Small-Cap Company CONFIRMS Threat to 'Make in India' - The 5 Minute WrapUp by Equitymaster
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Small-Cap Company CONFIRMS Threat to 'Make in India'

Mar 14, 2016
In this issue:
» Culprit of Banking sector woes
» India's Bankruptcy law and impact on entrepreneurship
» ....and more!
0.00
Richa Agarwal, Research analyst

Three weeks ago, I met the promoter of a fascinating small-cap company.

I'm sure most of you haven't heard of this company. And those who have, probably don't even know what the company does.

Yet, I can guarantee you have seen what this company makes. You've probably even held its products in your hands...

Since I returned to Mumbai after meeting with this small company, I have been spending a lot of time studying it...understanding its business...evaluating its financials...and determining if it is a good time to buy it.

Unfortunately, I can't reveal much about the company here. But I can tell you that this company is a pioneer in its niche industry and has significant market share. It is the only company in its industry to have completely backward integrated manufacturing.

And here lies the success secret of this technology-driven small cap...

The company employs world class robots for its operations. It is the only company in its industry to make robots in house. Driven by passionate, technocrat promoters, this company has built a durable competitive edge that is difficult to replicate.

This isn't the first time we've come across a company using robots...automation...to build a profitable business.

We have been noticing this major trend for a while. We've written about it here and here. Many of the senior managements of companies we interact with show a clear preference for machines over human labour.

And this should be a matter of worry for Prime Minister Narendra Modi.

Let me explain...

Our PM he has been pushing hard for the 'Make in India' campaign. The vision behind the PM's 'Make in India' campaign is to boost India's manufacturing sector - historically a major job creator.

But it appears that the biggest threat to the Prime Minister's job creation agenda is going to come from robots.

Robots are becoming more intelligent...

Robots are performing highly complex tasks...

Robots are becoming cheaper...

And allow me to remind you: The small-cap company I've been researching is the only company in its industry to make robots in house.

I'm sure Mr Modi will have to worry about robots...and figure a way to productively employ the huge youth population of India...

But for you - the investor - robotics could work to your advantage if you invest in companies that harness technology to outpace competitors.

And here's some great news for you...

After much research and brainstorming, the technology-driven small cap I keep mentioning does make the cut for my Hidden Treasure small-cap stock recommendation service.

And I am excited to announce that I will be revealing this small-cap stock TODAY...in just a few hours!

I certainly don't want you to miss this small-cap investment opportunity!

Click here to know how to get access to it.

Do you think companies quick to adopt robotics will be the big wealth creators for investors? Let us know your comments or share your views in the Equitymaster Club.


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3.10 Chart of the day

One of the issues that we have often been writing about, is the poor quality of credit appraisal in most Indian banks. And amongst the key sectors that have caused trouble for banks are infrastructure, power and metal.

Sectors That Have Caused The NPA Menace


Today's chart of the day highlights how loans to select sectors grew at a disproportionately high rate compared to loans to industries as a whole.

Such excessive lending has done no good. On one hand, government mandate led to high lending to these sectors. On the other poor execution of projects have plagued the financial position of the companies. Further, falling commodity prices have too led to deteriorating financial position of metal companies. The growth in these sectors is necessary. But the same should not be at the cost of asset quality of banks.

The government and RBI are working together to take appropriate measures to improve the asset quality of the banks. But, at the same time banks on their part need to take credit appraisal of large industrial loans very seriously. Else, we will again be facing the same issue in few years.

4.10

One key reason for the poor state of India's banking system is lack of a Bankruptcy law. Lack of legal redressal for banks and investors by way of bankruptcy law has accentuated the problem. This has persuaded entities like Kingfisher Airlines from evading legal recourse.

Among the stringent measures proposed for the new Bankruptcy Law, one is sending investigative agencies behind businessmen who make defaults. But the RBI governor has cautioned on this clause. As reported in Mint, according to Dr Raghuram Rajan, such steps can be damaging for the economy during the boom years if such defaults were not because of malfeasance.

We cannot help but agree with Dr Rajan's views. Treating every default as wrong doing of the entrepreneur without enough evidence could hurt the entrepreneurial spirit in India. Thus bankruptcy rules should be framed in such a manner that do not affect the level of entrepreneurial activity, in the country.

4.45

After opening the day firm, the Indian indices trimmed their gains and are presently trading on a flattish note. At the time of writing BSE Sensex was trading higher by about 96 points. The BSE Mid Cap index is trading up 0.3% while the BSE Small Cap index is trading up by 0.5%.

4.50 Today's Investing mantra

"An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business" - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Richa Agarwal (Research Analyst) and Bhavita Nagrani (Research Analyst).

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1 Responses to "Small-Cap Company CONFIRMS Threat to 'Make in India'"

RAJINDER SHARMA

Mar 14, 2016

I worry about the business and not "made in india"slogan. Such technology adopting companies have an inherent advantage of cost efficiency. The fact that the company makes it's robots will create jobs in another way.I congratulate you for picking a company that is so aggressive in staying ahead of the curve.

Like (1)
  
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