After witnessing five months of positive momentum, markets consolidated in June. One of the reasons for the correction was the concern over the GST roll out, which should be good for the economy in the long run but will have some impact in the immediate term. Moreover, valuations of several stocks are high despite muted growth in their respective core businesses.
We are living in an era, where several business models are being disrupted. The global start-up eco-system is riding on a rapidly evolving technology landscape, to deliver better products and services to customers. The likes of Whatsapp, Amazon, Flipkart, Uber, Make-My-Trip, Book my show, PayTM, etc have changed the common man’s way of life in a short span of time. In India, there are additional elements like the Aadhaar, GST, India Stack, etc which are further catalyzing the way business is done. All this rapid change is likely to benefit the end consumer, with a wider array of choices at lower prices. Such a rate of change also has a far reaching impact on several businesses. Many businesses need to adapt to these changes to survive. Others are likely to become redundant. Of course, not all business will be directly affected and many will actually benefit by using the changing environment to their advantage.
In this context, investing in equities becomes an interesting challenge for long term investors. Businesses with just a long track record of having done well may not necessarily ensure future success. We believe one should be picking and choosing companies which are either good at adapting to these changes or are in businesses which are unlikely to get disrupted.
Though change appears more rapid in recent times, it is actually a continuing journey for most businesses. The best companies are those that can harness the forces of change. We have companies like HDFC Bank in the portfolio which are rapidly adapting to these changes, and are in fact utilizing these disruptive tools to their advantage. Several new offerings by these companies would not have been possible a few years back. The best companies are able to adapt to change faster than their competition, which gives them an advantage in the market place. However, companies which are unable to keep pace with these changes face the risk of falling by the wayside and need to do some serious introspection.
There are other businesses where it is far more difficult for disruptive forces to create a major dent in their long term business economics. There is a lot of comfort in holding such businesses in your portfolio, as the rate of change in consumer behavior is slow here. We have companies like Gillette and Nestle in our portfolio where it is difficult to envisage people changing their consumer behavior in any significant way despite all the technological change around us. A collection of such durable businesses can give solidity to your portfolio, especially so in current times where the disruptive forces of new technology are trying to change nearly everything.
The world of business is a difficult world, where the best of minds work hard to deliver the right products and services to their customers in the most efficient manner. This world becomes even more challenging in times like we are witnessing now, where rapid change is the norm. In such a scenario, we believe it is important to stick with the best of the best.