Mahindru also points to industrial suppliers, particularly those with large distribution capabilities, as businesses with a compelling investment case.
“Distribution businesses get bigger discounts than everyone else because they are buying three times as much. They pass most of those discounts on to the customer and keep a little bit for themselves.
“What that allows them to do is to seem cheaper than everyone else, so more customers go to them.
“The other advantage of these types of businesses is that relative to a traditional retailer they do not need to invest a lot of cash. They are in big, out-of-town warehouses, not prime south-east England shopping centres, so therefore they are very cash generative and, as a result, can offer attractive dividends.”
As for the outlook in 2016, the risk factors in the world have increased, Mahindru says, citing China’s accumulating financial debt as a particular concern.
Are we going to see a repeat of 2008?
“It cannot be that bad. One saying is that the last recession is never like the previous one, but the phrase ‘bull markets don’t die of old age’ means something has to happen.
“I am worried about the risk factors, and if any of these are going to tip over. Most people do not even remember the 2003 recession, because it happened and we moved on. There was not much job destruction.
“We could go into a technical recession because a few factors are slightly negative but, as long as there is no big job destruction, we will come out pretty quickly. Some parts of the equity market are starting to discount at least a partial recession, so that must create an opportunity.”
