By 
India is witnessing one of the largest consumption transformations in modern economic history, and digital platforms sit at the centre of it. Long-term investors who monitor the Eternal share price often do so because they believe in the multi-decade growth of online services. Similarly, those who follow the Swiggy share price are frequently betting on the same structural trend from a slightly different angle. Patience, research, and realistic expectations are the real ingredients of success here.
A Demographic Dividend at Work
India has one of the youngest demographics among the world’s major economies. This has implications for adoption of smartphones, digital payments and apps that define the “convenience economy”. As the population grows richer, demand for convenience items grows faster than the overall economy.
Easy digital payments have democratised cash-free payments even in Tier 2 and 3 cities (where they were non-existent a decade ago). Inexpensive data plans and better supply chains are driving a “delivery economy”, with “last-mile” logistics companies expanding their footprint beyond the big metro cities. Every new city added to the list of coverage represents incremental sales. And every customer acquired has the potential to be a repeat buyer.
Time Horizon
The stocks of technology companies are notoriously volatile in the short term. Movements in the broader market due to shifting global perceptions, quarterly earnings reports, or liquidity crunches can drive prices up or down, regardless of the underlying fundamentals. Over longer time horizons, stock prices tend to gravitate towards a multiple of revenues (or cash flows, in the case of cash flow accounting).
An investor with a long-term view (3-5 years) on the stock of a technology company is likely to benefit from the gradual increase in operating margins and leverage. Of course, time alone is not a guarantee. The fundamental thesis of “superior returns due to long-term holding” only applies if the company in question continues to execute and captures a meaningful portion of the addressable market. A careful reassessment of the investment thesis every year is a necessary evil. It is far better to exit a position that has stopped delivering on its promises than to double down in the hope that “things will change”.
Constructing a Portfolio
Even the most bullish investor would be well-advised not to put all their money in a single company (or theme). A well-rounded portfolio would feature a mix of large-cap “safe” companies, banks, manufacturing and infrastructure counters, technology “growth” stocks, and maybe even a few mutual funds or index products. The objective is to balance risk and reward based on one’s risk tolerance.
Most individual investors have a low risk tolerance. A young investor with a steady income can afford to take more risks than someone nearing retirement. A systematic approach to investing (as opposed to trying to time the market) is always a good idea. Systematic investing plans allow just that, by spreading purchases over a period of time.
Watching the Themes
A few secular trends are likely to impact the growth trajectory of these companies over the next decade. Increased advertising budgets from advertisers who are reallocating spend from traditional media to digital channels will boost revenues. Use of advanced data analytics and automation in operations will increase productivity and reduce costs. The shift from goods to services (events, dining, private-label retail) will provide an alternate avenue of growth.
On the flip side, tightening of regulations around commission charges, labour laws, and competition from conglomerates will reduce costs and profitability. A dispassionate assessment of every development (positive and negative) is necessary to determine whether one’s view of the company has changed. Investors should always remember that there are two sides to every story.
Closing Remarks
Investing in equities is rarely a quick way to make money. It requires patience and a willingness to learn about the companies one is buying. Individual investors in India should also bear in mind that the biggest risks are often taken by those who believe they know the most. Doing due diligence and consulting a financial advisor (registered with SEBI) is always a good idea.
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