Free Reports

India's big challenge: Man v/s Machine

Jun 1, 2015

In this issue:
» Could this destroy India's demographic dividend?
» A fund manager accuses the US Fed of 3 asset bubbles in 15 years
» Do not ignore this important parameter while evaluating risk
» ...and more!


00:00
If you had attended 'The Equitymaster Conferenc e 2015 - A Tale of Two Indias' at the end of January 2015, you may recall some insightful discussions on the future of the Indian economy and the 'Make in India' campaign.

After coming to power, the Narendra Modi-led government has laid a renewed focus on unleashing India's manufacturing potential and tapping into our demographic dividend. If this plan becomes a reality, India will emerge as one of the key global manufacturing hubs in the coming decade.

But things are easier said than done.

So far, India has largely been a services-driven economy. The manufacturing sector has been our weak link. On the other hand, our neighbouring country China, rules as the global manufacturing powerhouse.

One of the key global trends that is said to be in favour of India is the rapidly rising labour costs in China. This 'cost advantage' does make a good case for manufacturing in India, especially in industries which are labour-intensive.

Do you think China will happily pass over the manufacturing mantle to India? You would be in for a rude shock if you thought India's cost advantage was an unbreachable economic moat that we had laid claim on.

We came across a highly informative article in Business Standard by Subir Gokarn (former deputy governor of RBI) about the global trends in robots and what it means for India's manufacturing ambitions.

Interestingly, industrial robotics is one of the few sectors that have been growing at a fast clip despite the weakness in the global economy. It is estimated that about 230,000 robots were sold in 2014, 27% higher than in the previous year. In fact, robot sales have more than doubled in the last decade.

Now, who is buying up so many robots? It turns out China has emerged as the biggest buyer of industrial robots since 2013. Of the estimated 230,000 robots sold in 2014, over 56,000 were purchased by the dragon nation, taking the estimated stock of robots in China to about 180,000 at the end of 2014. But this may soon appear paltry if you consider its expansion plans over the next 2-3 years. By 2017, China is expected to house 430,000 robots. In other words, 22% of the world's robots will live in China.

Why does a country that has such a massive workforce resorting to buying robots for manufacturing? The answer is exactly what we highlighted earlier. China's rising wage costs are forcing manufacturers there to look for more cost-efficient means of production. The relative cost of robots, on the other hand, has been decreasing on account of economies of scale. At the same time, continuous improvements in technology aid productivity.

One may argue that the impact of robots may be limited to just a few sectors. So far, robots are largely employed in metal-forming industries like automobiles.

But well, you would be wrong to underestimate the possibility of robots penetrating traditionally labour-intensive sectors. As Mr Gokarn points out, the capabilities of robots are expanding at a very fast clip. In the coming times, they could replace humans from the assembly lines of sectors such as shirting and footwear, among others.

If India has to emerge as a global manufacturing hub, it will have to compete not only in terms of price, but also in terms of quality, efficiency and delivery. Will the Indian workforce match up with highly efficient robots in China? This question should not be ignored.

Finally, where does India stand in this robotics revolution? In 2014, India had a stock of about 12,000 robots. The number is expected to double by 2017. From our interactions with the managements of many companies, we have often heard them focus more and more on automation. In short, companies are looking at replacing human labour by machines wherever it is possible.

Now, this has big socio-political implications for a country like India that boasts of the largest working age population in the world.

If companies are keener about automation than employing the huge labour force at hand, how are we ever going to unlock the so-called demographic dividend? Let us know your comments or share your views in the Equitymaster Club.

--- Advertisement ---
Is It Time To Be Greedy Or Fearful?

The stock markets have crashed and a number of stocks have taken a beating.

And now, many common investors feel it's better to stay away from stocks right now.

But what if we told you this could be an ideal time to get Greedy about stocks?

And not only that, what if we told you this is actually a wonderful opportunity to grab some very good stocks at bargain prices?

Yes, we've revealed details of 3 such stocks you could consider buying right away in our new special report... which you could obtain for absolutely FREE!

Click here for full details...

------------------------------


03:00
So far, a lot of well known investors have pointed to the fact that the US Fed has created what they believe is the biggest ever asset bubble. Now, throw the name of a fund manager called John Hussman into the mix. In fact, he has gone a step further. He has accused the Fed of not just one but three asset bubbles. And that too in a short span of fifteen years. Yes, that's right. He is of the view that by focusing on two variables, inflation and unemployment, the US Fed has missed the most important point, which is the risk to financial stability. And how does he feel this will end? Well, just as tragically as the previous bubbles if not more.

Now, there are quite a few people out there who know what the US Fed is up to. However, they still want to ride the trend and get out at the right time. And this right time as per them would be the Fed's rate hike announcements. Hussman though has warned investors of taking such an action at their own peril. For his examination of the worst collapses in history has revealed that markets have found to be coming apart even when the US Fed was lowering rates or holding them steady. Consequently, not fighting the Fed may not be a foolproof strategy after all. Well, we can't help but agree with Hussman.

03:50
 Chart of the day
Management quality is one of the key criteria that investors should be watchful of while investing in equities. While a lot of that is subjective, there is one parameter that can give a quick glimpse of the same to some extent. What we are referring here to is 'promoter pledging'. And if the recent data is anything to go by, investors do have reasons to worry.

As per an article in The Economic Times Wealth, the total value of promoter shares pledged has gone up by 27% on a year on year basis with percentage of pledged shares at 43.4% in FY15. High promoter pledging as we all know, is a vicious circle difficult to come out of if the concerned stock witnesses a decline in the price. In such a scenario, more securities are demanded as margin, thus adding to the negative sentiments. In the worst case, the institutions may offload the pledged shares to recover their money, adding to the downward pressure on stock price. As such, investors should be careful of the leverage and pledging levels while investing in equities. And it is perhaps better to avoid the companies where pledging has not been in the interest of business but for personal use.

Rising Trend In Pledged Shares By Promoters A Worry

04:25
After a volatile start, the Indian stock markets inched higher through the trading session, but later conceded most of the gains. The BSE-Sensex closed marginally higher by 20.55 points (+0.07%). The sectoral indices that led the gains were realty, FMCG and capital goods. However, the healthcare index closed significantly lower.

04:45
 Today's investing mantra
"Over time, you get the reputation you deserve... I believe the same is true for companies." - Warren Buffett

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

Today's Premium Edition.

Is this FMCG behemoth losing its edge?

Why are P&G brands coming under pressure?
Read On...Get Access

Recent Articles

This Rs 71 Trillion Business Could Make or Break (Your) Wealth in the Next Decade October 17, 2017
How to profit from behavioral biases afflicting the industry.
Sometimes the Market Makes Me A Crazy Person October 14, 2017
It's necessary to guard yourself when euphoria surrounds the market.
A Grave Mistake Both Companies and Investors Make October 12, 2017
When a company is making acquisitions or an investor is buying shares, this one important factor cannot be ignored.
Timeless Stocks on the Electric Car Assembly Line October 10, 2017
Are they on their way to create Coca Cola-like wealth?

Equitymaster requests your view! Post a comment on "India's big challenge: Man v/s Machine". Click here!

5 Responses to "India's big challenge: Man v/s Machine"

Anis

Jun 4, 2015

Why not we think of making Robots as part of “Make in India” and I’m sure we can be far better in developing many thinks if there is will

Like 

mmsabde

Jun 3, 2015

In china there is no Democracy.They say ....many prisoners being forced to work at no cost.There is no comparison between India and China.Communist give example of India as look how slow progress can be due to Democracy.But This is also true that "What goes up must come down". If there is political will... India only can come neck to neck with China.It should not be Man v/s Machine but MAN WITH MACHINE together can deliver.

Like 

bhalchandra v pade

Jun 2, 2015

Sir / Madam...... Your article on "use of robots in industries" is interesting & thought provoking. Thanks.

Like (1)

Shankar

Jun 2, 2015

This was my point from long time back. I got a chance to study about basic robotics in my M.Tech some 15 years before. Each and every one, every time keep projecting the point "We have greatest work force in India", every other nation is becoming OLD and we are young. oops... Finally I see someone share the same idea. This is a mandatory revolution which no one can stop and this is going to start in next 5 years.
One interesting question from your article--- Can Indian labor compete with Chinese robots?

Like (1)

Jabal

Jun 2, 2015

On man v/s machine - I remember reading a similar article by Rajiv Lall before the new govt came to power. The moot question though, and one that needs to be answered by EM is, how does it affect the megatrends predictions by Tanushree?

Like (1)
  
Equitymaster requests your view! Post a comment on "India's big challenge: Man v/s Machine". Click here!
DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.