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What an Indian Investor can learn from a US visit

W

I work in the IT industry and keep travelling to US and other countries.



There is lot one can learn as an investor during one’s visit to these countries. Some of them are like



1. Power of brands / ideas

2. Intensity of competition

3. Pace of change

4. Level of innovation and impact on value creation

5. Consumer orientation towards ‘value for their money’ ( not limited to indians alone )

6. Trend in various industries like telecom , retail, Entertainment which could play out later in india Let me share what has been my observations till date.



1. Power of brands / ideas – The first thing that strikes you is the presence of brands in almost all sectors of business – industrial, consumer etc. Now one may say , that we have brands in india too ..so whats the difference ..well branded goods occupy a much larger share of the market than india where the unbranded / unorganised sector is equally prominent in several categories. So what does this signify – a) as an economy develops the share of branded goods increases as competition forces out the generic products b) powerful brands create a strong competitive advantage in most industries and high profit margins.



2. Intensity of competiton – What the developed countries like US are able to do is ensure that there level playing field, good infrastructure and open competition. This benefits the consumer but not an investor as high profit margins are rarely sustainable . So think about our current market favorities like auto component, IT, Pharma . If you think that their profit margins (and high return on captial ) is garunteed , then better think again. Not only is competition high , but the goverment does not interfere in closure of companies. So the inefficient die and the efficient survive. That is good for the society and also for an investor .An in-efficient competitor on subsidy can be really bad for the other companies



3. Pace of change – You literally see the business landscape change . In india the same is happening but in select industries . In the US it is pervasive. Is it good for an investor. Difficult to say , but generally too much competition and change is not good.



4.Innovation – Look at google . need i say more. In india telecom is a good example. What ITC is doing is a good example too. FMCG industry claims too be innovative , but their innovation are limited to buy one get one free schemes. So low innovation , low returns.



5.consumer orientation – This is same all over the world. People over the world want value for money. So if a company wants to make money they have to define and deliver value to the consumer. so watch out companies which work on cost plus pricing 6. Trends – This is very intresting. A lot of trends in US occur in india with time lag. For ex : growth of discount retailers, movement of the consumer to VOIP telephony ( this could impact the cellular industry ), trends in music retailing etc. The list is endless and a subject for another day.



i will come back again with more details on the points i have listed above.

development of a new Value chain for Rural market

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Just read the new issue of India today and am impressed by the e-choupal being developed by ITC industries.



This new Value chain being developed has the potential to give ITC a very strong competitive advantage in its existing business and at the same time also provide a new source of revenue. e-choupal has elements of e-bay (ability to get buyers and sellers together ) and charge a fee for the transaction (from the buyer in this case). Buyers are of course the rural farmers currently, but increasingly it could extend to any consumer in rural areas. The sellers currently are the fertilizer companies, tractor companies and any other company which wants to access the rural consumer (well who doesn’t )



So ITC is building a nice toll bridge to the rural consumer which could be self sustaining and charge for every transaction. As this network grows (the article says that ITC plans to reach 100000 villages), network economics would kick in. If and when network economics do kick in, the profits could shoot up (look at eBay)

But all of the above is in the future. What about the present. ITC seems to be using the e-choupal to procure agri products like wheat for its processed food business like atta. It is able to derive substantial cost savings by accessing the farmer directly and cutting out the middleman. So as the concept succeeds, ITC could develop a substantial competitive advantage in its current line of business.

The key variable is whether the above concept would succeed. It does seem to be doing very well. It seems to be an economic success and is also creating a social transformation by empowering the rural farmer by providing information, access to better products and eliminating the middleman

Does that mean the ITC stock is a must buy. Don’t know and I don’t own it. But I would be tracking this concept and the new value chain coming up in India


Impact of Rupee appreciation

I

The rupee seems to have started appreciating against the dollar ( or to be correct – the dollar is depreciating against the rupee ).



There seems to be a consensus that dollar would continue to lose value for some time ( i have no way of figuring it out as i am clueless on how to evaluate currencies , but going by warren buffets 20 B bet , i would not bet against it )


So how do various companies get impacted ?
I would assume industries like paints / oil and gas / and others using petroluem as a key raw material to benefit substaintially and could see either margin expansion or atleast less pressure on margins (with toplines being robust due to strong domestic demand )
On the other hand export companies – esp IT companies would face a tough time. My own view is a long term appreciation should impact the labor arbitrage on which a lot of these companies thrive. The weaker ones could definitely go out of business ( Their costs are rupees and Topline in dollars )
Pharma / Auto companies have stronger IPR / R&D assets and those with higher value addition may be able to hold their pricing or atleast reduce the impact on margins ( auto components could actually hedge by importing steel and other raw material )
All in all , for the country it could mean lower supply side inflation. But expect an impact on the business model of various industries which thrive on the exchange rate

Interesting site

I

i have found this website to be very useful. It has a wealth of information on investing, business articles, book reviews and a lot of useful links to other websites.

http://www.capitalideasonline.com/

Mr chetan parikh whose company manages this site is an accomplished investor on his own

i would recommend going to this website regularly as there are daily updates and a lot new stuff everyday

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