it's reflective of the other major broad-based indices, all of that. What does the exclusion entail in terms of the performance? So, all of these should be They should be aware of.

[00:25:06]>> Well, the comparisons are going to be more or less about how much profits they can deliver. Hardik, if these indices succeed, do you expect the fund houses to launch more philosophy-led, faith-based, and value-based products over the next decade or so? Is that something we can expect? And very quickly, because I'm running out of time.

[00:25:22]>> Not sure. I think I think you'll see some of these products. I think you'll probably see more of what I what I would call a sustainable {slash} impact investing products, right? Basically, supporting businesses that are solving problems of the environment in the society, right? Whether it is renewable energy, whether it is waste water treatment. I would think more of those funds will come up in the next decade.

[00:25:42]This This cohort of and of demand for such kind of ethical or faith-based funds will be I would say somewhat limited. Yeah.

[00:25:50]>> Well, looking forward to more of this taking place over a period of time, the kind of debate that we are having on investment decisions. Like we said, I mean, the real takeaway from this discussion is that investing is no longer just about what grows your money, but increasingly it's about what reflects your values. And the challenge for investors is going to be about finding that balance between conscience and capital. Because while the principles, of course, matter, performance ultimately is going to matter as well. And that's going to be the core of investment decisions. I want to thank Vijay Mandri and Sunil Subramanian and Sanchita Mukherji as well as Hardik Shah. Thank you for taking out the time and sharing your perspectives with us on this edition of The Big Question.

[00:26:31]And that's about all we could pack into this edition of The Big Question. Yes, the debates will continue, and we'll be asking the most important questions here on this show, The Big Question. I'll make a bow out of it from me and the team. Thank you indeed for joining us.