The disruptors

Quick and sudden changes in trends mean investors have to constantly monitor their portfolio to weed out dated securities

By Mohan Sule

Is the best over for the world’s most valuable company? For the first time, shipments of Apple’s bestselling iPhones declined in April 2016.  This has given rise to speculation that the era of smart phones might be coming to an end just as laptops killed desk tops. IBM lost its leadership position in the personal hardware space and had to sell off the PC division to China’s Lenevo. Intel, the world’s dominant chip maker, is slashing thousands of jobs as its focus shifts to making chips for smart phones and other emerging applications. The rapidly changing scenario should not come as a surprise as evolution is the basic characteristic of a dynamic economy. Landlines ceded space to cell phones, horse carriages to motor cars, fossil fuel-run cars to electric-driven. Soon drivers will become redundant as more and more Silicon Valley firms eye this frontier, with Google taking the lead. Till recently investors were confronted with deaths of brands and obsolescence of products due to value addition. Nokia, at the top of the mobile handset market, had to eventually sell itself to Microsoft but not before its CEO likened its state to a burning ship. The intensity of the flux is the sharpest in the tech sector. The pharmaceutical sector, too, sees new discoveries. Yet, prevalent medicines do not go out of fashion. Instead they become cheaper due to the rush to make generics.  The consumption sector brings out newer and sleeker versions by modifying the basic structure to replace products that have had their run. Banking will remain true to its core strength of lending and borrowing though the transmission channels will become more pervasive and the structure of loans more complex.  Automation of production is displacing unskilled workers on the shop floor. Banks are diverting spending on technology rather than on swanky branches.  Even as emerging companies are maturing, new entrants are creating slots not imagined a few years ago. Facebook has become a money-making machine despite the medium to access it is slated to report flattish growth.

Investors grumble how difficult it is to foresee these changes. This is not a new complaint. Very rarely have companies that have started with a specific object have retained their original complexion. Those that anticipated changes in consumption behavior due to new technology or climbed up the value chain managed to survive and thrive. Many countries are investing in shale gas and solar energy as a cheap substitute as well as to insulate against fluctuation in prices and supply of oil.  Sugar manufacturers are looking at bio fuel as diversification to insure against the effects of shortages and surplus output and regulations. Usage of plastic, particularly in automobiles, is reducing dependence on metals just as aluminium was seen as a lighter and better option than steel. Online shopping is the biggest threat to brick-and-mortar retailers. The business model of investing in real estate and distribution network has crumbled. Many have latched on to the platforms of e-tailers, while a few who cater to price-conscious consumers have lobbied with the government to change the rules so as to discourage deep discounts: now digital malls cannot have a say in the pricing of the products on display. This will be at the most a temporary respite.

Besides shopping, investors have had a close brush with the ongoing transformation while trading. Dematerialization of physical shares has paved the way to online transactions, giving investors control in executing their decisions without any chances of miscommunication and misappropriation. Brokers, too, have adopted and adapted to the changes smoothly. What they would have to spend on spreading penetration is now expended on establishing a digital presence. The other area where consumers have experienced first-hand how disruptions are threatening age-old businesses is the FMCG sector. From craving for foreign brands during the pre-liberalization era to discovering the merits of local ingredients and remedies, the buying pattern of Indians has turned a full circle. It is not the first time that smug MNCs have been attacked by a home-grown upstart. The emergence and success of many Indian entrepreneurs who are rubbing shoulders with foreign players with me-too products at cheaper prices and attracting equivalent market capitalization are a testimony to the fact. Investors, too, are discovering the potentials of SMEs that are showing gumption by coming into the market with richly valued IPOs and getting enthusiastic response.  No doubt many of them have been backed by venture capitalists and private equity investors from the US. The difference is that the big bets are on domestic brands that service the tier 2 and tier 3 population.