Disruption Returns

The last week saw a heated debate on electric vehicles. This brought back intense focus to the threat, disruption poses to the automobile industry. Advancements in technology can disrupt the world much more in the next ten years than it has in the last fifty.

This is not just restricted to the automobile industry. In fact, the threat to traditional BFSI (banking , financial services, and insurance) due to the triangulation of telecom, data analytics, and automation is much bigger. Consumers clearly stand to benefit. But, investors may have a lot more to lose than imagined. The reason is simple.

Disruption creates deep change at double-speed. It can hit an industry and make it irrelevant to the future. The threat of obsolescence can force businesses to cede pricing power, give more to consumers, and pay to retain their relevance. It can completely take away profitability. Bankruptcy will also need to be seen as a logical extension when all else fails. These are new to the Indian milieu. We are yet to see listed companies wind up, simply because they don’t have a reason to be. In such a scenario, discounting earnings for a longer time horizon may not be prudent.

This brings the investment focus firmly back to consumption and essentials. These are likely to remain more stable over longer periods of time. The risk markets run in every bull cycle is, that they tend to overstretch valuations of sectors just before they face massive disruption.

This time is no different.

“The number one problem in today’s generation and economy is the lack of financial literacy” – Alan Greenspan 

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