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BOTTOMLINE: It’s time to bet on change

BOTTOMLINE: It’s time to bet on change

BOTTOMLINE: It’s time to bet on change
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By Sonal Sachdev  Dec 5, 2021 11:58:48 AM IST (Published)

Our world is changing and so should your portfolio, with an eye on the future. Some musings and ideas, but do your research.

Change is a constant. Move with the times. Change is everything. These are popular phrases oft used to drive home the importance of change. Stephen Hawking too opined: “Intelligence is the ability to adapt to change”. That our world has changed and will change in the future is a given. How we position ourselves and our investments to benefit from it is up to us, and this can make a load of difference to the returns we generate.

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Last week, Reliance Industries’ Chairman Mukesh Ambani, speaking on the digital future argued that the “digital first wave” will be more transformative than earlier technological waves that started with the advent of the computer. He envisioned a digital society that was more inclusive and equitable. Remarkably, Reliance has and is transforming itself to position itself for this new era, what with the traditional oil-to-petchem major now looking more like a digital first organization focused on communications, data, omni-channel services and new energy.
But that’s a topic for another day. Staying with the “change” theme, there are already signs visible on how change might disrupt businesses in the future. And taking cognizance of these changes, it might help if we reorient our portfolios to avoid the disruptive impact and ride the change wave.
Here are some thoughts, based on how I perceive some of the emerging changes. You can agree or disagree, it’s just something to set you thinking, if you haven’t already started.
Tomorrow you could well be shopping in the metaverse. You could go on a journey across the world biggest stores and pick stuff off the shelves sitting in your living room, but in a different dimension. Your car could be whizzing you around on self-drive or autopilot mode, tracking a pre-determined route, even as you browse through your messages or chat with friends. Your washing machine, dishwasher, oven and air-conditioner could all be set to a clock timed to suit you.
Products can roll-off the industrial lines with clockwork precision and quality checks without much human intervention. Robots could be used not just in factories but also in homes, so chores won’t be a stress any more. Space travel could be like taking a flight to London.
Who knows what the future will be? But it will be different, I bet.
One area where we are likely to see big change, and there are more than enough signs of this, is mobility. Cars will never be the same anymore. And it’s not just the fuel change from gasoline or diesel to electric or hydrogen. Wheels are going swiftly from manual to automatic and self-drive could well be a reality before you know it. Also, as the function of getting from point A to point B becomes more hygiene, the focus is likely to shift to in-vehicle experiences and comforts. What is it that you can do from your car? That could well become the competitive positioning.
Any such big change is likely to be disruptive, especially for automakers who fail to make a swift transition to the new normal. And technology as a share of the cost of cars is expected to rise—it is already at 40-60 percent for some top global brands. In this space, there are Indian players like KPIT Technologies, L&T Technology Services and Tata Elxsi that are hoping to grab a slice of the growing pie.
The future of finance is digital. JP Morgan has planned to set up a completely digital bank in the UK. That’s not a whimsical idea. It could well be an experiment that defines the future of banking. In India, we’ve seen a lot of activity in the “fintech” space, but I suspect these are just the tip of the iceberg. As Mukesh Ambani suggested, the future of finance will likely be “real time”. What’s more, if RBI does launch its own digital currency, that would be something more to come to terms with.
Some of the more progressive private sector banks have been looking for ways to leverage technology. HDFC Bank is focused on the future with its enterprise and digital factories. ICICI Bank too has its technology stacks for retail and business customers and has rolled out initiatives like WhatsApp banking. In fact, ICICI Bank was running pilots with blockchain in a few verticals more than four years ago.
Even top insurance players like ICICI Lombard and HDFC Life have a strong digital focus and are building capabilities using AI, IoT and machine learning. ICICI Lombard has a dedicated digital arm to improve its D2C delivery. HDFC Life is using technology not only to serve customers but also to onboard, skill, support and service agents. The life insurer has a start-up programme, Futurance, which supports build-out of new technologies.
As things evolve, one would expect these large financial sector players to absorb and / or acquire new technologies and technology players to drive their transformation. My bet, therefore, would be more on these nimble heavyweights than on the many pricey fintechs in the market.
The future of manufacturing is intelligent and flexible. It is about being more efficient and smart by capturing and using data to analyse and control outcomes. It involves use of intelligent machines with chips and sensors and robots, where needed.
What we are currently running with in this area is called “industry 4.0” but this could well be 5.0, 6.0, 7.0 or even 8.0 in a few years. And these changes could make the shop floor look very, very different.
Smart design and manufacturing is expected to help improve productivity, improve speed to market and help rationalize costs. And players driving this change are the likes of ABB, Siemens, Bosch and Schaeffler. Many of them are not just focused on manufacturing but even on utilities and in building out smart cities.
One set of players that are enabling industry to transition to the new digital world are the Indian IT services companies. Most of them have seen their digital businesses grow and account for a larger slice of the overall pie. In fact, some leading technology research firms like Gartner are pegging digital to account for about 70 percent of revenues in a couple of years, from about 50% in 2019, this even as the lines between digital and non-digital blur.
The sudden burst of demand for going digital was unleashed by Covid and this also created the need for a quick ramp-up of capabilities. Given the dearth of adequately equipped talent, most IT services majors had little choice but to embark on a reskilling drive. And here, some like TCS with its Global Learning Initiative have taken the lead in re-skilling large numbers.
In fact, not just the IT majors, even re-skilling can remain a significant opportunity going forward, and here, NIIT could be worth a look in.
If you believe in change and are convinced that the future will disrupt and upend many business models, now is the time to reorient your portfolio to align with your beliefs. True, some traditional businesses will continue to provide what they do today—like steel and cement—but they too will likely see innovation in products and applications and it will pay to back the more agile.
So, is your portfolio future ready?
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