It's Time to Look Beyond India's Frontline Tech Stocks

We live in an era of disruption. The real and virtual worlds have intersected and blended.

The concept of money, work, socialising, shopping, consumption of goods or knowledge or services, and even investing, has evolved.

Everything is online, available at our finger tips. All you need to navigate the world is a smartphone and an internet connection.

But it's not just internet revolution. AI and machine learning have become critical tools in a world evolving at an unprecedented rate.

Disruption is not just one isolated theme. It's everywhere no matter what sector or niche you are looking at.

Thus, in 2022 and beyond, you must pick stocks that can either withstand disruption or benefit from it.

They should be disruption proof or 'essential' or be an active participant in the disruption.

Basically, businesses that are nimble in adapting or are the first movers in a fast shifting landscape.

You have heard enough from me about essential stocks. Let's now look at the disruptive opportunities.

Disruption has become an overarching factor in my investment approach.

Here's why...

The Biggest Companies in 1970s

Rank	Company	Industry
1	IBM	Texh
2	AT&T	Telecom
3	Eastman Kodak	Film
4	General Motors	Autos
5	Standard Oil of N.J	Oil & Gas
6	Texaco	Oil & Gas
7	Sears, Roebuck	Retail
8	General Electric	Conglomerate
9	Polaroid	Film
10	Gulf Oil	Oil & Gas

Energy was the biggest industry in the world, with 3 out of 10 names on the list above.

There are names from auto, telecom, and retail too.

And some dodos like Eastman Kodak.

There is just one player from the tech industry on the list - IBM.

With the benefit of hindsight, the tech industry was still in its infancy back then.

But times have changed...and how.

Today, 9 of top 10 biggest companies are in the tech space.

They are innovators such as Tesla, internet companies with platform based businesses such as Google, Facebook, or Tencent.

Most of these names have brought in the internet revolution with their consumer technology focus. They're now profiting from exponential growth.

The only exception is Berkshire Hathaway.

Or maybe not...

45% of Berkshire's portfolio is invested in tech stocks across the world. So, tech is a defining theme here as well.

Apple is their biggest holding. Their other tech holdings include Snowflake, Stonecrop, digital banks like Nubank, and so on.

A lot of them in consumer tech. They're a part of people's daily lives.

At one point, Buffett was tech averse and stuck to so called bluechips. Later, he acknowledged his biggest mistake. He dragged his heels on tech and didn't invest in companies like Google when he should have.

He is now making up for lost opportunities.

Buffett may have pivoted just in time. But I don't think people who remain complacent now about tech, especially consumer tech, will have time to catch up.

The new, innovative business models in consumer tech, are platform based. They harness the power of networks. This makes them asset light.

They can potentially grow revenues without an equal investment in assets. And they are growing every minute.

The markets have realised the power of such business models. And are rewarding them handsomely.

The time span to reach US$10 bn marketcap has shown a huge decline, from over 30 years for Starbucks, to over 20 years for Apple...and less than five years for Amazon.

In fact, some of the businesses are reaching there prematurely, such as Juul Labs - an electronics company providing an alternative to tobacco smoking.

Such is the rush and market acceptance for consumer tech.

By the way, if you rank all listed companies in India in descending order of marketcap, a company with US$10 bn will rank 70th...and will clearly fall under the bracket of a largecap.

The window of making extraordinary gains from tech and disruptive leaders has narrowed.

In India, the tech revolution has just begun, but it's accelerating fast. There is no time to lose.

We are lucky to be analysts and investors at a time when this movement is in its infancy, as far as listed space is concerned.

While the opportunity is big, so are the risks. The tech revolution in India has come riding on the drug of liquidity.

Sustainability of the business model, discretion, and sensible valuations have been thrown to the wind.

Therefore, you need to be extremely selective in riding the tech wave.

Look beyond the front runners of consumer tech - Zomato, Policybazaar, Nykaa, Paytm, and InfoEdge.

Even the companies that could potentially get listed - Oyo, Ola, Dehlivery - have already been hyped.

I don't mean to undermine the power of these trends. Be it food delivery, digital payments, financialisation of savings, ecommerce, almost everything is getting digitised and is being consumed through the internet.

This change is irreversible and these trends will only expand at scorching rates.

However, this doesn't mean every participant in the trend will grow. Most businesses in this space work on the 'winner takes all' principle. There will be no second Amazon, Facebook or Google.

But for these new age businesses, the competition for disruptors themselves it already heating up.

For instance, Paytm has lost its first mover advantage to Google Pay and Phonepe in retail payments in a very short time.

While the electric vehicle (EV) revolution in India has begun, it's too early to pass a verdict on whether it will be Ola Electric or conventional auto companies that will win the game.

Bottomline: Even if you could forecast a trend correctly over the next 10 years, it will be very difficult to predict the ultimate winner of the trend.

So how can you invest in disruptive tech and ensure you are on the winning side?

There's more to India's tech revolution than meets the eye. You need not settle for loss making companies or highly valued stocks to participate.

I am skeptical of the business models and valuations of some new age businesses, especially the ones already facing competition and making losses.

But a lot of smallcap and midcap companies are critical cogs in the tech ecosystem.

Earlier this week, Tanushree Banerjee and I were live at a very special online event: Equitymaster Venture. We discussed these exciting stocks in detail. We also talked about the top 20 stocks to own for VC-like gains.

The event was a big success. In case you missed it you can watch the replay here.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure

PS: Equitymaster's top editors, Tanushree Banerjee and Richa Agarwal, have identified a list of about 20 stocks which can deliver VC-like returns. Get the details here.