Podcast 27th March 2015
The single question on every CEO’s mind is whether his or her company is poised for the future. You should ask the same question as well when you are investing. Investments in the wrong stocks, even if it is seen as fundamentally strong, can prove to be either a huge opportunity loss or even capital loss on your investment.
One entrepreneur was telling me it’s not a disruptive business environment it’s a destructive business environment. Businesses that were seen as traditionally safe are now being looked at as Sunset Businesses. Fast growing businesses in the last decade are facing a sharp slowdown in growth. The reason is to do with both the world economic environment as well as technology.
A quick look at value destructors and value creators over the last decade is that global banks have singularly been value destructors while new technology has been the biggest value creators. Think Citigroup, JP Morgan, Bank of America and Apple, Google, Facebook.
Questions are being asked on the future of banking. Technology has taken out the need for banks as transactors while increased information supply through the Internet has lowered credit arbitrage for banks.
Indian outsourcing industry, the biggest growth sector over the last two decades is facing an unprecedented problem of huge budget cuts by traditional growth drivers of the BFSI (Banking and Financial Services Industry). One professional working for a global firm told me that big banks have cut budgets by 30% and are demanding lower rates. IT outsourcing firms, while fundamentally strong with high cash levels, zero debt and healthy ROCE are facing the prospect of shrinking demand for their services.
IT outsourcers have been the biggest recruiters of white collar talent over the last two decades. If recruitment from this industry slows down, it will affect education establishments, training companies and other tertiary sectors even real estate.
The destruction by etailers to brick and mortar retailers is there for everyone to see. Just walk into malls to see how many shops are closing down. Many malls are even closing down due to lack of retailers taking up rental space.
The threat by cab aggregators such as Uber and Ola to both traditional fleet taxi services, radio cabs etc. and to car manufacturers is real. Cab aggregators obviate need for second cars and even a first car in many cities around the world.
Digital media has taken out the traditional print media with only a few print publications surviving the onslaught. The list can go on.
The bottomline here is that equity, as an asset class may not do well for your portfolio unless you are invested in the right stocks either directly or indirectly.
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